FORRESTER RESEARCH INC - 10-K Annual Report

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

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

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

OR

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

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER: 000-21433

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

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

400 TECHNOLOGY SQUARE
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 28, 2002 (based on the closing price as quoted by the
Nasdaq National Market as of such date) was approximately $159,090,307.

As of March 27, 2003, 22,486,834 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, 2002 are incorporated by reference
into Part III hereof.
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This Annual Report on Form 10-K contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. Words such
as "expects," "anticipates," "intends," "plans," "estimates," or similar
expressions are intended to identify these forward-looking statements. These
statements are based on our current plans and expectations and involve risks and
uncertainties that could cause actual future activities and results of
operations to be materially different from those set forth in the forward-
looking statements. We undertake no obligation to update publicly any
forward-looking statements, whether as a result of new information, future
events, or otherwise.

PART I

ITEM 1. BUSINESS

GENERAL

Forrester Research, Inc. is a leading independent emerging-technology
research firm that conducts research and analysis on the impact of emerging
technologies on business, consumers, and society. We provide our clients with an
integrated perspective on emerging technology and business, which we call the
WholeView(TM). This approach provides our clients with the strategies, data, and
product evaluations they need to win customers, identify new markets, and scale
their operations to gain competitive operational advantages. Our products and
services are targeted to benefit the senior management, business strategists,
and marketing and technology professionals at $1 billion-plus companies who use
our prescriptive and executable research to understand and capitalize on
changing business models and emerging technologies.

We offer our clients annual memberships to our WholeView Research that
provide barrier-free access to our core research on a wide variety of business
issues and technology topics. These issues and topics include the impact that
the application of technologies may have on business models, operational
strategy, financial results, investment priorities, organizational
effectiveness, and staffing requirements. We also provide Strategic Services
that allow our clients to interact with analysts to explore in greater detail
the issues and topics covered by our research on a client-specific basis. In
addition, we host Forum and Summit Events, conferences devoted to critical
business and technology issues, which bring together our clients and major
technology and business leaders to discuss the impact of technology change on
business. Our WholeView Research platform, Strategic Services, and Forum and
Summit Events combine to provide our clients with comprehensive, integrated
access to our research, analysts, online tools, presentations, advice, and
speeches.

We were incorporated in Massachusetts on July 7, 1983 and reincorporated in
Delaware on February 21, 1996. Our Internet address is www.forrester.com and the
Internet address for the investor information section of our Web site is
www.forrester.com/ER/Investor. 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 continue to play a central role in companies' efforts
to remain both competitive and cost-efficient in an increasingly complex
business arena. In 2002, a challenging business environment forced
$1 billion-plus companies to reassess strategies, budgets, staffing, and
business models. These complex decisions require participation from corporate
leaders, business managers, marketing executives, and technology professionals.
Together, these individuals must work to reduce and even eliminate the
traditional separations between marketing, business strategy, and technology to
reach new markets, gain competitive advantage, and develop high customer service
and loyalty levels. Developing comprehensive and coordinated business strategies
is difficult because as the economy and technology change, consumers and
businesses adopt new methods of buying and selling, and markets grow
increasingly dynamic.

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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. In addition, companies demand instant
access to the issues and challenges confronting them in this dynamic
environment. We believe that there is a need for objective research that is
thematic, prescriptive, executable, and that provides a comprehensive
perspective on the integrated use of technology in business.

FORRESTER'S SOLUTION

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

THE WHOLEVIEW. We provide our clients with a comprehensive and integrated
perspective on emerging technologies and business, which we call the WholeView,
the primary component of which is WholeView Research. WholeView Research
provides our clients with comprehensive access to our core research offerings.
Our WholeView Research combines with our delivery mechanisms, specialized
services, and expertise to offer clients access to the analysts, data, and
research they need to:

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

- Anticipate technology-driven business model shifts.

- Understand how technology can improve business processes.

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

- Capitalize on emerging technologies.

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

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

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

FORRESTER'S STRATEGY

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

IDENTIFYING AND DEFINING NEW BUSINESS MODELS, TECHNOLOGIES, AND
MARKETS. We seek to position ourselves ahead of other research firms by
delivering strategic research and analysis 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 offer research and introduce new products and services that
help our clients capitalize on emerging business models and technologies.
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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.

USING TARGETED, GLOBAL SALES CHANNELS. We sell our products and services
via our headquarters in Cambridge, Massachusetts, our research centers in
Amsterdam, Frankfurt, London, and San Francisco, and our sales offices in Sydney
and Tokyo. We continually seek to increase average sales volume per sales
representative, lengthen the average tenure of our sales representatives and
sales management, and shorten our sales cycle through marketing initiatives.

GROWING OUR CLIENT BASE WORLDWIDE AND INCREASING SALES TO EXISTING
CLIENTS. We believe that our products and services can be successfully marketed
and sold to new client companies worldwide and to new organizations within our
existing client companies. We believe that within our client base of 1,125
client companies as of December 31, 2002, 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. In
February 2003, we completed our acquisition of Giga Information Group, Inc., a
global technology advisory firm. We believe that this acquisition will further
extend our research coverage by allowing us to offer products directed
specifically at technology practitioners and may bring approximately 900 new
clients to Forrester.

DEVELOPING AND RETAINING OUTSTANDING RESEARCH PROFESSIONALS. The knowledge
and experience of our analysts are critical elements of our ability to provide
high-quality products and services. We employ outstanding research professionals
from varied backgrounds and a wide range of industries. We believe that our
culture, which emphasizes excellence, cooperation, and creativity and fosters a
dedication to quality research, helps us to develop and retain high-caliber
research professionals. We provide a competitive compensation structure and
recognition and rewards for excellent individual and team performance.

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

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

- Conduct direct marketing campaigns.

- 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 research.

PRODUCTS AND SERVICES

We offer annually renewable memberships to WholeView Research that provide
our clients comprehensive access to our core research offerings of
Technographics(R), TechStrategy(TM), and TechRankings(TM). We also offer
Strategic Services and host Forum and Summit Events, which, when combined with
our WholeView Research, provide unified guidance on customer trends, business
strategy, and technology investments.

WHOLEVIEW RESEARCH

In January 2002, we introduced WholeView Research -- a unified offering
that provides clients with comprehensive access to our core research offerings
and is designed to inform our clients' strategic decision-making. WholeView
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. Our core research offerings consist of
the following products:

- TECHNOGRAPHICS. Technographics provides primary data and quantitative
research that analyzes how technology is considered, bought, and used by
consumers and businesses. Consumer Technographics

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delivers both primary data and quantitative research, based on surveys of
approximately 200,000 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.

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

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

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

AUTOMOTIVE -- Marketing, Manufacturing, Distribution, Retail
CONSUMER PACKAGED GOODS -- Marketing, Merchandising, Distribution, RFD
Technology, Retail
CONTENT MANAGEMENT -- Web Content, Enterprise Content, Digital Assets,
Collaborative Content Management
CUSTOMER RELATIONSHIP MANAGEMENT -- Sales, Marketing & Service, Consumer
Marketing Platforms, Contact Center Infrastructure, Customer Service
ENTERPRISE APPLICATIONS -- ERP, Enterprise Services Automation, B2B
Sell-Side
FINANCIAL SERVICES -- Banking, Insurance, Investment, Credit
HEALTHCARE -- Health Plans, Pharmaceuticals, Healthcare Providers,
Electronic Data Capture
INFRASTRUCTURE -- Servers, Corporate Wireless, Storage, Business
Intelligence, Commerce Platforms
INTEGRATION & WEB SERVICES -- Middleware, EAI/B2B Integration Tools,
Process Integration, Business Process Management
IT SECURITY -- Technology Security Risk, IT Security Management, Business
Continuity Planning
IT SPENDING -- IT Budgeting, Technology Adoption & Purchase Plans, IT
Organizations & Decision-Making
MANUFACTURING & B2B -- Collaboration, Trade Forecasts, Energy, Chemicals
MARKETING -- Branding, Promotion, Cross-Media Marketing, Marketing
Measurement, Online Advertising, Loyalty Programs, Portal Deals
MEDIA & ENTERTAINMENT -- Publishing, Television, Music, Content
Syndication
PORTALS & SITE TECHNOLOGY -- Measurement Tools, Process Portals, Search
Engines, Self-Service, X Internet
PRODUCT LIFE-CYCLE MANAGEMENT -- Product Development, Process and Discrete
Marketing, Aftermarket, Demand Management
RETAIL -- Marketing, eCommerce, Merchandising, Store Operations,
Technology
SERVICES & OUTSOURCING -- ASPs, Hosting, Outsourcing, Systems Integrators
SUPPLY CHAIN -- Planning & Execution, Logistics, Product Design,
eProcurement Applications
TELECOM & NETWORKS -- Telecom & Mobile Services Carrier Strategy,
Enterprise Network Management, Equipment, Services
TRAVEL -- Marketing, Distribution, Airlines, Hotel & Business & Leisure
Travel
USER EXPERIENCE -- Interface Design, ROI of Design, Scenario Design,
Speech Recognition, Usability

Clients that purchase WholeView Research have access to a password
protected Web site that contains a comprehensive, cross-linked library of our
Technographics, TechStrategy, and TechRankings research, which

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we call the Personal View. The Personal View helps clients organize and
customize their research and provides access to:

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

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

- Customizable research databases and Web tools.

- Product evaluations, benchmarks, and surveys.

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

Clients subscribing to WholeView Research also may purchase the following
services to supplement the core research offerings:

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

- TECHNOGRAPHICS DATA & SERVICES. Our Technographics Data & Services
leverage our core research findings to provide the detail that data
marketers, product developers, and consumer experts need to gain an
in-depth understanding of how consumers and businesses think about and
use technology. We combine respondent data sets from our Technographics
surveys into three offerings: Consumer Technographics North America,
Consumer Technographics Europe, and Business Technographics North
America. In addition to these three offerings, clients have unlimited,
on-demand access to a Technographics data specialist to help them use the
research effectively to meet their specific business needs.

STRATEGIC SERVICES

Our Strategic Services provide a number of ways for clients to interact
directly with our research analysts and, depending on the service purchased,
customize the research performed. Our Strategic Services include:

- Custom Research

- Custom Consumer Research

- Consumer Technographics Omnibus Survey

- Advisory Services

- Structured Advisory Packages

- Multi-Client Advisory Packages

- Site Evaluation and Design Services

- Technology Strategy Development Program

We offer several unique programs within each of these categories.

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CUSTOM RESEARCH

Our Custom Research offerings include:

- CUSTOM CONSUMER RESEARCH (FORMERLY TECHNOGRAPHICS CUSTOM DATA
PROJECTS). Any of the surveys conducted by our Consumer Technographics
North America team are available for custom analysis. Each year, hundreds
of relevant questions in surveys conducted by our Consumer Technographics
North America team are answered by more than 200,000 respondents. These
responses are the foundation for a customizable array of services
tailored to clients' data needs. These services may include Consumer
Technographics Custom Segmentation, Consumer Technographics Customized
Surveys, or Consumer Technographics North America Zip Code Analysis.
Either with the help of a Technographics data specialist or by
downloading the data sets directly from our Web site, clients have access
to the precise data they need to drive their primary market research.

- CONSUMER TECHNOGRAPHICS OMNIBUS SURVEY. The Consumer Technographics
Omnibus Survey provides our clients with the opportunity to ask 5,000 of
our Benchmark respondents proprietary questions. Forrester then appends
the responses to the full Technographics Benchmark Survey, which includes
topics ranging from mobile phone ownership to online financial and retail
behaviors. In effect, participating clients receive custom data at a much
lower cost than that of full-scale primary research.

ADVISORY SERVICES

Our Advisory Services offerings include:

STRUCTURED ADVISORY PACKAGES

Our Structured Advisory Packages include:

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

- VENDOR SALES ADVISORY PROGRAM. Our Vendor Sales Advisory Program is a
structured program that provides technology vendors and solution
providers deep product positioning and competitive intelligence, which
vendors and providers can use when selling and marketing their products
to prospects and existing customers. Sales and marketing forces receive
competitive product analyses and training presentations that provide
robust insight on how to sell against other products.

- RETAIL COMPETITIVE ASSESSMENT. Our Retail Competitive Assessment arms
clients with profiles of their competitors' online and offline customers,
including demographics, spending, and shopping attitudes. With this
information, we believe clients can sharpen their marketing messages,
optimize their merchandising assortments, improve their store formats,
and tailor their service propositions to increase revenues and grow
market share.

MULTI-CLIENT ADVISORY PACKAGES

Our Multi-Client Advisory Packages include:

- FORRESTER OVAL PROGRAM. Our Forrester Oval Program currently consists of
the CIO Group and provides member CIOs from $1 billion-plus companies
with exclusive industry-specific benchmark data, access to a senior
analyst for individual research-related questions, membership-directed
research, best practices, and peer-to-peer networking.

- ONLINE FINANCIAL SERVICES BENCHMARK. Our Online Financial Services
Benchmark is a quarterly report that provides standard metrics for banks
to assess their online success. Participants provide us with usage and
activation data on the following metrics: online banking, bill payment,
aggregation,

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credit card services, and small business banking. Each participant
receives a benchmark of their data against their peer group and across
the entire industry.

SITE EVALUATION & DESIGN SERVICES

Our Site Evaluation & Design Services include:

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

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

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

TECHNOLOGY STRATEGY DEVELOPMENT PROGRAM ("TSDP")

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

FORUM AND SUMMIT EVENTS

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

PRICING AND CONTRACT SIZE

During 2002, the prices for contracts that included only core research were
a function of the number of research recipients within the client organization.
The average contract for annual memberships for core research only at December
31, 2002 was approximately $43,900, a decrease of 11% from $49,400 at December
31, 2001. In 2002, the prices for contracts that included core research and
Strategic Services were also a function of the number of research recipients
within the client organization and the amount and type of Strategic Services.
The average contract for an annual membership for research which also included
Strategic Services at December 31, 2002 was approximately $80,500, a decrease of
10% from $89,500 at December 31, 2001.

We believe that the agreement value of contracts to purchase research and
Strategic Services provides a significant measure of our business volume. We
calculate agreement value as the total revenues recognizable from all research
and advisory service contracts in force at a given time without regard to how
much revenue has already been recognized. Agreement value decreased 33% to $78.1
million at December 31, 2002 from $116.2 million at December 31, 2001.

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

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coverage areas. Our research provides consistent research themes and
comprehensive coverage of business and technology issues across our coverage
areas.

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

In our TechStrategy research, we use the following primary research inputs:

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

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

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

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.

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

SALES AND MARKETING

We sell our products and services through our headquarters in Cambridge,
Massachusetts, our research centers in Amsterdam, Frankfurt, London, and San
Francisco, and our sales offices in Sydney and Tokyo. In 2002, we closed our
sales offices in Austin and Chicago. We employed 105 sales representatives as of
December 31, 2002, a decrease of 43% from 184 as of December 31, 2001. 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 representatives who operate out of our headquarters in
Cambridge.

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

Our marketing efforts are designed to increase awareness of the Forrester
brand and further our reputation as a leader in emerging technology research. We
actively promote brand awareness via our Web site, Forum and Summit Events,
extensive worldwide press relations, and direct mail campaigns. We also employ
an integrated direct marketing strategy that uses Internet, mail, and telephone
channels for identifying and attracting high-quality sales leads. We encourage
our analysts to increase our visibility by having their research ideas
selectively distributed through various Internet, print, and television outlets.

As of December 31, 2002, our research was delivered to 1,125 client
companies. No single client company accounted for more than 2% of our revenues
for the year ended December 31, 2002.

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COMPETITION

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

- Quality of research and analysis.

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

- Independence from vendors and clients.

- Timely delivery of information.

- Customer service.

- The ability to leverage new technologies.

- Price.

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

We compete in the market for research about emerging technologies. Our
principal direct competitors include other independent providers of similar
services, such as Gartner Group, as well as Internet and digital media
measurement services. In addition, our indirect competitors include the internal
planning and marketing staffs of our current and prospective clients, as well as
other information providers such as electronic and print publishing companies,
survey-based general market research firms, and general business consulting
firms. Our indirect competitors could choose to compete directly against us in
the future. In addition, there are relatively few barriers to entry into our
market, and new competitors could readily seek to compete against us in one or
more market segments addressed by our research. Increased competition could
adversely affect our operating results through pricing pressure and loss of
market share. There can be no assurance that we will be able to continue to
compete successfully against existing or new competitors.

EMPLOYEES

As of December 31, 2002, we employed a total of 344 persons, including 124
research staff and 105 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 individuals who foster these
values. Each new employee that we hire undergoes a week-long training process.
This training includes workshops and presentations by our executives, which
focus on our corporate goals and provide individuals with the skills necessary
to achieve our key values.

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

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 incentive
stock option plan based on performance.

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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:

INTEGRATION OF GIGA. In February 2003, we acquired Giga Information Group,
Inc., a global technology advisory firm. We may be unable to achieve the
anticipated benefits from this acquisition. For example, we cannot be certain
that Giga's customers will continue to do business with us or that the Giga
employees who continue their employment with us will become well-integrated into
our operations and culture. In addition, the integration of Giga can be
disruptive to our operations and divert management time and attention. If we do
not integrate the Giga acquisition effectively, we may fail to achieve the
benefits we expected and our financial condition and results of operations may
be adversely affected.

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

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

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

- The utilization of our Strategic Services by our clients.

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

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

- Changes in demand for our research.

- General economic conditions.

As a result, our operating results in future quarters may be below the
expectations of securities analysts and investors, which could have an adverse
effect on the market price for our common stock. Factors such as announcements
of new products, services, offices, or strategic alliances by us or the
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 57%, 51%, and 74% of our client companies with
memberships expiring during the years ended December 31, 2002, 2001, and 2000,
respectively, renewed one or more memberships for our products and services. The
decline in renewal rates for our research products since 2000 is reflective of
the more difficult economic environment, and any future declines in renewal
rates could have an adverse effect on our revenues.

THE ABILITY TO ATTRACT AND RETAIN QUALIFIED PROFESSIONAL STAFF. Our future
success will depend in large measure upon the continued contributions of our
senior management team, research analysts, and experienced sales and marketing
personnel. Thus, our future operating results will be largely dependent upon our
ability to retain the services of these individuals and to attract additional
professionals from a limited pool of qualified candidates. We experience
competition in hiring and retaining professionals from developers of Internet
and emerging-technology products, other research firms, management consulting
firms, print and electronic publishing companies and financial services
companies, many of which have substantially greater ability, either through cash
or equity, to attract and compensate professionals. If we lose professionals or
are unable to attract new talent, we will not be able to maintain our position
in the market or grow our business.

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.

11

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.

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, anticipating and
identifying changes in client requirements and changes in the technology
industry. The process of internally researching, developing, launching and
gaining client acceptance of a new product or service, or assimilating and
marketing an acquired product or service, is risky and costly. We may not be
able to introduce new, or assimilate acquired, products or services
successfully. Our failure to do so would adversely affect our ability to
maintain a competitive position in our market and continue to grow our business.

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

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

12

EXECUTIVE OFFICERS

The following table sets forth information about our directors and
executive officers as of March 31, 2003.

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

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

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

Neil Bradford became managing director, Forrester Global in October 2001.
From 1999 to 2001, Mr. Bradford was the managing director of Forrester Research
Ltd., 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.

Robert W. Davidson became managing director, Forrester Europe in June 2001.
Prior to joining Forrester, Mr. Davidson was vice president and corporate
controller from 2000 to 2001 and vice president, finance from 1998 to 2000 for
Baan Company N.V., a software solutions and services company. From 1996 to 1998,
Mr. Davidson served as chief operating officer, Europe of PSI/Vicorp, a software
solutions company.

Emily Nagle Green became managing director, Forrester North America in
January 2002. Ms. Green previously was managing director, Forrester Research
B.V. from 1998 to 2001 and director, people & technology strategies, from 1996
to 1998. Prior to joining Forrester, Ms. Green was vice president of marketing
and sales at Point of View, Inc., a video technology training firm, from 1994 to
1995, and vice president of strategic marketing for ADC Fibermux, a computer
networking hardware manufacturer, from 1991 to 1994.

13

Warren Hadley became Forrester's 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 Forrester's vice president of strategy and marketing
in January 2003. Prior to joining Forrester, Mr. Kardon was a co-founder and
managing partner of Catalyst Consulting Collaborative, a strategic consulting
firm, from 2002 to 2003 and president of First Act, Inc., a children's music
development company, from 2000 to 2001. Mr. Kardon also served as the executive
vice president of marketing and business at HomePortfolio, an online marketplace
for home design, products, and services, from 1999 to 2000 and senior vice
president and chief marketing officer of Cahners Business Information, a
business publisher, from 1995 to 1999. From 1987 to 1995, Mr. Kardon served as
director of the marketing strategy practice at Braxton Associates, the strategy
consulting division of Deloitte & Touche.

Dan Mahoney became Forrester's vice president of Giga Research in March
2003 in conjunction with Forrester's acquisition of Giga Information Group, Inc.
Prior to that, he was senior vice president of research at Giga Information
Group, Inc. 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.

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

Timothy M. Riley became Forrester's vice president, strategic growth in
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.

Henk W. Broeders became a director of Forrester in May 1998. Mr. Broeders
has been the Chairman of the Executive Board of Cap Gemini N.V., a management
consulting firm located in the Netherlands, since January 2001. Cap Gemini NV is
the Dutch subsidiary of the global CGEY organization. From 1992 to 1998, Mr.
Broeders was general manager of IQUIP Informatica B.V., a software company in
the Netherlands.

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

George R. Hornig became a director of Forrester in November 1996. Mr.
Hornig has been a managing director and chief operating officer of the Private
Equity Division at Credit Suisse First Boston, an investment banking firm, since
1999. He was an executive vice president of Deutsche Bank Americas Holding
Corporation, a diversified financial services holding company, and several of
its affiliated entities, from 1993 to 1998. He is also a director of Unity
Mutual Life Insurance Company, U.S. Timberlands Company, L.P., and Veridian
Corporation.

Michael H. Welles became a director of Forrester in November 1996. Mr.
Welles is chief operating officer and founder of S2 Security Corporation, an
IP-based facility security systems start-up. He previously served as vice
president and general manager of the platforms business with NMS Communications,
an OEM infrastructure supplier to the telecom industry, from 2000 to 2002. He
previously served as vice president of
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news operations and engineering for Individual.com, NewsEdge Corporation, and
Individual, Inc., a group of news solutions companies, from 1997 to 2000, and
before that as a general manager at Lotus Development Corporation, a software
company, from 1991 to 1997.

ITEM 2. PROPERTIES

Our headquarters are located in approximately 146,000 square feet of office
space in Cambridge, Massachusetts. This facility accommodates research,
marketing, sales, technology, and operations personnel. The initial lease term
of this facility expires in September 2006. We have the option to extend this
lease for up to two additional terms of five years each.

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

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

ITEM 3. LEGAL PROCEEDINGS

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

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

Not applicable.

PART II

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

Our common stock is traded on the Nasdaq National Market under the symbol
"FORR." On March 28, 2003, the closing price of our common stock was $14.71.

As of March 24, 2003 there were approximately 55 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, 2001, and December 31,
2002:

We did not declare or pay any dividends during the fiscal years ended
December 31, 2001 and 2002. We anticipate that future earnings, if any, will be
retained for the development of our business, and we do not anticipate paying
any cash dividends on our common stock in the foreseeable future.

15

ITEM 6.SELECTED CONSOLIDATED FINANCIAL DATA

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

16

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

OVERVIEW

We are a leading independent emerging-technology research firm that
conducts research and analysis on the impact of emerging technologies on
business, consumers, and society. We provide our clients with an integrated
perspective on technology and business, which we call the WholeView. This
approach provides companies with the strategies, data, and product evaluations
they need to win customers, identify new markets, and gain competitive
operational advantages. Our products and services primarily are targeted to
benefit the senior management, business strategists, and marketing and
technology professionals at $1 billion-plus companies who use our prescriptive,
executable research to understand and capitalize on business models and emerging
technologies.

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

Our operating expenses consist of cost of services and fulfillment, selling
and marketing expenses, general and administrative expenses, and depreciation
and amortization. Cost of services and fulfillment represents the costs
associated with the production and delivery of our products and services, and 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.

We believe that the "agreement value" of contracts to purchase research and
advisory services provides a significant measure of our business volume. We
calculate agreement value as the total revenues recognizable from all research
and advisory service contracts in force at a given time, without regard to how
much revenue has already been recognized. Agreement value decreased 33% to $78.1
million at December 31, 2002 from $116.2 million at December 31, 2001. Agreement
value decreased 38% to $116.2 million at December 31, 2001 from $187.8 million
at December 31, 2000. No single client accounted for more than 3% of agreement
value at December 31, 2002. Our historical experience is that a majority of
client companies renew expiring contracts each year. Approximately 57%, 51%, and
74% of our client companies with memberships expiring during the years ended
December 31, 2002, 2001, and 2000, respectively, renewed one or more memberships
for our products and services. These renewal rates are not necessarily
indicative of the rate of future retention of our revenue base. The declines in
agreement value and renewal rates are reflective of the more difficult economic
environment and will lead to a decrease in revenue for 2003.

REORGANIZATIONS

On July 24, 2002, we announced a reduction of our work force by
approximately 21 positions in response to conditions and demands of the market.
As a result, we recorded a reorganization charge of approximately $2.6 million
during 2002. Approximately 31% of the terminated employees had been members of
the sales force, while 41% had been in research and 28% had held administrative
roles. The 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.

17

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

There have been no changes in estimates during the periods presented.

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

On January 10, 2002, we announced a reduction of our work force by
approximately 126 positions in response to conditions and demands of the market
and a slower economy. As a result, we recorded an initial reorganization charge
of approximately $9.3 million in the three months ended March 31, 2002.
Approximately 39% of the terminated employees had been members of the sales
force, 33% were in research and 28% had held administrative roles. 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, we revised our estimates
of the January 10, 2002 reorganization charge to provide for additional losses
for office consolidation costs and the write-off of related leasehold
improvements due to deteriorating real estate market conditions. As a result, we
recorded an additional reorganization charge of approximately $593,000. We 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.

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

18

The accrued costs related to the January 10, 2002 reorganization are
expected to be paid in the following periods:

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

The costs related to the July 12, 2001 reorganization are as follows:

RECENT DEVELOPMENTS

In February 2003, we acquired Giga Information Group, Inc. ("Giga") for an
aggregate purchase price of $60 million in cash pursuant to a tender offer and
second step merger at a price of $4.75 per share of Giga common stock in cash.
The purchase price was paid out of our cash on hand.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Management's discussion and analysis of financial condition and results of
operations are based upon our consolidated financial statements, which have been
prepared in accordance with generally accepted accounting principles in the
United States. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and
liabilities. On an ongoing basis, we evaluate our estimates, including those
related to our revenue recognition, allowance for doubtful accounts,
non-marketable investments, and goodwill

19

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 have identified the following policies as critical to our business
operations and the understanding of our results of operations. This listing is
not a comprehensive list of all of our accounting policies. In many cases, the
accounting treatment of a particular transaction is specifically dictated by
generally accepted accounting principles, with no need for management's judgment
in their application. There are also areas in which management's judgment in
selecting any available alternative would not produce a materially different
result. For a 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 generally invoice our core research, advisory,
and other services when orders are received. The contract amount is
recorded as accounts receivable and deferred revenue when the client is
invoiced. Core research is generally recognized as revenue ratably over
the term of the agreement. Advisory services are recognized as revenue
during the period in which the services are performed. Revenue from
events is recognized upon completion of the event. 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, 2002, deferred revenues and deferred
commissions totaled $42.1 million and $3.5 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 $827,000 as of December 31, 2002. Management specifically
analyzes accounts receivable and historical bad debts, customer
concentrations, current economic trends, and changes in our customer
payment terms when evaluating the adequacy of the allowance for doubtful
accounts. If the financial condition of our customers were to
deteriorate, resulting in an impairment of their ability to make
payments, additional allowances may be required.

- NON-MARKETABLE INVESTMENTS. We hold minority interests in companies and
equity investment funds that totaled approximately $10.0 million as of
December 31, 2002. Our investments are in companies that are not publicly
traded, and, therefore, no established market for these securities
exists. 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. We record an impairment charge when we
believe that an investment has experienced a decline in value that is
other than temporary. We recorded impairment charges that totaled
approximately $3.2 million in 2001 and $4.1 in 2002. 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. We have goodwill related to our European operations that
totaled approximately $14.0 million as of December 31, 2002. SFAS No. 142
requires that goodwill and intangible assets with indefinite lives no
longer be amortized but instead be measured for impairment at least
annually or whenever events indicate that there may be an impairment. In
order to determine if an impairment exists, we obtain an independent
appraisal which determines if the carrying amount of the reporting unit
with goodwill exceeds the fair value. The estimates of the reporting
unit's fair value are based on market conditions and operational
performance. We have selected November 30th as the date of performing the
annual goodwill impairment test. As of December 31, 2002, we believe that
the carrying value of our goodwill and other intangible assets is not
impaired. Future events could cause us to conclude that impairment
indicators exist and that goodwill or other intangible assets associated
with our acquired business are impaired. Any resulting impairment loss
could have a material adverse

20

impact on our financial condition and results of operations for the period in
which the loss is recognized.

- INCOME TAXES. We have deferred tax assets related to temporary
differences between the financial statement and tax base of assets and
liabilities as well as operating loss carryforwards that totaled
approximately $21.6 million as of December 31, 2002. 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 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.

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, 2002 AND DECEMBER 31, 2001

REVENUES. Total revenues decreased 39% to $96.9 million in 2002, from
$159.1 million in 2001. Revenues from core research decreased 46% to $67.4
million in 2002, from $123.7 million in 2001. Decreases in total revenues and
revenues from core research were primarily attributable to decreases in client
companies to 1,125 at December 31, 2002 from 1,541 at December 31, 2001, as well
as lower average contract values due to a more difficult economic environment.
These same factors also resulted in a decrease in revenues from core research as
a percentage of total revenues. No single client company accounted for more than
2% of revenues in 2002.

Advisory services and other revenues decreased 17% to $29.6 million in
2002, from $35.4 million in 2001. This decrease was primarily attributable to
the smaller number of events we held in 2002, which was six Forums and eight
Summits, compared to nine Forums and six Summits held during the year ended
December 31, 2001. The more difficult economic environment also resulted in a
decrease in sales of advisory services. In addition, the reduction of our
research organization responsible for performing advisory services to

21

124 at December 31, 2002 from 196 at December 31, 2001 contributed to the
decrease in advisory services performed.

Revenues attributable to customers outside the United States decreased 41%
to $27.6 million in 2002, from $46.8 million in 2001 but remained constant as a
percentage of total revenues in 2002 compared with 2001 at 29%. The decrease in
international revenues in dollars is primarily attributable to a decline in
revenue from core research related to decreases in the number of client
companies and lower average contract values. We invoice our international
clients in US dollars, except for those in the United Kingdom, whom are billed
in British pounds sterling, and those in continental Europe, whom are billed in
the euro. The effect of changes in currency exchange rates have historically not
had a significant impact on our results of operations.

COST OF SERVICES AND FULFILLMENT. Cost of services and fulfillment
increased as a percentage of total revenues to 35% in 2002, from 31% in 2001.
These expenses decreased 31% to $34.0 million in 2002, from $49.1 million in
2001. The increase in expense as a percentage of revenues was primarily
attributable to cost of services and fulfillment expenses, particularly
compensation-related costs, rent and survey costs associated with our product
offerings, decreasing at a slower rate than revenues. The decreases in these
expenses in absolute dollars is primarily due to compensation-related costs and
travel and entertainment expense savings associated with the reduction in
staffing in our research organization to 124 at December 31, 2002 from 196 at
December 31, 2001. The decrease in expenses is also due to a reduction in events
expense as we hosted fewer events and had a higher mix of lower costing Summits
in 2002 compared to 2001.

SELLING AND MARKETING. Selling and marketing expenses decreased as a
percentage of total revenues to 32% in 2002 from 37% in 2001. These expenses
decreased 47% to $30.7 million in 2002, from $58.3 million in 2001. The
decreases in expenses in absolute dollars and as a percentage of revenues were
principally due to lower compensation-related costs and travel and entertainment
expense savings as a result of the reduction in the number of direct sales
personnel to 105 at December 31, 2002 from 184 at December 31, 2001.

GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
as a percentage of total revenues to 13% in 2002, from 11% in 2001. These
expenses decreased 25% to $12.7 million in 2002, from $16.9 million in 2001. The
increase in expense as a percentage of revenues was primarily attributable to
general and administrative expenses, particularly compensation-related costs and
rent, decreasing at a slower rate than revenues. The decrease in expenses in
absolute dollars were principally due to the reduction in the staffing level of
our general and administrative group to 66 at December 31, 2002 from 108 at
December 31, 2001.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses
decreased 24% to $8.4 million in 2002, from $11.1 million in 2001. The decrease
in these expenses was principally due to low capital expenditures as well as the
write-off of depreciable assets in connection with the workforce reorganizations
in January 2002 and July 2002. The adoption of SFAS No. 142 also resulted in a
reduction in annual amortization of $716,000 due to goodwill no longer being
amortized.

OTHER INCOME, NET. Other income decreased to $1.4 million in 2002, from
$6.4 million in 2001. Other income in 2002 consisted of $6.1 million of interest
income from marketable securities, offset by aggregate write-downs of
approximately $4.1 million on certain non-marketable investments and $593,000 of
other miscellaneous non-operating expenses. Other income in 2001 consisted of
$9.1 million of interest income from marketable securities and a gain of
approximately $1.7 million realized on the sale of our Internet AdWatch(TM)
product, offset by aggregate write-downs of approximately $3.2 million on
certain non-marketable investments and $1.1 million of other miscellaneous
non-operating expenses. The decrease in interest income was principally due to a
decline in market interest rates.

INCOME TAX PROVISION. During 2002, we recorded a tax benefit of $311,000
reflecting an effective tax rate of (111.9%). During 2001, we recorded a tax
provision of $8.9 million, reflecting, an effective tax rate of 33.0%. The
decrease in our effective tax rate resulted primarily from a decrease in
operating income coupled with our investments in tax-exempt marketable
securities and our recording of a valuation allowance of $1.5 million associated
with our operations in Germany.

22

YEARS ENDED DECEMBER 31, 2001 AND DECEMBER 31, 2000

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

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

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

COST OF SERVICES AND FULFILLMENT. Cost of services and fulfillment
increased as a percentage of total revenues to 31% in 2001, from 29% in 2000.
These expenses increased 8% to $49.1 million in 2001, from $45.5 million in
2000. The increases in these expenses in absolute dollars and as a percentage of
revenues were principally due to additional survey costs associated with our
product offerings, and the opening of our Research Center in San Francisco,
California.

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

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

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

OTHER INCOME, NET. Other income decreased to $6.4 million in 2001, from
$6.9 million in 2000. Other income in 2001 consisted of $9.1 million of interest
income from marketable securities and a gain of approximately $1.7 million
realized on the sale of our Internet AdWatch(TM) product to Evaliant Media
Resources, LLC in exchange for membership interests in Evaliant offset by
aggregate write-downs of approximately $3.3 million on certain non-marketable
investments and $1.1 million of other miscellaneous non-operating expenses.
Other income in 2000 consisted primarily of $8.0 million of interest income from
marketable securities offset by a non-marketable investment write-down of
approximately $1.0 million, and approximately $175,000 of other miscellaneous
non-operating expenses. We achieved the additional interest income in spite of
generally lower yields due to higher cash and marketable securities balances
resulting from positive cash flows from operations of $28.7 million and $16.4
million from proceeds of stock option exercises and our employee stock purchase
plan during 2001.

23

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

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 during 2001 and 2002 primarily through
funds generated from operations. In addition, we received $22.7 million of net
proceeds from our public offering of common stock in February 2000, as well as
proceeds from exercises of employee stock options and our employee stock
purchase plan of $16.4 million in 2001 and $11.3 million in 2002. Memberships
for core research, which constituted approximately 70% of our revenues for the
year ended December 31, 2002, are annually renewable and are generally payable
in advance. We generated cash from operating activities of $5.6 million in 2002
and $28.7 million in 2001. This decline in cash from operations is primarily the
result of the decrease in agreement value from $116.2 million at December 31,
2001 to $78.1 million at December 31, 2002 which is reflected in lower accounts
receivable and deferred revenue balances as of December 31, 2002 and a decrease
in net income from $18.1 million in 2001 to $589,000 in 2002. Such declines in
key business metrics reflect the more difficult economic environment.

Included in cash from operations are deferred tax benefits of $2.6 million
in 2002 and $8.6 million in 2001, which resulted primarily from stock option
exercises. These exercises have generated a cumulative tax deduction of
approximately $118.4 million for us. The remaining $42.8 million of this tax
deduction will be carried forward to offset future taxable income. The offset of
these deferred tax benefits have been recorded as an increase to additional
paid-in capital within stockholders' equity.

During 2002, we used $1.0 million of cash in investing activities,
consisting primarily of $1.0 million for purchases of property and equipment and
$4.8 million for purchases of non-marketable investments offset by $4.8 million
of proceeds from net sales of marketable securities. We regularly invest excess
funds in short- and intermediate-term interest-bearing obligations of investment
grade.

During 2002, we used $10.8 million of cash in financing activities
consisting of $20.1 million for repurchases of our common stock and $2.0 million
for the investment in a structured stock repurchase program offset by $11.3
million in proceeds from exercises of employee stock options and proceeds from
our employee stock purchase plan.

In February 2003, we acquired Giga for an aggregate purchase price of $60
million in cash pursuant to a tender offer and second step merger at a price of
$4.75 per share of Giga common stock in cash. The purchase price was paid out of
our cash on hand.

25

In October 2001, we announced a program authorizing the repurchase of up to
$50 million of our common stock. The shares repurchased will be used, among
other things, in connection with our employee stock option and purchase plans
and for potential acquisitions. As of December 31, 2002, we had repurchased
1,203,707 shares of common stock at an aggregate cost of $20.1 million.

As of December 31, 2002, we had cash and cash equivalents of $11.5 million
and marketable securities of $183.1 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 to invest in our
infrastructure during the next 12 months. We believe that our current cash
balance, marketable securities, and cash flows from operations will satisfy
working capital, financing activities, and capital expenditure requirements for
at least the next two years including cash requirements related to the purchase
of Giga and our stock repurchase program.

During the three months ended September 30, 2002, 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 $2.0 million. Upon
expiration of the agreement in November 2002, we received 143,542 shares of our
common stock. During the three months ended December 31, 2002, we entered into a
similar agreement in exchange for an up-front net payment of $2.0 million.
Pursuant to the agreement, if our stock price is above $14.84 on the expiration
date, we will have the investment of $2.0 million returned with a premium. If
our stock price is below $14.84 on the expiration date, we will receive 144,291
shares of our common stock. The $2.0 million up-front net payment is recorded in
stockholders' equity as a reduction of additional paid-in capital in the
accompanying consolidated balance as of December 31, 2002. Upon expiration of
the agreement in February 2003, we received 144,291 shares of our common stock.

In June 2000, we committed to invest $20.0 million in two private equity
investment funds over a period of up to five years. We have adopted a cash bonus
plan to pay bonuses, after the return of invested capital, measured by the
proceeds of a portion of the share of net profits from these investments, if
any, to certain key employees, subject to the terms and conditions of the plan.
The payment of such bonuses would result in compensation expense with respect to
the amounts so paid. As of December 31, 2002, we had contributed approximately
$12.2 million to the funds. In February 2003, we contributed an additional $1.1
million to the funds.

As of December 31, 2002, we had recorded total write-downs to the private
equity investment funds of $3.3 million as a result of the permanent impairment
of certain investments within the funds. The timing of the recognition of future
gains or losses from the investment funds is beyond our control. As a result, it
is not possible to predict when we will recognize such gains or losses, if we
will award cash bonuses based on the net profit from such investments, or when
we will incur compensation expense in connection with the payment of such
bonuses. If the investment funds realize large gains or losses on their
investments, we could experience significant variations in our quarterly results
unrelated to our business operations. These variations could be due to
significant gains or losses or to significant compensation expenses. While gains
may offset compensation expenses in a particular quarter, there can be no
assurance that related gains and compensation expenses will occur in the same
quarter.

As of December 31, 2002, we had contractual obligations as follows (in
thousands) gross of estimated restructuring provisions*:

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

* The above table does not include the remaining $7.8 million of capital
commitments to the private equity investment funds described above due to the
uncertainty in timing of capital calls made by such funds to pay this
remaining capital commitment. The above table also does not include future
minimum rentals to be received under subleases of $5.4 million.

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

26

We hold minority interests in companies and equity investment funds having
operations or technology in areas within our strategic focus. During 2001 and
2002, we recognized revenues of approximately $102,000 and $234,000
respectively, related to a core research with advisory services contract
purchased by one of the private equity investment firms. The remaining revenues
will be recognized in accordance with our revenue recognition policy through the
termination date of the contract in March 2003. The prices for these
transactions were determined as a function of our list price. We purchased data
from companies in which we held a minority interest that totaled approximately
$699,000 in 2000, $1,404,000 in 2001, and $1,113,000 in 2002. We believe that
the services received were on arm's-length terms and at fair market value.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 2002, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. This statement supersedes Emerging
Issues Task Force (EITF) No. 94-3, Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity. Under SFAS No. 146, a
liability for a cost associated with a disposal or exit activity is recognized
at fair value when the liability is incurred rather than at the date of an
entity's commitment to an exit plan as required under EITF 94-3. The provisions
of SFAS No. 146 are effective for exit or disposal activities that are initiated
after December 31, 2002, with early adoption permitted. We will apply the
provisions of this standard to all restructuring activities initiated after
January 1, 2003.

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation -- Transition and Disclosure -- an amendment of FASB Statement No.
123. This statement amends FASB Statement No. 123, Accounting for Stock-Based
Compensation, to provide alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee
compensation. In addition, SFAS No. 148 amends the disclosure requirements of
SFAS No. 123 to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. We will
continue to account for stock-based compensation in accordance with APB No. 25.
As such, we do not expect the adoption of this standard to have a material
impact on our consolidated financial position or results of operations. We
adopted the disclosure only provision of SFAS No. 148 as of December 31, 2002.

In November 2002, the EITF issued EITF No. 00-21, Revenue Arrangements with
Multiple Deliverables. Under EITF 00-21, revenues for contracts which contain
multiple deliverables are allocated among the separate units based on their
relative fair values. The provisions of EITF 00-21 are effective for contracts
entered into in fiscal periods beginning after June 15, 2003. We are currently
evaluating the impact, if any, of EITF 00-21 on our consolidated financial
position and results of operations.

In January 2003, the FASB issued Interpretation No. 46, Consolidation for
Variable Interest Entities, an Interpretation of ARB No. 51 which requires all
variable interest entities (VIEs) to be consolidated by the primary beneficiary.
The primary beneficiary is the entity that holds the majority of the beneficial
interest in the VIE. In addition, the interpretation expands the disclosure
requirements for both variable interest entities that are consolidated as well
as VIEs from which the entity is the holder of a significant amount of
beneficial interests, but not the majority. FIN 46 is effective for all VIEs
created or acquired after January 31, 2003. For VIEs created or acquired prior
to February 1, 2003, the provisions of FIN 46 must be applied for the first
interim or annual period beginning after June 15, 2003. The adoption of this
interpretation is not expected to be material to our consolidated financial
position or results of operations.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

27

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 any significant degree by a sudden change in market interest rates
on our securities portfolio. The following table provides information about our
investment portfolio. For investment securities, the table presents principal
cash flows and related weighted-average interest rates by expected maturity
dates.

Principal amounts by expected maturity in US dollars (dollars in
thousands):

FOREIGN CURRENCY EXCHANGE. On a global level, we face exposure to
movements in foreign currency excha