FORRESTER RESEARCH INC - 10-K Annual Report

Back to GetFilings.com

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

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

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, 2004

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

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

FORRESTER RESEARCH, INC.
(Exact name of registrant as specified in its charter)

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

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

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. [X]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [X] No [ ]

The aggregate market value of the voting stock held by non-affiliates of
the registrant as of June 30, 2004 (based on the closing price as quoted by the
Nasdaq National Market as of such date) was approximately $259,361,783.

As of March 2, 2005, 21,682,360 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, 2004 are incorporated by reference
into Part III hereof.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

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 an independent technology research company that
conducts research and provides pragmatic and forward-thinking advice about
technology's impact on business. We offer products and services in four major
areas: Research, Data, Consulting and Community. Our products and services are
targeted to senior management, business strategists, and marketing and
technology professionals at $1 billion-plus companies who collaborate with us to
align their technology investments with their business goals.

Research serves as the foundation for all our offerings and consists
primarily of annual memberships to our WholeView(R) Research that provide
comprehensive access to our core research on a wide range of business and
technology topics. These 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 addition
to our WholeView Research, we also provide several client-focused products and
services in our Data, Consulting, and Community offerings. Each of these allows
our clients to interact directly with analysts and explore in greater detail the
issues and topics covered by our WholeView Research on a client-specific basis.

We were incorporated in Massachusetts on July 7, 1983 and reincorporated in
Delaware on February 21, 1996. In February 2003, we acquired Giga Information
Group, Inc., or Giga, a global technology advisory firm. Giga's products and
services enhanced our offerings by providing objective research, pragmatic
advice and personalized consulting on information technology. We have worked
carefully to integrate Giga into Forrester in a manner that preserves and
enhances the core features that both companies' customers have valued most.

Our Internet address is www.forrester.com. We make available free of
charge, on or through the investor information section of our Web site, annual
reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on
Form 8-K and amendments to those reports filed or furnished pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably
practicable after we electronically file such material with, or furnish it to,
the Securities and Exchange Commission.

INDUSTRY BACKGROUND

Emerging technologies play a central role in companies' efforts to remain
both competitive and cost-efficient in an increasingly complex global business
environment. Developing comprehensive and coordinated business strategies is
difficult because as the economy and technology change, consumers and businesses
adopt new methods of buying and selling, and markets grow increasingly dynamic.

Consequently, companies rely on external sources of expertise that provide
independent business advice spanning a variety of areas including technology,
business strategy, and consumer behavior. We believe there is a need for
objective research that is thematic, prescriptive, and executable, and that
provides a comprehensive perspective on the integrated use of technology in
business.

2

FORRESTER'S SOLUTION

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

WHOLEVIEW 2. We provide our clients with a comprehensive and unified view
of technology's impact on business, which we call WholeView 2, the primary
component of which is WholeView 2 Research which provides our clients with
comprehensive access to our core research offerings. Our WholeView 2 Research
combines with our Data, Consulting and Community engagement opportunities to
offer clients access to the research, data, analysts, and peer insights they
need to:

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

- Anticipate technology-driven business model shifts.

- Understand how technology affects consumers and can improve business
processes.

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

- Navigate technology implementation challenges and optimize technology
investments.

- Capitalize on emerging technologies.

A UNIFIED SET OF SERVICES TO BUILD BUSINESS AND TECHNOLOGY
STRATEGIES. Clients may combine our WholeView Research with Data, Consulting
and Community offerings to enhance their understanding and the value of the core
research offerings on a customer-specific basis.

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

FORRESTER'S STRATEGY

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

IDENTIFYING AND DEFINING NEW BUSINESS MODELS, TECHNOLOGIES, AND
MARKETS. We seek to differentiate ourselves from other research firms by
delivering pragmatic and forward-thinking research and analysis on the impact of
technology on business models 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
horizons of most users, vendors, and other research firms. Our early
identification of these shifts enables us to help our clients capitalize on
emerging business models and technologies.

LEVERAGING THE WHOLEVIEW. Our business model, technology platform, and
research methodologies allow us to sell existing products and to rapidly
introduce new products and services without incurring significant incremental
costs. We intend to continue to use our business model, technology platform and
research methodologies to both increase sales of our existing research and
introduce innovative new products. Our Data, Consulting, and Community offerings
complement, enhance and supplement our research offerings, and many are designed
to address clients' customized needs.

USING TARGETED, GLOBAL SALES CHANNELS. We sell our products and services
directly through our headquarters in Cambridge, Massachusetts, and through our
research centers and sales offices in various locations in North America,
Europe, and Asia. We also sell our products and services through independent
sales representatives in select international locations, including Australia and
South America. We continually
3

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. Effective January 2005, we
redefined our geographic regions to more closely align with our client base. Our
three regions are now Americas, EMEA (Europe, Middle East and Africa) and Asia
Pacific.

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 units and divisions within
our existing client companies. We believe that within our client base of
approximately 1,866 client companies as of December 31, 2004, 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 quality, cooperation, and creativity, helps us to
develop and retain high-caliber research professionals. We provide a competitive
compensation structure, as well as recognition and rewards for excellent
individual and team performance.

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

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

- Improve fulfillment of sales leads.

- Accelerate the production of our research.

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

PRODUCTS AND SERVICES

We offer our clients a selection of engagement opportunities in the areas
of Research, Data, Consulting, and Community. Research serves as the foundation
of all our offerings and is composed of annually renewable memberships to
WholeView 2 Research that provide our clients comprehensive access to research
containing unified guidance on business strategy, technology investments,
implementation changes, and customer trends. We also offer a flexible selection
of products and services categorized as Data, Consulting, and Community designed
to customize the insights from WholeView 2 Research to clients' specific needs.

WHOLEVIEW 2 RESEARCH

In February 2004, we introduced WholeView 2 Research, a holistic, unified
offering that provides clients with comprehensive access to our core research
offerings designed to inform their strategic decision-making. Like the original
WholeView Research product introduced in January 2002, WholeView 2 Research
consists of a library of cross-linked documents that interconnects our reports,
data, product rankings, and research archives and allows clients to move
barrier-free across our research. WholeView 2 Research is an integrated product
that incorporates those topic areas formerly addressed by Giga's core research
product and thus preserves and enhances the core features of both Forrester and
Giga research products.

WholeView 2 Research addresses the interplay of business demands and
technology capabilities through two components: Business View and IT View.

- BUSINESS VIEW consists of research targeting industry-specific
challenges, trends, and best practices. This research is particularly
targeted to marketers, business strategists, product developers, and
customer experience managers. In general, our Business View is composed
of the research that previously formed our original WholeView Research
package, specifically, our core business strategy research offerings,
Technographics(R), and TechRankings(R).

4

- Business Strategy Research. Formerly referred to as TechStrategy, this
research provides qualitative industry and technology research that
analyzes the impact of technology change and informs strategic
decision-making.

- 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 over 300,000
households in North America and Europe, which is 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.

- TechRankings. TechRankings consists of customizable, interactive
research databases and Web tools that evaluate enterprise technologies
on the basis of hands-on 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.

- IT VIEW consists of research that provides an extensive focus on
information technology management and technology investment issues, as
well as developments in technology products and services. This research
delivers insight into the issues challenging IT professionals, technology
product designers, and marketers and business strategists at technology
providers. In general, IT View is composed of the research that
previously formed Giga's core research product.

Clients subscribing to our WholeView 2 Research may choose between two
membership levels:

- WHOLEVIEW 2 MEMBER LICENSES include access to the written research, as
well as Unlimited Inquiry with all analysts, one Event seat, and
ForrTel(TM) access.

- Unlimited Inquiry. Unlimited Inquiry enables clients to contact any of
our analysts for quick feedback on projects they may have underway, to
discuss ideas and models in the research, or to answer questions about
unfolding industry events. Typically, Unlimited Inquiry sessions are
30-minute phone calls, scheduled upon client request, or e-mail
responses coordinated through our Client Resource Center.

- Event Seat. Events bring together senior executives for one- or
multi-day conferences to network with their peers and to hear business
leaders discuss the impact of technology on business.

- ForrTel. ForrTels are hour-long audio teleconferences on selected
topics that typically are held daily. They consist of an analyst-led
presentation followed by questions from participants. Members may access
the analyst Web presentation and participate in the subsequent forum for
questions and discussion among all attendees.

- WHOLEVIEW 2 READER LICENSES provide access to our written research.

Both Member and Reader clients receive access to our Client Resource Center
which is a call center dedicated to providing additional information about our
research, methodologies, coverage areas, and sources. The Client Resource Center
is available on demand to help clients navigate our Web Site, find relevant data
and forecasts, and put clients in contact with the appropriate analyst for
inquiries.

DATA

Our Data products and services focus on consumers' and business users'
attitudes about and behavior toward technology, including ownership, future
purchases, and adoption trends. These products incorporate extensive survey
research designed and analyzed by our staff. Clients can leverage our
Technographics research or choose to have us conduct data analysis on their
behalf. Our Data products include:

- CONSUMER AND BUSINESS TECHNOGRAPHICS DATA & SERVICES. Our Technographics
Data & Services leverage our core research findings to provide an
in-depth understanding of how consumers and
5

businesses think about and use technology. We combine respondent data
sets from our Technographics surveys into three offerings: Consumer
Technographics North America, Consumer Technographics Europe, and
Business Technographics North America. We also provide insight into how
consumers think about, buy, and use technology in the categories of
devices and media, healthcare, financial services, retail, and travel.
Additionally, clients have access to a Technographics data specialist to
help them use the research effectively to meet their specific business
needs.

- CONSUMER TECHNOGRAPHICS OMNIBUS SURVEY. The Technographics Omnibus
Survey provides our clients with the ability to contact 5,000 U.S.
households that already have responded to our most recent annual
benchmark survey, and ask a specific new question. We append the
responses to the full benchmark survey, as well as the client-specific
question, so that a client can conduct multiple cross-tabs on the data.
In effect, with the Technographics Omnibus survey, clients have access to
custom data at a much lower cost than full-scale, customized research.

- CUSTOM CONSUMER RESEARCH. Leveraging our experience and data from our
Technographics research, our Custom Consumer Research advisors
collaborate with clients' teams to design research agendas aimed at
understanding those clients' consumers. The Custom Consumer Research team
thoroughly assesses each project to recommend a methodology that will
best answer our clients' strategic questions. We employ a wide range of
methodologies to accomplish this, including: custom surveys, custom
segmentations, in-depth interviews, and focus groups.

- FORRESTER'S ULTIMATE CONSUMER PANEL. Forrester's Ultimate Consumer Panel
is a new, opt-in single-source panel that leverages technology to
passively and continuously capture a vast amount of offline and online
consumer behavior. The panel comprises more than 10,000 U.S. consumers
from whom data is collected from electronic monthly credit card
statements, bank account statements, online behavior and activities and
survey data about a large range of topics. Ultimate data helps clients
benchmark themselves against competitors, evaluate the effectiveness of
pricing and packaging strategies, and optimize multichannel sales
efforts.

CONSULTING

Our Consulting services leverage our WholeView 2 Research to deliver
customized research services designed to assist clients in executing corporate
strategy, promoting new initiatives, or making large technology investments.
Programs and deliverables are designed collaboratively by a research analyst and
a client.

Through our consulting services, we help our clients develop a combination
of existing and custom research to address a range of issues, including:

- Market Strategy

- Effective Use of Technology

- Innovation & Organizational Design

- Supply & Demand Networks

- IT Sourcing

COMMUNITY

Our Community offerings are designed to foster effective connections
between peers, analysts and the relevant research. Each of our Community
programs provides exclusive networking opportunities, advice on best practices,
and targeted analysis. Community products and services include annual
memberships in the Forrester Oval Program(TM), participation in Web Site Reviews
and Boot Camps, and attendance at Forrester Events.

- FORRESTER OVAL PROGRAM. Our Forrester Oval Program is an exclusive
offering for senior executives at large companies worldwide. Clients may
choose to participate in one or more Forrester Oval Programs. Memberships
are available in the CIO Group and the CMO Group and various councils,
including the
6

Analyst Relations & Marketing Council and several IT Councils and Marketing
Councils. Members receive access to the following:

- senior analyst teams for individual research-related questions,

- membership-directed research which includes comprehensive coverage of
industry trends and best practices,

- exclusive industry-specific benchmark data, and

- peer-to-peer networking through premier event meetings and group
audio-conferences.

- WEB SITE REVIEWS AND OTHER BOOT CAMPS. Our Web Site Reviews provide
targeted, action-oriented assessments of clients' Web sites, extranets,
or intranets. Feedback is based on comprehensive examination of the site
by our analysts, as well as any additional information a client provides
about its Web strategies. Other Boot Camps focus on Web design and
strategy and the customer experience across multiple interaction
channels.

- FORRESTER EVENTS. We host multiple Events in various locations in North
America and Europe throughout the year. Events build upon past Forrester
and Giga conferences to bring together senior executives to network with
their peers and to hear business leaders discuss the impact of technology
on business.

PRICING AND CONTRACT SIZE

We derive our revenue from client contracts consisting of two categories of
revenue: research and advisory services and other. All the product and service
offerings listed above are composed of research, advisory services and other, or
some combination of the two. Research offerings generate research revenues only,
and Consulting offerings consist solely of advisory services revenues. Our Data
and Community offerings, however, generate a combination of research and
advisory services and other revenues. Within Data, we recognize revenue from our
Technographics Data & Services and Forrester Ultimate Consumer Panel product as
research revenue, and revenue from Custom Consumer Research and the
Technographics Omnibus Survey as advisory services revenue. Within Community,
revenue from memberships to the Forrester Oval Program is recognized as research
services revenue, and revenue from events is recognized as other revenue in our
advisory services and other revenue classification.

Contract pricing for annual memberships for research only is principally a
function of the number of recipients at the client. Pricing of contracts for
research and advisory services is a function of the number of research
recipients and the amount and type of advisory services. The average contract
for annual memberships for research only at December 31, 2004 was approximately
$40,300, an increase of 5% from $38,200 at December 31, 2003. The average
contract for an annual membership for research which also included advisory
services at December 31, 2004 was approximately $94,600, an increase of 21% from
$78,400 at December 31, 2003.

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 increased 9% to $137.1
million at December 31, 2004 from $126.3 million at December 31, 2003.

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.

7

We ascertain the issues important to technology users through thousands of
interactions and surveys with vendors and business, marketing, and IT
professionals, and accordingly, the majority of our research is determined
directly by the issues our clients face each day. We use the following primary
research inputs:

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

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

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

- Continuous dialogue with our clients to identify technology issues in the
marketplace.

Our Technographics research combines our qualitative research methodology
with traditional survey research methodologies such as correlation, frequency
distribution, cross-tabulation, and multivariate statistics to produce research
reports, quantitative survey data, and data briefs. Third-party data vendors are
frequently used for data collection and tabulation.

Our TechRankings research combines in-depth product test results and user
interviews with market and strategic analysis to score attributes of emerging
technologies. We then apply this research and strategic analysis to determine
the weighting of each attribute and create interactive scorecards, databases,
and reports.

Collaboration between analysts is an integral part of our process, leading
to higher-quality research and a unified perspective. All of our WholeView 2
Research begins either with a client or vendor catalyst or with discussion
sessions among analysts to generate ideas for research. Analysts test ideas
throughout the research process at both informal and weekly research meetings.
Our reports are consistent in format, and we require our analysts to write in a
structure that combines graphics with easy-to-read text to deliver concise,
decisive, relevant, and objective research to our clients. At the final stage of
the research process, senior analysts meet to test the conclusions of each
research report. 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 directly through our headquarters in
Cambridge, Massachusetts, and through our research centers and sales offices in
various locations in North America, Europe, and Asia. We also sell our products
and services through independent sales representatives in select international
locations, including Australia and South America. We employed 195 sales
representatives as of December 31, 2004, an increase of 3% from 190 as of
December 31, 2003. Our direct sales force consists of:

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

- 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.

- Telesales (inside sales) representatives who focus on smaller client
prospects and renewals.

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 selected international markets.

Our marketing activities 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, Forrester
Events, extensive worldwide press relations, and direct mail campaigns. In
February 2005, we published the first issue of the Forrester magazine, a high
quality periodical containing articles of interest relating to the technology
industry. We also employ an integrated direct marketing strategy that uses
Internet, mail, and telephone channels for identifying and attracting
high-quality sales leads. We encourage our analysts to increase our visibility
by having their research ideas selectively distributed through various Internet,
print, and television outlets.

8

As of December 31, 2004, our research was delivered to 1,866 client
companies. No single client company accounted for more than 3% of our revenues
for the year ended December 31, 2004.

COMPETITION

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

- Quality of research and analysis and related services.

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

- Customer service.

- Independence from vendors and clients.

- Timely delivery of information.

- Ability to leverage new technologies.

- Price.

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

We compete principally in the market for research and advisory services
about and relating to technology and its impact on business. Our principal
direct competitors include other providers of similar services, such as Gartner
Group, as well as 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, 2004, we employed a total of 593 persons, including 203
research staff and 195 sales representatives.

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

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 that is funded by our overall performance against
key business metrics. 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 equity incentive plan.

All of our direct sales representatives participate in our annual sales
incentive compensation 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 equity
incentive plan based on performance.
9

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:

FLUCTUATIONS IN OUR OPERATING RESULTS. Our revenues and earnings may
fluctuate from quarter to quarter based on a variety of factors, many of which
are beyond our control, and which may affect our stock price. These factors
include, but are not limited to:

- Trends in technology spending in the marketplace

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

- Utilization of our advisory services by our clients.

- Timing of revenue-generating Events sponsored by us.

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

- Hiring and training of new analysts and sales personnel.

- Changes in demand for our research and advisory services.

- 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
technologies services industry may have a significant impact on the market price
of our common stock. The market price for our common stock may also be affected
by movements in prices of stocks in general.

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 76%, 66%, and 57% of our client companies with
memberships expiring during the years ended December 31, 2004, 2003, and 2002,
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 increase in renewal rates from 2003 to 2004
is reflective of the acquisitions of Giga and GigaGroup during 2003 and an
improving economic environment. Any future declines in renewal rates could have
an adverse effect on our revenues.

ABILITY TO DEVELOP AND OFFER NEW PRODUCTS AND SERVICES. Our future success
will depend in part on our ability to offer new products and services. These new
products and services must successfully gain market acceptance by addressing
specific industry and business organization sectors and by anticipating and
identifying changes in client requirements and changes in the technology
industry. The process of internally researching, developing, launching and
gaining client acceptance of a new product or service, or assimilating and
marketing an acquired product or service, is risky and costly. We may not be
able to introduce new, or assimilate acquired, products or services
successfully. Our failure to do so would adversely affect our ability to
maintain a competitive position in our market and continue to grow our business.

LOSS OF KEY MANAGEMENT. Our future success will depend in large part upon
the continued services of a number of our key management employees. The loss of
any one of them, in particular George F. Colony, our founder, Chairman of the
Board, and Chief Executive Officer, could adversely affect our business.

ABILITY TO ATTRACT AND RETAIN QUALIFIED PROFESSIONAL STAFF. Our future
success will depend in large measure upon the continued contributions of our
senior management team, research analysts, and experienced sales and marketing
personnel. Thus, our future operating results will be largely dependent upon our
ability to retain the services of these individuals and to attract additional
professionals from a limited pool of qualified candidates. We experience
competition in hiring and retaining professionals from developers of Internet
and emerging-technology products, other research firms, management consulting
firms, print and electronic publishing companies and financial services
companies, many of which have substantially greater ability,

10

either through cash or equity, to attract and compensate professionals. If we
lose professionals or are unable to attract new talent, we will not be able to
maintain our position in the market or grow our business.

FAILURE TO ANTICIPATE AND RESPOND TO MARKET TRENDS. Our success depends in
part upon our ability to anticipate rapidly changing technologies and market
trends and to adapt our research to meet the changing information needs of our
clients. The technology and commerce sectors that we analyze undergo frequent
and often dramatic changes. The environment of rapid and continuous change
presents significant challenges to our ability to provide our clients with
current and timely analysis, strategies and advice on issues of importance to
them. Meeting these challenges requires the commitment of substantial resources.
Any failure to continue to provide insightful and timely analysis of
developments, technologies, and trends in a manner that meets market needs could
have an adverse effect on our market position and results of operations.

COMPETITION. We compete in the market for research products and services
with other independent providers of similar services. We may also face increased
competition from Internet-based research firms. Some of our competitors have
substantially greater financial, information-gathering, and marketing resources
than we do. In addition, our indirect competitors include the internal planning
and marketing staffs of our current and prospective clients, as well as other
information providers such as electronic and print publishing companies,
survey-based general market research firms and general business consulting
firms. Our indirect competitors may choose to compete directly against us in the
future. In addition, there are relatively few barriers to entry into our market,
and new competitors could readily seek to compete against us in one or more
market segments addressed by our products and services. Increased competition
could adversely affect our operating results through pricing pressure and loss
of market share.

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.

EXECUTIVE OFFICERS

The following table sets forth information about our directors and
executive officers as of March 8, 2005.

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

11

Neil Bradford became president, Forrester Americas (formerly managing
director, Forrester North America) in August 2003. Mr. Bradford previously
served as managing director, Forrester Global from 2001 to 2003 and as managing
director of Forrester Research Ltd. from 1999 to 2001, a role he assumed after
Forrester's acquisition in November 1999 of Fletcher Research Limited, a
UK-based research firm co-founded by Mr. Bradford in 1997. Prior to co-founding
Fletcher and joining Forrester, Mr. Bradford was a consultant at McKinsey and
Company, a management consulting firm, from 1995 to 1997.

Charles W. Chang became president, Forrester Asia Pacific, in September
2004. Prior to joining Forrester, Mr. Chang was a managing director and founder
of Twin Cypress Group, a consulting firm advising businesses in North America
and the Pacific Rim about investment opportunities. From 1998 to 1999, Mr. Chang
was a senior vice president of Business Objects, a business intelligence
software company, and from 1999 to 2000 he was senior vice president, business
intelligence, of Informix Corporation, an information management software
company. Prior to 2001, Mr. Chang spent many years in various management
positions with IBM Corporation.

Robert W. Davidson became president, Forrester Europe, Middle East, Africa
(EMEA) (formerly, 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. From 1996 to 1998, Mr. Davidson
served as chief operating officer, Europe of PSI/Vicorp, a software solutions
company.

Warren Hadley became our chief financial officer and treasurer in February
2002. Mr. Hadley previously was our director of finance from 1999 to 2002 and
served as our assistant treasurer from 2000 to 2001. Mr. Hadley was our
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.

Brian E. Kardon became our chief strategy and marketing officer (formerly
vice president, strategy and marketing), in January 2003. Prior to joining
Forrester, Mr. Kardon was president of First Act, Inc., a children's musical
instrument company. From 1999 to 2001 Mr. Kardon served as the executive vice
president at HomePortfolio, an online marketplace for home design, products, and
services, and from 1995 to 1999, he was senior vice president and chief
marketing officer of Cahners Business Information (now Reed Business
Information). After graduating from The Wharton School in 1987 with his MBA, Mr.
Kardon worked at Braxton Associates, the strategy consulting division of
Deloitte Consulting, from 1987 to 1995. At Braxton, Mr. Kardon rose to the
position of director of the marketing strategy practice.

Daniel Mahoney became our chief research and client officer in September
2004. Mr. Mahoney previously was our vice president, research from 2003 to 2004
in conjunction with Forrester's acquisition of Giga. Prior to that, he was
senior vice president of research at Giga from 1997 to 2003. Prior to joining
Giga, Mr. Mahoney was the general manager of Intranet Partners, an Intranet
consulting company, from 1996 to 1997; the general manager of Dataquest North
America, a technology information provider, in 1996; and director of systems
development for Household Credit Services, the credit card division of Household
International, Inc. from 1993 to 1996.

Gail S. Mann, Esq. became our chief legal officer and secretary in February
2004. Ms. Mann previously was of counsel to the law firm of Morse, Barnes-Brown
& Pendleton, P.C. from 2002 until joining Forrester, Vice President and
Associate General Counsel of Harcourt General, Inc., a global multimedia
publishing company, and its affiliate, The Neiman Marcus Group, a high end
specialty retailer, from 1999-2001, and Vice President and Assistant General
Counsel of Digital Equipment Corporation from 1994 to 1998.

George M. Orlov became our chief information officer and chief technology
officer in December 2004. Prior to joining Forrester, Mr. Orlov was chief
information officer and chief technology officer for Callisma, Inc., a
professional services firm focused on technology infrastructure from 2000 until
2003, when the company was acquired by SBC Communications. Mr. Orlov served as
vice president and chief information officer at Pacific Gas & Electric from 1998
to 2000, and prior thereto, he held the same position with Commonwealth Edison
Company from 1996 to 1998.

12

Timothy M. Riley, Forrester's chief people officer (formerly vice
president, strategic growth), joined Forrester in August 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.

ITEM 2. PROPERTIES

Our headquarters are located in approximately 125,000 square feet of office
space in Cambridge, Massachusetts, of which the Company occupies approximately
93,200 square feet. This facility accommodates research, marketing, sales,
technology, and operations personnel. The lease term of this facility was
extended effective January 1, 2005 and expires in September 2011. We have the
option to extend this lease for an additional five-year term.

We also have leased office space for our research centers in Amsterdam,
Frankfurt, London, and Santa Clara, and for our sales office in Paris.

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(A). MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

Our common stock is traded on the Nasdaq National Market under the symbol
"FORR." On March 2, 2005, the closing price of our common stock was $14.98.

As of March 2, 2005 there were approximately 52 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, 2003, and December 31,
2004:

We did not declare or pay any dividends during the fiscal years ended
December 31, 2003 or 2004. 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.

13

ITEM 5(C). CHANGES IN SECURITIES AND USE OF PROCEEDS

In October 2001, we announced a program authorizing the repurchase of up to
$50 million of our common stock ("the stock repurchase program"). During the
quarter ended December 31, 2004, we purchased the following shares of our common
stock under the stock repurchase program:

All purchases of our common stock were made under the stock repurchase
program.

14

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.

15

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

OVERVIEW

We derive revenues from memberships to our research product offerings and
from our advisory services and events available through what we refer to as
Research, Data, Consulting, and Community offerings. We offer contracts for our
research products that are typically renewable annually and payable in advance.
Research revenues are recognized as revenue ratably over the term of the
contract. Accordingly, a substantial portion of our billings are initially
recorded as deferred revenue. Clients purchase advisory services offered through
our Data, Consulting and Community products and services to supplement their
memberships to our research. Billings attributable to advisory services are
initially recorded as deferred revenue and are recognized as revenue when
performed. Event billings are also initially recorded as deferred revenue and
are recognized as revenue upon completion of each event. Consequently, changes
in the number and value of client contracts, both net decreases as well as net
increases, impact our revenues and other results over a period of several
months.

Our primary operating expenses consist of cost of services and fulfillment,
selling and marketing expenses, general and administrative expenses,
depreciation and amortization and amortization of intangible assets. Cost of
services and fulfillment represents the costs associated with the production and
delivery of our products and services, and it includes 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. Overhead costs are allocated over these categories
according to the number of employees in each group. Amortization of intangible
assets represents the cost of amortizing acquired intangible assets such as
customer base, research content and trademarks.

In February 2003, we acquired Giga Information Group, Inc. ("Giga"), a
global technology advisory firm, pursuant to a cash tender offer and second step
merger. The results of Giga's operations have been included in our consolidated
financial statements since February 28, 2003.

As part of the acquisition of Giga, we acquired an equity investment in
GigaGroup S.A. ("GigaGroup"). GigaGroup was created in 2000 through the spin-off
of Giga's French subsidiary, and held an exclusive agreement to distribute all
Giga research and certain services in France, Belgium, Netherlands, Luxemburg,
Switzerland, Italy, Spain, and Portugal. In November 2003, we acquired the
assets of GigaGroup. The results of GigaGroup's operations have been included in
our consolidated financial statements since November 30, 2003.

Agreement value, client retention, dollar retention and enrichment are
metrics we believe are important to understanding our business. 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. No single client accounted for more than 2% of
agreement value at December 31, 2004. We calculate client retention as the
number of client companies who renewed with memberships as a percentage of those
that would have expired. We calculate dollar retention as a percentage of the
dollar value of all client membership contracts renewed during the most recent
twelve month fiscal period to the total dollar value of all client membership
contracts that expired during the period. We calculate enrichment as a
percentage of the dollar value of client membership contracts renewed during the
period to the dollar value of the corresponding expiring contracts. Client
retention, dollar retention, and

16

enrichment are not necessarily indicative of the rate of future retention of our
revenue base. A summary of our key metrics is as follows:

The increase in agreement value from 2003 to 2004 is primarily due to
increases in average contract sizes and in the number of clients. The average
contract for annual memberships for research only at December 31, 2004 was
approximately $40,300, an increase of 5% from $38,200 at December 31, 2003. The
average contract for an annual membership for research which also included
advisory services at December 31, 2004 was approximately $94,600, an increase of
21% from $78,400 at December 31, 2003. Client retention, dollar retention and
enrichment increases in 2003 and 2004 reflect an improving economic environment.
The increase in agreement value, client retention, dollar retention and
enrichment from 2002 to 2003 is primarily attributable to the acquisition of
Giga, and to a lesser extent, the acquisition of GigaGroup.

REORGANIZATIONS

Since July 2001, we have reorganized our workforce and consolidated our
facilities several times in response to market conditions and in connection with
the integration of Giga and GigaGroup in August 2003 and January 2004,
respectively.

A summary of the key items related to the reorganizations is as follows:

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Management's discussion and analysis of financial condition and results of
operations are based upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements requires
us to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. On an ongoing basis, we evaluate our policies and estimates,
including but not limited to, those related to our revenue recognition,
allowance for doubtful

17

accounts, non-marketable investments, goodwill and other intangible assets and
income taxes. Management bases its estimates on historical experience and
various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions.

We consider the following accounting policies to be those that require that
most subjective judgment or those most important to the portrayal of our
financial condition and results of operations. If actual results differ
significantly from management's estimates and projections, there could be a
material effect on our financial statements. This is not a comprehensive list of
all of our accounting policies. In many cases, the accounting treatment of a
particular transaction is specifically dictated by 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 discussion of
our other accounting policies, see Note 1 in the Notes to Consolidated Financial
Statements in Item 15 of this Annual report on Form 10-K, beginning on page F-7.

- REVENUE RECOGNITION. We generate revenues from licensing research,
performing advisory services, and hosting events. We execute contracts
that govern the terms and conditions of each arrangement. Revenues from
contracts that contain multiple deliverables are allocated among the
separate units based on their relative fair values, which requires us to
make estimates of such fair values. The amount of revenue recognized is
limited to the amount that is not contingent on future performance
conditions. Research service revenues are recognized ratably over the
term of the agreement. Advisory service revenues are recognized during
the period in which the services are performed. Events revenues are
recognized upon completion of the events and are included in our advisory
services and other revenue classification. While our historical business
practice has been to offer membership contracts with a non-cancelable
term, we do from time to time, in response to competitive conditions,
offer clients the right to cancel their membership contracts prior to the
end of the contract term. For these cancelable contracts that can be
terminated during the contract term, any refund would be issued on a
pro-rata basis only. Reimbursed out of pocket expenses are recorded as
advisory revenue. 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, 2004, deferred revenues and deferred commissions totaled
$72.4 million and $6.8 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 $1.0 million as of December 31, 2004. Management makes
judgments regarding the collectibility of accounts receivable by
specifically analyzing historical bad debts, customer concentrations,
current economic trends, and changes in our customer payment terms 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 and if the financial condition of our customers were to
improve, the allowances may be reduced accordingly.

- NON-MARKETABLE INVESTMENTS. We hold minority interests in
technology-related companies and equity investment funds that totaled
approximately $13.4 million as of December 31, 2004. These investments
are in companies that are not publicly traded, and, therefore, because no
established market for these securities exists, the estimate of the fair
value of our investments requires significant judgment. We have a policy
in place to review the fair value of our investments on a regular basis
to evaluate the carrying value of the investments in these companies
which consists primarily of reviewing the investee's revenue and earnings
trends relative to predefined milestones and overall business prospects.
We record impairment charges when we believe that an investment has
experienced a decline in value that is other than temporary. During the
year ended December 31, 2004, we have no investments that have
experienced a decline in value which we believe is permanent or temporary
and accordingly no impairment charges have been recorded. We recorded net
impairment charges that
18

totaled approximately $2.4 million and $4.1 million during the years
ended December 31, 2003 and 2002, respectively. Future adverse changes in
market conditions or poor operating results of underlying investments
could result in losses or an inability to recover the carrying value of
the investments that may not be reflected in an investment's current
carrying value, thereby possibly requiring an impairment charge in the
future.

- GOODWILL AND INTANGIBLE ASSETS. At December 31, 2004, we had goodwill
and identified intangible assets with finite lives related to our
acquisitions that totaled approximately $52.9 million and $7.0 million,
respectively. SFAS No. 142, "Goodwill and Other Intangible Assets,"
requires that goodwill and intangible assets with indefinite lives no
longer be amortized but instead be measured for impairment at least
annually or whenever events indicate that there may be an impairment. In
order to determine if an impairment exists, we compare the reporting
unit's carrying value to the reporting unit's fair value. Determining the
reporting unit's fair value requires us to make estimates based on market
conditions and operational performance. Absent an event that indicates a
specific impairment may exist, we have selected November 30th as the date
of performing the annual goodwill impairment test. This analysis did not
show an impairment as of November 30, 2004 and as of December 31, 2004,
we believe that the carrying value of our goodwill is not impaired.
Future events could cause us to conclude that impairment indicators exist
and that goodwill associated with our acquired businesses is impaired.
Any resulting impairment loss could have a material adverse impact on our
financial condition and results of operations.

Intangible assets with finite lives consist of acquired customer base,
research content and trademarks and are valued according to the future
cash flows they are estimated to produce. These assigned values are
amortized on an accelerated basis which matches the periods in which
those cash flows are estimated to be produced. We continually evaluate
whether events or circumstances have occurred that indicate that the
estimated remaining useful life of our intangible assets may warrant
revision or that the carrying value of these assets may be impaired. To
compute whether assets have been impaired, the estimated undiscounted
future cash flows for the estimated remaining useful life of the assets
are compared to the carrying value. To the extent that the future cash
flows are less than the carrying value, the assets are written down to
the estimated fair value of the asset.

- INCOME TAXES. We have deferred tax assets related to temporary
differences between the financial statement and tax bases of assets and
liabilities as well as operating loss carryforwards (primarily from stock
option exercises and the acquisition of Giga) that totaled approximately
$42.9 million as of December 31, 2004. In assessing the realizability of
deferred tax assets, management considers whether it is more likely than
not that some portion or all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets is dependent
upon the generation of future taxable income during the periods in which
those temporary differences become deductible and the carryforwards
expire. Although realization is not assured, based upon the level of our
historical taxable income and our estimates of future taxable income over
the periods during which the deferred tax assets are deductible and the
carryforwards expire, management believes it is more likely than not that
we will realize the benefits of these deductible differences. The amount
of the deferred tax asset considered realizable, however, could be
reduced if our estimates of future taxable income during the carry-
forward periods are incorrect.

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, 2004 AND DECEMBER 31, 2003

REVENUES

The increase in total revenues as well as the increase in the number of
clients is primarily a result of the acquisitions of Giga and GigaGroup which
closed on February 28, 2003 and November 30, 2003, respectively. The increase in
revenues is also attributable to the effects of foreign currency translation
which resulted in approximately a 2% positive effect on revenues in 2004. No
single client company accounted for more than 3% of revenues during 2003 or
2004.

Research services revenues as a percentage of total revenues declined from
73% in 2003 to 68% in 2004 as customer demand is shifting towards advisory
services, which is reflected in the increase in advisory services and other
revenues. The increase in advisory services revenues was partially offset by
decreasing events

20

revenues. Beginning in 2004, clients purchasing WholeView 2 research member
licenses receive event seats as part of the WholeView2 membership package. The
revenue for these packaged event seats is recognized ratably as research
services resulting in a decrease in advisory services and other revenues. This
decrease in advisory services and other revenues in 2004 was partially offset by
increases in revenues from sales of event sponsorships to third parties.

The increase in international revenues in dollars and as a percentage of
total revenues is primarily attributable to the acquisition of GigaGroup
combined with the favorable effects of foreign currency translation in 2004 as
compared to 2003.

COST OF SERVICES AND FULFILLMENT

The increase in cost of services and fulfillment is primarily attributable
to increased compensation costs resulting from an increase in the number of
research employees, increased incentive compensation paid for the performance of
advisory services, and increased survey costs.

SELLING AND MARKETING

The increase in selling and marketing expenses and in these expenses as a
percentage of total revenues is related to increased compensation and related
office expenses primarily attributable to the acquisition of GigaGroup at the
end of 2003, as well as increased professional fees related to the Forrester
magazine, the first issue of which was published in February 2005.

GENERAL AND ADMINISTRATIVE

The increase in general and administrative expenses is primarily
attributable to the amount provided for doubtful accounts, annual increases in
compensation costs and increases in audit and professional fees related to
compliance with the requirements of the Sarbanes-Oxley Act and regulations
thereunder.

DEPRECIATION AND AMORTIZATION. Depreciation expense decreased 41% to $3.7
million in 2004 from $6.3 million in 2003. The decrease is primarily
attributable to computer and software assets purchased prior to 2002 becoming
fully depreciated and to the write-off of certain depreciable assets in
connection with office vacancies.

AMORTIZATION OF INTANGIBLE ASSETS. Amortization of intangible assets
decreased to $6.5 million in 2004 from $8.8 million in 2003. This decrease in
amortization expense is primarily attributable to the accelerated method we are
using to amortize our acquired intangible assets according to the expected cash
flows to be

21

received from these assets. Specifically, research content and registered
trademarks that were acquired in connection with the Giga acquisition in 2003
were fully amortized by the end of 2004.

REORGANIZATION COSTS. Reorganization costs were $8.4 million in 2004 and
consisted primarily of costs associated with lease losses, revisions to the
lease loss estimates related to prior reorganizations and fixed-asset write-offs
resulting from office vacancies.

OTHER INCOME, NET. Other income, net decreased 15% to $2.9 million in 2004
from $3.4 million in 2003. The decrease is primarily attributable to lower
average cash and investment balances available for investment in 2004 as
compared to 2003.

GAINS ON SALES OF MARKETABLE SECURITIES. In 2004, we sold a total of
approximately 47,000 shares of Greenfield Online, Inc. and received net proceeds
of approximately $701,000. Upon consummation of Greenfield's initial public
offering, we also received a conversion payment of approximately $463,000.
Accordingly, in the year ended December 31, 2004, we recognized a gain of
approximately $1.1 million related to these sales. In 2003, gains of $509,000
resulted from the sale of debt securities.

IMPAIRMENTS (GAINS) FROM NON-MARKETABLE INVESTMENTS. During the year ended
December 31, 2004, we have no investments that have experienced a decline in
value which we believe is other than temporary and accordingly no impairment
charges have been recorded. Impairments of non-marketable investments resulted
in net charges of $2.4 million during 2003.

PROVISION FOR INCOME TAXES. During 2004, we recorded an income tax
provision of $2.1 million reflecting an effective tax rate of 33.7%. During
2003, we recorded an income tax provision of $1.0 million reflecting an
effective tax rate of 31%. The increase in our effective tax rate for fiscal
year 2004 resulted primarily from our tax-exempt investment income comprising a
smaller percentage of our estimated total pre-tax income in 2004 as compared to
2003.

YEARS ENDED DECEMBER 31, 2003 AND DECEMBER 31, 2002

REVENUES

The increases in total revenues, revenues from research services and in the
number of clients are primarily attributable to the Giga acquisition which
closed on February 28, 2003, and as such, Giga's operations have been included
in the consolidated financial statements since February 28, 2003. No single
client company accounted for more than 3% of revenues during 2003 or 2002.

The increase in advisory services and other revenues is primarily
attributable to increases in the number of clients and in the number of research
employees delivering advisory services, which more than offset the decrease in
event revenue attributable to our holding fewer events during 2003 than during
2002. The increase in the number of clients and research employees in our
research organization is primarily attributable to the acquisition of Giga.

22

The increase in international revenues is primarily attributable to the
acquisition of Giga. We invoice our United Kingdom customers in pound sterling,
the functional currency of our London subsidiary; our continental European
customers in euros, the functional currency of our Amsterdam subsidiary and all
other international customers in U.S. dollars.

Assuming the acquisition of Giga occurred on January 1, 2002 whereby
pre-acquisition revenues of Giga would be added to Forrester's revenues, total
revenues would have been $160.1 million in 2002 compared to $136.6 million in
2003. The decrease of $24.0 million is primarily attributable to a more
difficult economic environment in 2002, resulting in lower revenues in 2003
because of the annual nature of our contracts and the related revenue
recognition policies.

COST OF SERVICES AND FULFILLMENT

The increases in cost of services and fulfillment and cost of services and
fulfillment as a percentage of total revenues are primarily attributable to
greater compensation costs as a result of increased headcount. The increased
headcount in our research organization was primarily attributable to the
acquisition of Giga, which provided for an additional 91 research personnel at
the time of acquisition.

SELLING AND MARKETING

The increase in selling and marketing expenses and selling and marketing
expenses as a percentage of total revenues is primarily attributable to greater
compensation costs as a result of increased headcount. The increased headcount
in our sales organization is primarily attributable to the acquisition of Giga,
which provided for an additional 82 sales personnel at the time of acquisition.

GENERAL AND ADMINISTRATIVE

The increase in general and administrative expenses is primarily due to
greater compensation costs and professional fees as a result of the Giga
acquisition. The decrease in general and administrative expenses as a percentage
of revenues is primarily attributable to an increased revenue base as a result
of the acquisition of Giga.

DEPRECIATION AND AMORTIZATION. Depreciation expense decreased 23% to $6.3
million in 2003 from $8.1 million in 2002. The decrease in these expenses was
principally due to the write-off of certain depreciable assets in connection
with the workforce reorganizations in January 2002 and July 2002 as well as
property and equipment becoming fully depreciated in 2003 which is partially
offset by additional depreciation expense from fixed assets acquired as part of
the acquisition of Giga and other capital expenditures during 2003.

23

AMORTIZATION OF INTANGIBLE ASSETS. Amortization of intangible assets
increased to $8.8 million in 2003 from $328,000 in 2002. This increase in
amortization expense is a result of the amortization of intangible assets
acquired in connection with the acquisition of Giga.

INTEGRATION COSTS. We incurred integration costs of $1.1 during 2003.
These integration costs are related to our acquisition of Giga, and are
primarily related to orientation events for Forrester and Giga employees and
data migration.

REORGANIZATION COSTS. During 2003, reorganization costs of $2.6 million
related to severance and related benefits costs in connection with the
termination of approximately 30 positions, as well as revisions to the lease
loss estimates related to prior reorganizations. During 2002, reorganization
costs of $12.2 million related to facility consolidation costs, severance and
related benefits costs in connection with the termination of approximately 147
positions, and losses incurred in the disposal of certain depreciable assets.

OTHER INCOME, NET. Other income, net decreased 38% to $3.4 million in 2003
from $5.5 million in 2002. Other income, net consists primarily of interest
income. The decrease in other income, net is primarily due to declines in
interest income resulting from lower cash and investment balances available for
investment as a result of the cash paid for the acquisition of Giga, coupled
with lower returns on invested capital.

GAINS ON SALES OF MARKETABLE SECURITIES. In 2003, gains of $509,000
resulted from the sale of debt securities.

IMPAIRMENTS (GAINS) FROM NON-MARKETABLE INVESTMENTS. Impairments of
non-marketable investments resulted in net charges of $2.4 million during 2003
compared to $4.1 million during 2002.

PROVISION FOR INCOME TAXES. During 2003, we recorded an income tax
provision of $1.0 million reflecting an effective tax rate of 31%. During 2002,
we recorded a tax benefit of $311,000 reflecting an effective tax rate of
(111.9%). In 2002, after subtracting our tax-exempt investment income, we had a
loss before our income tax provision. The increase in our effective tax rate for
fiscal year 2003 resulted primarily from our tax-exempt investment income
comprising a smaller percentage of our total pre-tax income in 2003 as compared
to 2002.

24

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 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 primarily through funds generated from
operations. Memberships for research services, which constituted approximately
68% of our revenues during 2004, are annually renewable and are generally
payable in advance. We generated cash from operating activities of $18.0 million
during 2004 and $4.1 million during 2003. The increase in cash from operations
is due to the acquisition of Giga during the first quarter of 2003, which
amplified the effect of the seasonality of our business where the majority of
our cash flows from operations are generated in the first quarter of each
calendar year. We acquired Giga on February 28, 2003 and, as such, realized
substantially less cash flow from operations in the first quarter of 2003 as
compared to the first quarter of 2004.

During 2004, we generated $9.0 million of cash from investing activities,
consisting primarily of $176.5 million received from net sales of marketable
securities, offset by $161.3 million for net purchases of non-marketable
investments and $3.7 million for purchases of property and equipment. We
regularly invest excess funds in short- and intermediate-term interest-bearing
obligations of investment grade.

In the first quarter of 2003, we acquired Giga pursuant to a cash tender
offer and second step merger. The aggregate purchase price was $62,510,000 in
cash.

As part of the acquisition of Giga, we acquired an equity investment in
GigaGroup. GigaGroup was created in 2000 through the spin-off of Giga's French
subsidiary, and held an exclusive agreement to distribute all Giga research and
certain services in France, Belgium, Netherlands, Luxemburg, Switzerland, Italy,
Spain, and Portugal. In November 2003, we acquired the assets of GigaGroup for a
total purchase price of $4.1 million, consisting of $2.9 million in cash,
$118,000 of direct acquisition costs, $521,000 of outstanding accounts
receivable due to us, and the contribution of the equity investment in GigaGroup
valued at $619,000.

In June 2000, we committed to invest $20.0 million in two
technology-related private equity investment funds with capital contributions
required to be funded over a period of up to five years. As of December 31,
2004, we had contributed approximately $17.9 million to the funds. The timing
and amount of future contributions are entirely within the discretion of the
investment funds. In July, 2000, we adopted a cash bonus

26

plan to pay bonuses, after the return of invested capital, measured by the
proceeds of a portion of the share of net profits from these investments, if
any, to certain key employees who must remain employed with us at the time any
bonuses become payable under the plan, subject to the terms and conditions of
the plan. The principal purpose of this cash bonus plan was to retain key
employees by allowing them to participate in a portion of the potential return
from Forrester's technology-related investments if they remained employed by the
Company. The plan was established at a time when technology and internet
companies were growing significantly, and providing incentives to retain key
employees during that time was important. To date, we have not paid any bonuses
under this plan.

In December 2003, we committed to invest an additional $2.0 million over an
expected period of 2 years in an annex fund of one of the two private equity
investment funds. As of December 31, 2004, we had contributed approximately $1.6
million to the annex fund. The timing of this additional investment is within
the discretion of the fund.

During 2004, we used $12.4 million of cash in financing activities,
consisting of $17.8 million for repurchases of our common stock, offset by
$54,000 in proceeds from the return in a structured stock repurchase program and
$5.3 million in proceeds from the exercise of employee stock options and
issuance of common stock under our employee stock purchase plan.

As of December 31, 2004, in connection with our stock repurchase program we
had repurchased 3.1 million shares of common stock at an aggregate cost of
approximately $50.1 million. In February 2005, our Board of Directors authorized
an additional $50.0 million to purchase common stock under the stock repurchase
program.

During the three months ended March 31, 2004, we entered into a structured
stock repurchase agreement giving us the right to acquire shares of our common
stock in exchange for an up-front net payment of $1.5 million. The $1.5 million
up-front net payment was recorded in stockholders' equity as a reduction of
additional paid-in capital. Upon expiration of this agreement in May 2004, we
received approximately $1.6 million in cash which was recorded as an increase to
additional paid-in capital in the accompanying consolidated balance sheet.

During the three month period ended December 31, 2003, we entered into a
similar agreement in exchange for an up-front net payment of $2.0 million. Upon
expiration of this agreement in February 2004, we received 119,000 shares which
was recorded as treasury stock. During each of the three month periods ended
March 31, 2003, June 30, 2003 and September 30, 2003, we entered into similar
agreements in exchange for up-front net payments of $2.0 million. Upon
expiration of each of these agreements, we received approximately $2.1 million
of cash. During each of the three month periods ended September 30, 2002 and
December 31, 2002, we entered into similar agreements in exchange for up-front
net payments of $2.0 million. Upon expiration of each of these agreements, in
2002 and 2003, respectively, Forrester received 143,524 and 144,291 shares,
respectively, which were recorded as treasury stock.

As of December 31, 2004, we had cash and cash equivalents of $37.3 million
and marketable securities of $90.1 million. We do not have a line of credit and
do not anticipate the need for one in the foreseeable future. We plan to
continue to introduce new products and services and expect to make the requisite
investments in our infrastructure during the next 12 months. We believe that our
current cash balance, marketable securities, and cash flows from operations will
satisfy working capital, financing activities, and capital expenditure
requirements for at least the next two years.

27

As of December 31, 2004, we had future contractual obligations as follows
for operating leases:

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

* The above table does not include future minimum rentals to be received under
subleases of $2.2 million. The above table also does not include the remaining
$2.5 million of capital commitments to the private equity funds described
above due to the uncertainty as to the timing of capital calls made by such
funds.

Accrued costs related to the reorganizations previously discussed are
expected to be paid in the following years:

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

RECENT ACCOUNTING PRONOUNCEMENTS

In December 2004, the Financial Accounting Standards Board (FASB) revised
Statement of Financial Accounting Standard (SFAS) No. 123 (SFAS No. 123-R) which
requires the measurement of the cost of employee services received in exchange
for an award of an equity instrument based on the grant-date fair value of the
award. The measured cost is to be recognized over the period during which an
employee is required to provide service in exchange for the award, usually the
vesting period. The provisions of this statement are effective for all employee
equity awards granted on or after July 1, 2005 and to any unvested awards
outstanding as of July 1, 2005. Retrospective application is permitted. The
adoption of this statement is expected to have a material adverse impact on our
results of operations. We are currently assessing the transition method we will
use upon adoption.

In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary
Assets, which eliminates the exception of fair value measurement for nonmonetary
exchanges of similar productive assets in existing accounting literature and
replaces it with an exception for exchanges that do not have commercial
substance. SFAS No. 153 specifies that a nonmonetary exchange has commercial
substance if the future cash flows of the entity are expected to change
significantly as a result of the exchange. The provisions of SFAS No. 153 are
effective for nonmonetary asset exchanges occurring in fiscal periods beginning
after June 15, 2005. Adoption of this statement is not expected to have a
material impact on our financial position and 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.

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 (except for any future acquisitions or mergers).
Therefore, we would not expect our operating results or cash flows to be
affected to

28

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. We invoice our United Kingdom customers in
pound sterling, the functional currency of our London subsidiary; our
continental European customers in euros, the functional currency of our
Amsterdam subsidiary and all other international customers in U.S. dollars. On a
global level, we face exposure to movements in foreign currency exchange rates.
This exposure may change over time as business practices evolve and could have a
material adverse impact on our results of operations. To date, the effect of
changes in currency exchange rates has not had a significant impact on our
financial position or our results of operations. Accordingly, we have not
entered into any hedging agreements. However, we are prepared to hedge against
fluctuations that the euro, or other foreign currencies, will have on foreign
exchange exposure if this exposure becomes material. As of December 31, 2004,
the total assets related to non-US dollar denominated currencies were
approximately $22.9 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 2004 Annual Report on Form 10-K under
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

29

FORRESTER RESEARCH, INC.

INDEX TO FINANCIAL STATEMENTS

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

On April 7, 2004, our Audit Committee of the Board of Directors dismissed
Deloitte & Touche LLP ("Deloitte") as Forrester's independent auditor and
approved the selection of BDO Seidman, LLP to serve as Forrester's independent
auditor for the fiscal year ended December 31, 2004.

Deloitte's reports on our consolidated financial statements for each of the
years ended December 31, 2003 and December 31, 2002 did not contain an adverse
opinion or disclaimer of opinion, nor were they qualified or modified as to
uncertainty, audit scope, or accounting principles. Deloitte's reports contained
explanatory paragraphs relating to the adoption of Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets" and the
application of procedures relating to certain disclosures of financial statement
amounts related to the 2001 financial statements that were audited by other
auditors who have ceased operations. During the years ended December 31, 2003
and December 31, 2002 and through the date hereof, there were no disagreements
with Deloitte on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure which, if not resolved to
Deloitte's satisfaction, would have caused it to make reference to the subject
matter in connection with its report on our consolidated financial statements
for such years. There were no reportable events as defined in Item 304(a)(1)(v)
of Regulation S-K.

We provided Deloitte with a copy of the foregoing disclosures. A letter
from Deloitte addressed to the Securities and Exchange Commission is included as
Exhibit 16 to this 2004 Annual Report on Form 10-K and states that Deloitte
agrees with such disclosure.

During the years ended December 31, 2003 and December 31, 2002 and through
April 7, 2004 (the date BDO Seidman, LLP was appointed), we did not consult BDO
Seidman, LLP with respect to the application of accounting principles to a
specified transaction, either completed or proposed, or the type of audit
opinion that might be rendered on our consolidated financial statements, or any
other matter that was either the subject of a disagreement (as defined in Item
304(a)(1)(iv) of Regulation S-K) or a reportable event (as described in Item
304(a)(1)(v) of Regulation S-K).

ITEM 9A. CONTROLS AND PROCEDURES

CONTROLS AND PROCEDURES

We have performed an evaluation under the supervision and with the
participation of our management, including our Chief Executive Officer (CEO) and
Chief Financial Officer (CFO), of the effectiveness of our disclosure controls
and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act
of 1934 (the Exchange Act). Based on that evaluation, our management, including
our CEO and CFO, concluded that our disclosure controls and procedures were
effective as of December 31, 2004 to ensure that information required to be
disclosed by us in the reports filed or submitted by us under the Exchange Act
is recorded, processed, summarized and reported within the time periods
specified in the SEC's rules and forms. As a result of this evaluation, there
were no significant changes in our internal control over financial reporting

30

during the three months ended December 31, 2004 that have materially affected,
or are reasonably likely to materially affect, our internal control over
financial reporting.

MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Our management is responsible for establishing and maintaining adequate
internal control over financial reporting as defined in Rule 13a-15(f) under the
Exchange Act. Our internal control system is designed to provide reasonable
assurance to our management and Board of Directors regarding the preparation and
fair presentation of published financial statements.

A control system, no matter how well conceived and operated, can provide
only reasonable, not absolute, assurance that the objectives of the internal
control system are met. Because of the inherent limitations of any internal
control system, no evaluation of controls can provide absolute assurance that
all control issues, if any, within a company have been detected.

We have performed an evaluation under the supervision and with the
participation of our management, including our CEO and CFO, of the effectiveness
of our internal control over financial reporting. Our management used the
framework in Internal Control -- Integrated Framework issued by the Committee of
Sponsoring Organizations (COSO) to perform this evaluation. Based on that
evaluation, our management, including our CEO and CFO, concluded that our
internal control over financial reporting was effective as of December 31, 2004.

Our management's assessment of the effectiveness of our internal control
over financial reporting as of December 31, 2004 has been audited by BDO
Seidman, LLP, an independent registered public accounting firm, as stated in
their report, which is included herein.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Forrester Research, Inc.:

We have audited management's assessment, included in the accompanying
Management's Report on Internal Control over Financial Reporting, that Forrester
Research, Inc. and subsidiaries (the "Company") maintained effective internal
control over financial reporting as of December 31, 2004, based on criteria
established in Internal Control -- Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO). The Company's
management is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal
control over financial reporting. Our responsibility is to express an opinion on
management's assessment and an opinion on the effectiveness of the Company's
internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating management's assessment, testing
and evaluating the design and operating effectiveness of internal control, and
performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our
opinion.

A company's internal control over financial reporting is a process designed
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of

31

the company are being made only in accordance with authorizations of management
and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition
of the company's assets that could have a material effect on the financial
statements.

Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.

In our opinion, management's assessment that the Company maintained
effective internal control over financial reporting as of December 31, 2004, is
fairly stated, in all material respects, based on criteria established in
Internal Control -- Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Also in our opinion, the
Company maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2004, based on criteria established in
Internal Control -- Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).

We have also audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the consolidated balance
sheet of Forrester Research, Inc. and subsidiaries as of December 31, 2004 and
the related consolidated statements of income, changes in stockholders' equity,
and cash flows for the year then ended, and our report dated March 14, 2005
expressed an unqualified opinion.

/s/ BDO SEIDMAN, LLP

Boston, Massachusetts
March 14, 2005

ITEM 9B. OTHER INFORMATION

None.

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 2004 Annual Report on Form 10-K under the
section captioned "Executive Officers". The information set forth under the
sections captioned "Election of Directors" and "Compliance with Section 16(a) of
the Securities Exchange Act of 1934" in our Proxy Statement for our Annual
Meeting of Stockholders for the year ended December 31, 2004 (the "2004 Proxy
Statement"), is incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

The information set forth under the caption "Executive Compensation" of the
2004 Proxy Statement, except for the Report of the Compensation Committee is
incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information relating to security ownership of certain beneficial owners
of our common stock and security ownership of our management may be found under
the section captioned "Security Ownership of Certain Beneficial Owners and
Management" in the 2004 Proxy Statement, and is incorporated herein by
reference. The information relating to the compensation plans under which our
equity securities are authorized for issuance may be found under the section
captioned "Equity Compensation Plan Information" in the 2004 Proxy Statement and
is incorporated herein by reference.
32

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 2004 Proxy
Statement and is incorporated herein by reference.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this item may be found under the section
captioned "Independent Auditors Fees and Matters" in the 2004 Proxy Statement
and is incorporated herein by reference.

PART IV

ITEM 15. 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 30.

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.

33

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 14, 2005

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

34

FINANCIAL STATEMENTS -- REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Forrester Research, Inc.:

We have audited the accompanying consolidated balance sheet of Forrester
Research, Inc. and subsidiaries (the "Company") as of December 31, 2004, and the
related consolidated statements of income, stockholders' equity, and cash flows
for the year then ended. 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 audit.

We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether 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
audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Forrester
Research, Inc. and subsidiaries as of December 31, 2004 and the results of their
operations and their cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the effectiveness of the
Company's internal control over financial reporting as of December 31, 2004,
based on criteria established in Internal Control -- Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)
and our report dated March 14, 2005 expressed an unqualified opinion.

/s/ BDO SEIDMAN, LLP

Boston, Massachusetts
March 14, 2005

F-1

REPORT OF INDEPENDENT REGISTERED ACCOUNTING FIRM

To the Board of Directors and Stockholders of
Forrester Research, Inc.:

We have audited the accompanying consolidated balance sheet of Forrester
Research, Inc. and subsidiaries (the "Company") as of December 31, 2003, and the
related consolidated statements of income, stockholders' equity, and cash flows
for the years ended December 31, 2003 and 2002. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on the 2003 and 2002 financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company was not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. 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 2003 and 2002 consolidated financial statements present
fairly, in all material respects, the financial position of the Company as of
December 31, 2003, and the results of its operations and its cash flows for the
years ended December 31, 2003 and 2002, in conformity with accounting principles
generally accepted in the United States of America.

/s/ DELOITTE & TOUCHE LLP

Boston, Massachusetts
March 11, 2004
(March 14, 2005 with respect to Note 13)

F-2

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-3

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-4

FORRESTER RESEARCH, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)

The accompanying notes are an integral part of these consolidated financial
statements.
F-5

FORRESTER RESEARCH, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

The accompanying notes are an integral part of these consolidated financial
statements.
F-6

FORRESTER RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004

(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES

BUSINESS

Forrester Research, Inc. ("Forrester" or the "Company") is an independent
technology research company that conducts research and provides pragmatic and
forward-thinking advice about technology's impact on business. Forrester's
products and services are targeted to senior management, business strategists,
and marketing and technology professionals at $1 billion-plus companies who
collaborate with Forrester to align their technology investments with their
business goals.

PRINCIPLES OF CONSOLIDATION

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

MANAGEMENT ESTIMATES

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Forrester considers the more significant of these
estimates to be revenue recognition, allowance for doubtful accounts,
non-marketable investments, goodwill and intangible assets and income taxes. On
an ongoing basis, management evaluates its estimates. Actual results could
differ from these estimates.

FINANCIAL INSTRUMENTS

Forrester's financial instruments consist of cash equivalents, marketable
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.

CASH, CASH EQUIVALENTS, AND MARKETABLE INVESTMENTS

Forrester considers all short-term, highly liquid investments with original
maturities at the time of purchase of 90 days or less to be cash equivalents.
Forrester accounts for investments in marketable securities as
available-for-sale securities in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 115, Accounting for Certain Investments in
Debt and Equity Securities. 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. Forrester
continually evaluates whether any marketable investments have been impaired and,
if so, whether such impairment is temporary or other than temporary.

CONCENTRATIONS OF CREDIT RISK

Forrester has no significant off-balance sheet 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.

F-7

FORRESTER RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

DEFERRED COMMISSIONS

Commissions incurred in acquiring new or renewing existing contracts are
deferred and expensed to operations as the related revenue is recognized.
Forrester evaluates the recoverability of deferred commissions at each balance
sheet date.

INTANGIBLE ASSETS AND IMPAIRMENT OF LONG-LIVED ASSETS SUBJECT TO AMORTIZATION

Forrester continually evaluates whether events or circumstances have
occurred that indicate that the estimated remaining useful life of long-lived
assets and certain identifiable intangible assets may warrant revision or that
the carrying value of these assets may be impaired. To compute whether assets
have been impaired, the estimated undiscounted future cash flows for the
estimated remaining useful life of the assets are compared to the carrying
value. To the extent that the future cash flows are less than the carrying
value, the assets are written down to the estimated fair value of the asset.

FOREIGN CURRENCY

The functional currencies of Forrester's wholly owned subsidiaries are
their 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.

ACCUMULATED OTHER COMPREHENSIVE LOSS

The components of accumulated other comprehensive loss as of December 31,
2003 and 2004 are as follows (in thousands):

REVENUE RECOGNITION

Forrester generates revenues from licensing research, performing advisory
services and hosting events. Forrester executes contracts that govern the terms
and conditions of each arrangement. Revenues from contracts that contain
multiple deliverables are allocated among the separate units based on their
relative fair values; however, the amount recognized is limited to the amount
that is not contingent on future performance conditions. Research service
revenues are recognized ratably over the term of the agreement. Advisory
services are recognized during the period in which the services are performed.
Events revenues are recognized upon completion of the events. While historical
business practice has been to offer contracts with a non-cancelable term,
Forrester does from time to time, in response to competitive conditions, offer
clients the right to cancel their contracts prior to the end of the contract
term. For these cancelable contracts that can be terminated during the contract
term, any refund would be issued on a pro-rata basis only. Reimbursed out of
pocket expenses are recorded as advisory revenue.

F-8

FORRESTER RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

STOCK-BASED COMPENSATION

SFAS No. 123, Accounting for Stock-Based Compensation, and SFAS No. 148,
Accounting for Stock-Based Compensation -- Transition and Disclosure, require
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 for 2004 to continue to account for stock-based
compensation for employees under Accounting Principles Board ("APB") Opinion No.
25 and elect the disclosure-only alternative under SFAS No. 123. There is no
compensation expense related to option grants reflected in the accompanying
consolidated financial statements.

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, 2002,
2003 and 2004 would have been approximately as follows (in thousands, except per
share data):

The assumptions underlying this computation are included in Note 10 to the
consolidated financial statements.

DEPRECIATION AND AMORTIZATION

Forrester provides for depreciation and amortization of property and
equipment, computed using the straight-line method, over estimated useful lives
of assets as follows:

Forrester provides for amortization of intangible assets, computed using an
accelerated method according to the expected cash flows to be received from the
underlying assets over the respective lives as follows:

F-9

FORRESTER RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

INCOME TAXES

Forrester's provision (benefit) for income taxes is composed of a current
and a deferred provision. The current income tax provision is calculated as the
estimated taxes payable or refundable on tax returns for the current year. The
deferred income tax provision is calculated for the estimated future tax effects
attributable to temporary differences and carryforwards using expected enacted
tax rates in effect in the years during which the differences are expected to
reverse. Valuation allowances are provided if, based on the weight of available
evidence, it is more likely than not that some or all of the deferred tax assets
will not be realized.

NET INCOME PER COMMON SHARE

Basic net income per common share is computed by dividing net income by the
basic weighted average number of common shares outstanding during the period.
Diluted net income per common share is computed by dividing net income by the
diluted weighted average number of common 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, 2002, 2003 and 2004, options to purchase approximately
3,428,000, 1,980,000, and 3,391,000 shares of common stock, respectively, were
outstanding but not included in the diluted weighted average common share
calculation as the effect would have been anti-dilutive.

RECENT ACCOUNTING PRONOUNCEMENTS

In December 2004, the Financial Accounting Standards Board (FASB) revised
SFAS No. 123 (SFAS No. 123-R) which requires the measurement of the cost of
employee services received in exchange for an award of an equity instrument
based on the grant-date fair value of the award. The measured cost is to be
recognized over the period during which an employee is required to provide
service in exchange for the award, usually the vesting period. The provisions of
this statement are effective for all employee equity awards granted on or after
July 1, 2005 and to any unvested awards outstanding as of July 1, 2005.
Retrospective application is permitted. The adoption of this statement is
expected to have a material adverse impact on Forrester's results of operations.
Forrester is currently assessing the transition method to be used upon adoption.

In December 2004, the FASB issued SFAS No. 153, Exchanges of Non-monetary
Assets, which eliminates the exception of fair value measurement for nonmonetary
exchanges of similar productive assets in existing accounting literature and
replaces it with an exception for exchanges that do not have commercial
substance. SFAS No. 153 specifies that a nonmonetary exchange has commercial
substance if the future cash flows of the entity are expected to change
significantly as a result of the exchange. The provisions of SFAS No. 153 are
effective for nonmonetary asset exchanges occurring in fiscal periods beginning
after June 15, 2005. Adoption of this statement is not expected to have a
material impact on Forrester's financial position or results of operations.

F-10

FORRESTER RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(2) ACQUISITIONS

GIGA INFORMATION GROUP, INC.

On February 28, 2003, Forrester acquired Giga Information Group, Inc.
("Giga"), a global technology advisory firm, pursuant to a cash tender offer and
second step merger. The acquisition increased the number of client companies.
The aggregate purchase price was $62,510,000 in cash which consisted of
$60,347,000 for the acquisition of all outstanding shares of Giga common stock;
$981,000 of direct acquisition costs; and $1,182,000 for severance related to 27
employees of Giga terminated as a result of the acquisition. The results of
Giga's operations have been included in Forrester's consolidated financial
statements since February 28, 2003. Forrester elected to treat the acquisition
of Giga as a stock purchase for income tax purposes and, accordingly, the
goodwill and intangible assets are not deductible for income tax purposes.

Integration costs related to the acquisition of Giga are primarily related
to orientation events to familiarize Forrester and Giga employees and data
migration. These are reflected as a separate component of income from
operations.

The following table summarizes the estimated fair values of the Giga assets
acquired and liabilities assumed.

The acquired intangible assets are being amortized using an accelerated
method according to the expected cash flows to be received from the underlying
assets over their respective lives as follows:

F-11

FORRESTER RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The weighted-average useful life of the total acquired intangible assets is
5 years. Amortization expense related to the identifiable intangible assets
acquired from Giga was approximately $8,421,000 and $5,412,000 during the years
ended December 31, 2003 and 2004, respectively.

As of December 31, 2004, $27,613,000 of the goodwill from the acquisition
was allocated to the North American reporting unit and $8,361,000 was allocated
to the European reporting unit. As of December 31, 2003, $31,522,000 of the
goodwill from the acquisition was allocated the North American reporting unit
and $8,361,000 was allocated to the European reporting unit. In 2004, Forrester
recognized $3,818,000 of deferred tax assets related to the acquisition which
reduced the original goodwill which was allocated to the North American
reporting unit.

The following table presents pro forma financial information as if the
acquisition of Giga had been completed as of January 1, 2002.

GIGAGROUP S.A.

As part of the acquisition discussed above, Forrester acquired an equity
investment in GigaGroup S.A. ("GigaGroup"). GigaGroup was created in 2000
through the spin-off of Giga's French subsidiary, and held an exclusive
agreement to distribute all Giga research and certain services in France,
Belgium, Netherlands, Luxemburg, Switzerland, Italy, Spain, and Portugal. During
2003, prior to the acquisition discussed below, Forrester recognized revenues of
approximately $964,000 related to this distribution agreement.

On November 30, 2003, Forrester acquired the assets of GigaGroup (excluding
the CXP International portion of the business). The acquisition increased the
number of client companies and allows Forrester to sell Giga research and
services in France, Belgium, Netherlands, Luxemburg, Switzerland, Italy, Spain
and Portugal. The aggregate purchase price of $4,124,000 consisted of $2,866,000
in cash, $118,000 of direct acquisition costs, $521,000 of outstanding accounts
receivable due to Forrester and the contribution of the equity investment in
GigaGroup valued at $619,000. Prior to the acquisition, the equity investment of
$1,215,000 was accounted for using the cost method and, accordingly, was valued
at cost unless a permanent impairment in its value occurred or the investment
was liquidated. In connection with the acquisition, an impairment of $596,000 to
the carrying value of the investment was included in impairments of non-
marketable investments in the consolidated statements of income and, as such,
the remaining value of the investment of $619,000 was included in the purchase
price.

Forrester elected to treat the acquisition of GigaGroup as an asset
purchase for income tax purposes and, as such, the goodwill and intangible
assets are deductible for income tax purposes.

The results of GigaGroup's operations have been included in Forrester's
consolidated financial statements since December 1, 2003. GigaGroup'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.

F-12

FORRESTER RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table summarizes the estimated fair values of the GigaGroup
assets acquired and liabilities assumed which reflects the final allocation of
purchase price in 2004.

The acquired intangible asset is being amortized using an accelerated
method according to the expected cash flows to be received from the underlying
asset over its respective life as follows:

Amortization expense related to the identifiable intangible asset acquired
from GigaGroup was approximately $80,000 and $922,000 during the years ended
December 31, 2003 and 2004, respectively.

The goodwill of $3,879,000 and $3,657,000 as of December 31, 2003 and 2004,
respectively, was allocated to the European reporting unit.

(3) GOODWILL AND OTHER INTANGIBLE ASSETS

SFAS No. 142, Goodwill and Other Intangible Assets, requires that goodwill
and intangible assets with indefinite lives no longer be amortized but instead
be measured for impairment at least annually or whenever events indicate that
there may be an impairment. Forrester adopted SFAS No. 142 effective January 1,
2002. In connection with the SFAS No. 142 transitional goodwill impairment
evaluation, Forrester was required to perform an assessment whether there was an
indication that goodwill was impaired as of the date of adoption. Through an
independently obtained appraisal, it was determined that the carrying amount of
goodwill did not exceed fair value and as a result no transitional impairment
loss existed. Forrester has selected November 30th as its date of performing the
annual goodwill impairment test. Forrester compared each reporting unit's
carrying value to its estimated fair value as of November 30, 2004 and
determined that no impairment of its goodwill had occurred.

F-13

FORRESTER RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

A summary of Forrester's intangible assets as of December 31, 2003 and 2004
is as follows:

Amortization expense related to identifiable intangible assets was
approximately $328,000, $8,778,000 and $6,461,000 during the years ended
December 31, 2002, 2003 and 2004, respectively. Estimated amortization expense
related to identifiable intangible assets that will continue to be amortized is
as follows:

(4) REORGANIZATIONS

JANUARY 28, 2004 REORGANIZATION

On January 28, 2004, Forrester announced a reduction of its workforce by
approximately 15 positions in connection with the integration of GigaGroup's
operations. As a result, Forrester recorded an initial reorganization charge of
approximately $9.1 million in the year ended December 31, 2004. Approximately
53% of the terminated employees had been members of the sales force, while 27%
and 20% had held administrative and research roles, respectively. The initial
charge consisted primarily of severance and related benefits costs, office
consolidation costs, such as contractual lease commitments for space that was
vacated, the write-off of related leasehold improvements and furniture and
fixtures, and other payments for professional services incurred in connection
with the reorganization.

F-14

FORRESTER RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The costs related to the January 28, 2004 reorganization are as follows:

The accrued costs related to the January 28, 2004 reorganization are
expected to be paid in the following periods:

AUGUST 5, 2003 REORGANIZATION

On August 5, 2003, Forrester announced a reduction of its work force by
approximately 30 positions in connection with the integration of Giga. As a
result, Forrester recorded a reorganization charge of approximately $1.2 million
in the year ended December 31, 2003. Approximately 53% of the terminated
employees had been members of the sales force, while 35% and 12% had held
research and administrative roles, respectively. The charge consisted primarily
of severance and related benefits costs, and other payments for professional
services incurred in connection with the reorganization.

The costs related to the August 5, 2003 reorganization are as follows:

The remaining liabilities associated with the August 5, 2003 reorganization
were paid in 2004 and accordingly there was no accrual remaining at December 31,
2004.

JULY 24, 2002 REORGANIZATION

On July 24, 2002, Forrester announced a reduction of its work force by
approximately 21 positions in response to conditions and demands of the market.
As a result, Forrester recorded an initial reorganization charge of
approximately $2.6 million during the year ended December 31, 2002.
Approximately 31% of the terminated employees were members of the sales force,
while 41% and 28% held research and administrative roles, respectively. The
initial charge consisted primarily of severance and related benefits costs,
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 consisted primarily of
computer equipment, software and furniture and fixtures related to vacated
locations in connection with the reorganization.

F-15

FORRESTER RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In 2003, Forrester revised the estimates of the July 24, 2002
reorganization charge to provide for additional losses for office consolidation
costs resulting in an additional reorganization charge of $269,000.

Total costs related to the July 24, 2002 reorganization are as follows:

The accrued costs related to the July 24, 2002 reorganization are expected
to be paid in the following periods:

JANUARY 10, 2002 REORGANIZATION

On January 10 2002, Forrester announced a reduction of its work force by
approximately 126 positions in response to conditions and demands of the market
and a slower economy. As a result, Forrester recorded an initial reorganization
charge of approximately $9.3 million in the three months ended March 31, 2002.
Approximately 39% of the terminated employees were members of the sales force,
while 33% and 28% held research and administrative roles, respectively. The
initial charge consisted primarily of severance and related benefits costs,
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 included computer equipment,
software, and furniture and fixtures related to terminated employees and vacated
locations in connection with the reorganization.

During the three months ended September 30, 2002, Forrester revised the
estimates of the January 2002 reorganization charge to provide for additional
losses for office consolidation costs and the write-off of related
F-16

FORRESTER RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

leasehold improvements due to deteriorating real estate market conditions. As a
result, Forrester recorded an additional reorganization charge during the three
months ended September 30, 2002 of approximately $593,000. Forrester also
concluded that approximately $74,000 of the initial reorganization charge
associated with severance was excess, and accordingly, reversed that amount
through reorganization costs in the statement of income during the three months
ended September 30, 2002.

In 2003, Forrester revised the estimates of the January 2002 reorganization
charge to provide for additional losses for office consolidation costs due to
the continued deteriorating real estate market conditions resulting in an
additional reorganization charge of $1.1 million.

In 2004, Forrester concluded that approximately $668,000 of the initial
reorganization charge associated with contractual lease commitments for space
that was vacated was excess, and accordingly, reversed that amount through
reorganization costs in the statement of income during the year ended December
31, 2004.

Total costs related to the January 10, 2002 reorganization are as follows:

The accrued costs related to the January 10, 2002 reorganization are
expected to be paid in 2005.

JULY 12, 2001 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 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
during the year ended December 31, 2001. During the three months ended March 31,
2002, management concluded that approximately $163,000 of the reorganization
charge was excess, and accordingly, reversed that amount through reorganization
costs in the statement of income during that period. All liabilities associated
with the July 12, 2001 reorganization were paid in 2001 or 2002, accordingly,
there was no accrual remaining at December 31, 2004.

(5) MARKETABLE SECURITIES

Forrester's available-for-sale securities at December 31, 2004 consist of
$88.1 million of investments in debt securities consisting of federal
obligations, state and municipal bonds and corporate bonds and

F-17

FORRESTER RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

$2.0 million in equity securities. All investments are recorded at fair market
value, with any unrealized gains and losses reported as a separate component of
accumulated other comprehensive income (loss).

The aggregate market value, amortized cost, unrealized gains and unrealized
losses of the investments in federal obligations, state and municipal bonds and
corporate bonds, are as follows (in thousands):

The following table summarizes the maturity periods of the federal
obligations, state and municipal bonds and corporate bonds as of December 31,
2004:

The following table shows the gross unrealized losses and market value of
Forrester's investments with unrealized losses that are not deemed to be
other-than-temporarily impaired, aggregated by investment category and length of
time that individual securities have been in a continuous unrealized position:

The unrealized losses in all investment types were caused by increasing
market interest rates. The contractual terms of these investments do not permit
the issuer to settle the securities at a price less than the amortized cost of
the investment. Because Forrester has the ability and the intent to hold these
investments until a recovery of market value, Forrester does not consider these
investments to be other-than-temporarily impaired at December 31, 2004.

F-18

FORRESTER RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Gross realized losses on sales of the federal obligations, state and
municipal bonds and corporate bonds for the year ended December 31, 2002 which
were calculated based on specific identification, were approximately $287,000.
Gross realized gains on sales of the federal obligations, state and municipal
bonds and corporate bonds for the years ended December 31, 2003 which were
calculated based on specific identification were approximately $509,000.

Forrester owns common stock of Greenfield Online, Inc. ("Greenfield"), an
Internet-based market research firm. In July 2004, Greenfield (NASDAQ: SRVY)
completed an initial public offering. Upon consummation of the offering,
Forrester received a conversion payment of approximately $463,000, and
participated in the offering by selling approximately 21,000 shares for which
Forrester received net proceeds of approximately $256,000. In December 2004,
Forrester sold approximately 26,000 shares and received net proceeds of
approximately $445,000. Accordingly, in the year ended December 31, 2004,
Forrester recognized a gain of approximately $1.1 million related to these
sales. As of December 31, 2004, the fair value of this investment is
approximately $2.0 million.

(6) NON-MARKETABLE INVESTMENTS

At December 31, 2003 and 2004, the carrying value of non-marketable
investments is as follows (in thousands):

In June 2000, Forrester committed to invest $20.0 million in two
technology-related private equity investment funds with capital contributions
required to be funded over a period of up to five years. During the years ended
December 31, 2003 and 2004, Forrester contributed approximately $3.3 million and
$2.4 million, respectively, to these investment funds, resulting in total
cumulative contributions of approximately $17.9 million to date. One of these
investments is being accounted for using the cost method and, accordingly, is
valued at cost unless an other than temporary impairment in its value occurs or
the investment is liquidated. The other investment is being accounted for using
the equity method. During the years ended December 31, 2002 and 2003, Forrester
recorded net impairments to these investments of approximately $2,383,000 and
$861,000, respectively, which are included in the consolidated statements of
income. During the years ended December 31, 2003 and 2004, gains of $419,000 and
$281,000, respectively, were recorded in the consolidated statements of income
related to distributions received. During the years ended December 31, 2002,
2003 and 2004, fund management charges of approximately $484,000, $410,000 and
$338,000, respectively, were included in other income, net in the consolidated
statements of income. Fund management charges are recorded as a reduction of the
investments' carrying value.

Forrester has adopted a cash bonus plan to pay bonuses, after the return of
invested capital, measured by the proceeds of a portion of its share of net
profits from these investments, if any, to certain key employees, subject to the
terms and conditions of the plan. The payment of such bonuses would result in
compensation expense with respect to the amounts so paid. To date, no bonuses
have been paid under this plan. The principal purposes of this cash bonus plan
was to retain key employees by allowing them to participate in a portion of the
potential return from Forrester's technology-related investments if they
remained employed by the Company. The plan was established at a time when
technology and internet companies were growing

F-19

FORRESTER RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

significantly, and providing incentives to retain key employees during that time
was important.

In December 2003, Forrester committed to invest an additional $2.0 million
over an expected capital contribution period of 2 years in an annex fund of one
of the two private equity investment funds. The annex fund investment is outside
of the scope of the previously mentioned bonus plan. During the year ended
December 31, 2004, Forrester contributed $1.6 million to this annex fund. This
investment is being accounted for using the cost method and, accordingly, is
valued at cost unless an other than temporary impairment in its value occurs or
the investment is liquidated.

The timing of the recognition of future gains or losses from these
investment funds is beyond Forrester's control. As a result, it is not possible
to predict when Forrester will recognize such gains or losses, if Forrester will
award cash bonuses based on the net profit from such investments, or when
Forrester will incur compensation expense in connection with the payment of such
bonuses. If the investment funds realize large gains or losses on their
investments, Forrester could experience significant variations in its quarterly
results unrelated to its business operations. These variations could be due to
significant gains or losses or to significant compensation expenses. While gains
may offset compensation expenses in a particular quarter, there can be no
assurance that related gains and compensation expenses will occur in the same
quarters.

During the years ended December 31, 2002, 2003 and 2004, Forrester
recognized revenues of approximately $234,000, $133,000, and $188,000
respectively, related to a core research and advisory services contract
purchased by one of the private equity investment firms.

In March 2000, Forrester invested $1.0 million in the common stock of
Doculabs, Inc. ("Doculabs"), an independent technology research firm. 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 2003, Forrester determined that its investment had been
impaired. As a result, Forrester recorded a write-down of $1,186,000 to
impairments (gains) from non-marketable investments in the consolidated
statement of income during the year ended December 31, 2003. As of December 31,
2004, Forrester determined that no further impairment had occurred.

During the years ended December 31, 2002 and 2003, Forrester expensed
approximately $931,000, and $11,000, respectively, to the cost of services and
fulfillment related to services purchased from Doculabs.

In July 2000, Forrester invested $1.6 million to purchase preferred shares
of comScore Networks, Inc. ("comScore"), a provider of infrastructure services
which utilizes proprietary technology to accumulate comprehensive information on
consumer buying behavior, resulting in approximately a 1.2% ownership interest.
This investment is being accounted for using the cost method and, accordingly,
is valued at cost unless a permanent impairment in its value occurs or the
investment is liquidated. In September 2001, Forrester determined that its
investment in comScore had been permanently impaired due to an additional round
of financing at a significantly lower valuation. As a result, Forrester recorded
a write-down of $836,000 in the consolidated statement of income. In June 2002,
Forrester determined that its investment in comScore had been permanently
impaired due to an additional round of financing at a significantly lower
valuation. As a result, Forrester recorded a write-down of $271,000 in the
consolidated statement of income. In June 2003, Forrester determined that its
investment in comScore had been permanently impaired due to an additional round
of financing at a significantly lower valuation. As a result, Forrester recorded
a further write-down of $130,000 in the consolidated statement of income. As of
December 31, 2004, Forrester determined that no further permanent impairment had
occurred.

As of December 31, 2003, Forrester owned an approximately 1.1% ownership in
a holding company that was a majority shareholder of Greenfield Online, Inc.
("Greenfield"), an Internet-based market research firm. As a result of this
investment, Forrester effectively owned approximately a 1.1% ownership in
Greenfield. This

F-20

FORRESTER RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

investment was being accounted for using the cost method and, accordingly, was
being valued at cost unless an impairment in its value that is other than
temporary occurs or the investment is liquidated. No impairments were recorded
for 2002 and 2003. In July 2004, Greenfield (NASDAQ: SRVY) completed an initial
public offering in which Forrester's ownership interest was converted to
approximately 136,000 shares. As of December 31, 2004, the remaining investment
of approximately $2.0 million was included in marketable securities in the
accompanying consolidated balance sheet.

In September 2001, Forrester sold its Internet AdWatch(TM) product to
Evaliant Media Resources LLC ("Evaliant"), a privately held international
provider of online advertising data, in exchange for membership interest in
Evaliant representing approximately a 8.3% ownership interest. This investment
was being accounted for using the cost method and, accordingly, was being valued
at cost unless an impairment in its value that was other than temporary occurred
or the investment was liquidated. In March 2002, Forrester determined that its
investment had been impaired. As a result, Forrester recorded a write-down of
approximately $1,464,000, which was included in the consolidated statement of
income during the year ended December 31, 2002, reducing the carrying value to
approximately $250,000. Substantially all of Evaliant's assets were sold in June
2002 resulting in no gain or loss on the transaction.

(7) INCOME TAXES

Forrester accounts for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes. SFAS No. 109 requires the recognition of deferred
tax assets and liabilities for the expected future tax consequences of temporary
differences between the financial statement and tax base of assets and
liabilities as well as operating loss carryforwards. Forrester measures deferred
taxes based on enacted tax rates assumed to be in effect when these differences
reverse.

Income (loss) before income tax provision (benefit) for the years ended
December 31, 2002, 2003, and 2004 consists of the following (in thousands):

The components of the income tax provision (benefit) for the years ended
December 31, 2002, 2003, and 2004 are as follows (in thousands):

F-21

FORRESTER RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

A reconciliation of the federal statutory rate to Forrester's effective tax
rate for the years ended December 31, 2002, 2003 and 2004 is as follows:

The components of deferred income taxes as of December 31, 2003 and 2004
are as follows (in thousands):

Forrester has aggregate net operating loss carryforwards for federal tax
purposes of approximately $118.3 million primarily related to exercises of
employee stock options and operating loss carryforwards acquired in connection
with the acquisition of Giga. The net operating losses relating to the exercises
of stock options were recorded as a benefit to additional paid-in capital within
stockholders' equity and will expire between the years 2012 and 2023. The use of
these net operating loss carryforwards may be limited pursuant to Internal
Revenue Code Section 382 as a result of future ownership changes.

During the year ended December 31, 2004, Forrester reversed $600,000 of
valuation allowance primarily related to its state net operating losses because
utilization of these carryforwards became probable. Forrester has not provided a
valuation allowance for the remaining net deferred tax assets, primarily its
federal net operating loss carryforwards, as management believes Forrester will
have sufficient time to realize these assets during the applicable carryforward
period.

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-22

FORRESTER RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

temporary differences become deductible and the carryforwards expire. 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 and the carryforwards
expire, 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 carry-forward period are reduced.

No amount for U.S. income tax has been provided on undistributed earnings
of Forrester's foreign subsidiaries because Forrester considers such earnings to
be indefinitely reinvested. In the event of distribution of those earnings in
the form of dividends or otherwise, the Company would be subject to both U.S.
income taxes, subject to an adjustment, if any, for foreign tax credits and
amounts already included in U.S. income under I.R.C. Section 956, and foreign
withholding taxes payable to certain foreign tax authorities. Determination of
the amount of U.S. income tax liability that would be incurred is not
practicable because of the complexities associated with the hypothetical
calculation.

The calculation of Forrester's tax liabilities includes addressing
uncertainties in the application of complex tax regulations in a multitude of
jurisdictions. Forrester recognizes liabilities for anticipated tax audit issues
in the U.S. and other tax jurisdictions based on estimates of whether, and to
the extent to which, additional taxes would be due. If payment of these amounts
proves to be unnecessary, the reversal of the liabilities would result in tax
benefits being recognized in the period in which it is determined that the
liabilities are no longer necessary. If the estimate of tax liabilities proves
to be less than the ultimate assessment, a further charge to expense would
result. Uncertainties are recorded in accordance with SFAS No. 5, Loss
Contingencies. As of December 31, 2004, Forrester has accrued $1.2 million
related to probable and reasonably estimable losses resulting from tax matters
including, but not limited to, transfer pricing, foreign audits and statutory
reorganizations.

(8) COMMITMENTS

Forrester leases its office space and certain office equipment under
operating leases. Approximate future minimum rentals for operating leases are as
follows (in thousands):

2005........................................................ $ 9,100
2006........................................................ 7,205
2007........................................................ 7,649
2008........................................................ 6,315
2009........................................................ 7,246
Thereafter.................................................. 9,650
-------
Total minimum lease payments.............................. $47,165
=======

Future minimum rentals have not been reduced by minimum sublease rentals to
be received of $2,232,000 due in the future under subleases. These rentals are
due as follows: $1,181,000 in 2005, $721,000 in 2006, and $330,000 in 2007.

Aggregate rent expenses, net of sublease income, were approximately
$8,323,000, $7,688,000 and $7,711,000 for the years ended December 31, 2002,
2003, and 2004, respectively.

F-23

FORRESTER RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(9) STOCKHOLDERS' EQUITY

PREFERRED STOCK

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

TREASURY STOCK

In October 2001, Forrester announced a program authorizing the repurchase
of up to $50 million of Forrester's common stock. The shares repurchased were
used, among other things, in connection with Forrester's employee stock option
and purchase plans. As of December 31, 2004, Forrester had repurchased
approximately 3,045,000 shares of common stock at an aggregate cost of $50.1
million, including commissions paid for the acquisition of the common stock. In
February 2005, the Board of Directors authorized an additional $50.0 million to
purchase common stock under the stock repurchase program.

During the three months ended March 31, 2004, Forrester entered into a
structured stock repurchase agreement giving Forrester the right to acquire
shares of Forrester's common stock in exchange for an up-front net payment of
$1.5 million. The $1.5 million up-front net payment was recorded in
stockholders' equity as a reduction of additional paid-in capital. Upon
expiration of this agreement in May 2004, Forrester received approximately $1.6
million in cash which was recorded as an increase to additional paid-in capital
in the accompanying consolidated balance sheet.

During the three month period ended December 31, 2003, Forrester entered
into a similar agreement in exchange for an up-front net payment of $2.0
million. Upon expiration of this agreement in February 2004, Forrester received
119,000 shares which was recorded as treasury stock. During each of the three
month periods ended March 31, 2003, June 30, 2003 and September 30, 2003,
Forrester entered into similar agreements in exchange for up-front net payments
of $2.0 million. Upon expiration of each of these agreements, Forrester received
approximately $2.1 million of cash. During each of the three month periods ended
September 30, 2002 and December 31, 2002, Forrester entered into similar
agreements in exchange for up-front net payments of $2.0 million. Upon
expiration of each of these agreements, in 2002 and 2003, respectively,
Forrester received 143,524 and 144,291 shares, respectively, which were recorded
as treasury stock.

(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 described in the Plan.

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. The Directors' Plan
was amended in 2002 to increase the number of shares of common stock available
for issuance under the Directors' Plan by 300,000 shares. The Directors' Plan is
administered by the Compensation Committee of the Board of Directors (the
"Compensation Committee"). Under the Directors' Plan, each non-employee director
shall be awarded options to purchase 6,000 shares of common stock, at an

F-24

FORRESTER RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 12,500 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 vest in four equal installments on the first, second, third, and fourth
anniversaries of the date of grant. 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, 2001, to December 31, 2004, was as follows (in thousands, except
per share data):

F-25

FORRESTER RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table summarizes information about stock options outstanding
and exercisable at December 31, 2004 (in thousands, except per share data):

As of December 31, 2004, options available for future grant under the Plan
and the Directors' Plan were approximately 2,574,000.

As described in Note 1, Forrester applies APB No. 25 to account for equity
grants and awards to employees. All grants have been made with exercise prices
equal to or in excess of fair market value. Accordingly, there is no
compensation expense related to option grants reflected in the accompanying
consolidated financial statements as all options granted were granted at fair
market value at grant date. Forrester has adopted the disclosure-only provisions
of SFAS No. 123, as amended by SFAS No. 148, and has presented such disclosure
in Note 1. The "fair value" of each option grant is estimated on the date of
grant using the Black-Scholes option pricing model. The key assumptions used to
apply this pricing model and the related weighted average fair values are as
follows:

In January 1998, Forrester's founder and principal shareholder granted
certain key employees options to purchase 2,000,000 shares of his common stock
at an exercise price of $9.57 which was the fair market value on the date of
grant. As of December 31, 2004, approximately 70,500 options remained
outstanding, all of which were exercisable.

(11) EMPLOYEE PENSION PLANS

Forrester sponsors several defined contribution plans for eligible
employees. Generally, the defined contribution plans have funding provisions
which, in certain situations, require contributions based upon formulas relating
to employee wages or the level of elective participant contributions, as well as
allow for additional discretionary contributions. Further, certain plans contain
vesting provisions. Forrester's pension contributions totaled approximately
$762,000, $1,046,000, and $1,243,000 for the years ended December 31, 2002,
2003, and 2004, respectively.

F-26

FORRESTER RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(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 was amended in 2002 to increase
the number of shares of common stock available for purchase under the Stock
Purchase Plan by 500,000 shares. The Stock Purchase Plan is administered by the
Compensation Committee of the Board of Directors. With certain limited
exceptions, all employees of Forrester who have completed six months or more of
continuous service in the employ of Forrester and whose customary employment is
more than 20 hours per week, including officers and directors who are employees,
are eligible to participate in the Stock Purchase Plan. Purchase periods under
the Stock Purchase Plan are generally six months in length and commence on each
successive January 1 and July 1. During each purchase period under the Stock
Purchase Plan, the maximum number of shares of common stock that may be
purchased by an employee is limited to the number of shares equal to $12,500
divided by the fair market value of a share of common stock on the first day of
the purchase period. An employee may elect to have up to 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
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

During 2004, Forrester began to view its operations within the following
three operating groups ("Operating Groups"): (i) North America, (ii) Europe and,
(iii) World Markets which includes Asia, Middle East, Africa, and Latin America.
Prior to 2004, Forrester had viewed its operations principally as one segment.
Accordingly, 2003 and 2002 segment information has been prepared in a manner
consistent with the 2004 presentation. Effective January 1, 2005, Forrester
reorganized the operating groups to the Americas, Asia Pacific and Europe,
Middle East and Africa (EMEA). All of the Operating Groups generate revenues
through sales of the same research, advisory and other service offerings. Each
of the Operating Groups is composed of sales forces responsible for clients
located in such Operating Group's region and research personnel focused
primarily on issues generally more relevant to clients in that region. Forrester
evaluates reportable segment performance and allocates resources based on direct
margin. Direct margin, as presented below, is defined as operating income
excluding certain selling and marketing expenses, general and administrative
expenses, depreciation expense, amortization of intangibles, reorganization
charges and integration charges. The accounting policies used by the reportable
segments are the same as those used by Forrester.

Forrester does not identify or allocate assets, including capital
expenditures, by operating segment. Accordingly, assets are not being reported
by segment because the information is not available by segment and is not
reviewed in the evaluation of performance or making decisions in the allocation
of resources.

F-27

FORRESTER RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following tables present information about reportable segments.

Long-lived assets by location as of December 31, 2003 and 2004 are as
follows (in thousands):

F-28

FORRESTER RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Net revenues by geographic destination and as a percentage of total
revenues for the years ended December 31, 2002, 2003, and 2004 are as follows
(dollars in thousands):

(14) CERTAIN BALANCE SHEET ACCOUNTS

PROPERTY AND EQUIPMENT:

Property and equipment as of December 31, 2003 and 2004 consist of the
following (in thousands):

ACCRUED EXPENSES:

Accrued expenses as of December 31, 2003 and 2004 consist of the following
(in thousands):

F-29

FORRESTER RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

ALLOWANCE FOR DOUBTFUL ACCOUNTS:

A roll-forward of the allowance for doubtful accounts as of and for the
years ended December 31, 2002, 2003, and 2004 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, 2003 and 2004 (in thousands, except per share data):

F-30

EXHIBIT INDEX

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

+ Denotes management contract or compensation arrangements.

(1) Filed as an Exhibit to Forrester's Current Report on Form 8-K filed on
November 30, 1999 (File No. 000-21433) and incorporated by reference
herein.

(2) Filed herewith.

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

(4) Filed as an Exhibit to Forrester's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1999 (File No. 000-21433) and incorporated by
reference herein.

(5) Filed as an Exhibit to Forrester's Annual Report on Form 10-K for the year
ended December 31, 1999 (File No. 000-21433) and incorporated herein by
reference.

(6) Filed as an Exhibit to Forrester's Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 2002 (File No. 000-21433) and incorporated
herein by reference.

E-1

(7) Filed as an Exhibit to Forrester's Current Report on Form 8-K filed on
January 22, 2003 (File No. 000-21433) and incorporated herein by reference.

(8) Filed as an Exhibit to Forrester's Current Report on Form 8-K filed on
April 9, 2004 (File No. 000-21433) and incorporated herein by reference.

(9) Filed as an Exhibit to Forrester's Annual Report on Form 10-K for the year
ended December 31, 2003 (File No. 000-21433) and incorporated herein by
reference.

(10) Filed as an Exhibit to Forrester's Quarterly Report on Form 10-Q for the
quarter ended September 30, 2004 (File No. 000-21433) and incorporated
herein by reference.

E-2