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, 2003

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 Incorporation
or organization) (I.R.S. Employer Identification Number)

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

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

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

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

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

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

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

The aggregate market value of the voting stock held by non-affiliates of
the registrant as of June 30, 2003 (based on the closing price as quoted by the
Nasdaq National Market as of such date) was approximately $232,870,622.

As of March 8, 2004, 22,067,204 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, 2003 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 an independent technology research company that
conducts research and provides advice about the impact of technologies on
business, consumers, and society. We provide our clients with a holistic
perspective on technology and business, which we call the WholeView(TM). This
approach provides guidance on business strategy, technology investments, and
customer trends that clients need to win customers, identify new markets, and
scale their operations to gain competitive advantages. Our products and services
are targeted to senior management, business strategists, and marketing and
technology professionals at companies with more than $1 billion in revenues who
use our prescriptive and executable research to understand and capitalize on
changing business models and emerging technologies.

We offer our clients a flexible selection of engagement opportunities in
the areas of Research, Data, Consulting, and Community. Research serves as the
foundation of all our offerings and consists primarily of annual memberships to
our WholeView Research that provide comprehensive access to our core research on
a wide range of business and technology topics. These include the impact that
the application of technologies may have on business models, operational
strategy, financial results, investment priorities, organizational
effectiveness, and staffing requirements. In addition to our WholeView Research,
we also provide several client-focused products and services in our Data,
Consulting, and Community offerings. Each of these allow our clients to interact
directly with analysts and explore in greater detail the issues and topics
covered by our WholeView Research on a client-specific basis. Our Data and
Consulting products and services provide opportunities for custom analysis
tailored to clients' specific needs. Our Community offerings allow senior
executives to receive targeted analysis and exchange relevant advice on best
practices by engaging in exclusive peer interactions, either through membership
in a Community program or attendance at a specific Forrester Event. Events are
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
combines with our Data, Consulting, and Community products and services 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. In February 2003, we acquired Giga Information
Group, Inc., or Giga, a global technology advisory firm, pursuant to a cash
tender offer and second step merger. Giga's products and services enhanced our
offerings by providing objective research, pragmatic advice, and personalized
consulting on information technology. We have worked carefully to integrate Giga
into Forrester in a manner that preserves and enhances the core features that
both companies' customers have valued most.

Our Internet address is www.forrester.com 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.

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INDUSTRY BACKGROUND

Emerging technologies continue to play a central role in companies' efforts
to remain both competitive and cost-efficient in an increasingly complex global
business environment. These 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.

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

FORRESTER'S SOLUTION

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

THE WHOLEVIEW. We provide our clients with a comprehensive and unified
view of technology's impact on 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 Data, Consulting, and Community products
and services to offer clients access to the research, data, analysts, and peer
insights they need to:

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

- Anticipate technology-driven business model shifts.

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

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

- Navigate technology implementation challenges and optimize technology
investments.

- Capitalize on emerging technologies.

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

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

FORRESTER'S STRATEGY

We seek to maintain and enhance our position as a leading 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 pragmatic and forward-thinking research and analysis on the impact of
technology on business models and technology infrastructure. We believe that our
research
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methodology and our creative culture allow us to identify and analyze rapid
shifts in the use of technology before these changes appear on the horizons of
most users, vendors, and other research firms. Our early identification of these
shifts enables us to help our clients capitalize on emerging business models and
technologies.

LEVERAGING THE WHOLEVIEW. Our business model, technology platform, and
research methodologies allow us to sell existing products and to rapidly
introduce new products and services without incurring significant incremental
costs. We intend to continue to use our business model, technology platform, and
research methodologies to both increase sales of our existing research and
introduce innovative new products. In February 2004, we leveraged our Whole View
Research to package our Data, Consulting, and Community offerings to enhance and
supplement our products and services and which are designed to address clients'
customized needs.

USING TARGETED, GLOBAL SALES CHANNELS. We sell our products and services
directly through our headquarters in Cambridge, Massachusetts and through our
research centers and sales offices in various locations in North America,
Europe, and Asia. We also sell our products and services through independent
sales representatives in select international locations, including Australia and
South America. We continually 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 units and divisions within
our existing client companies. With our acquisition of Giga, we have extended
our research coverage by offering products directed specifically at technology
practitioners and hope to capitalize on that extension with both existing and
new clients. We believe that within our client base of 1,812 client companies as
of December 31, 2003, 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. For information regarding our operating segments
and financial information about geographic areas, see Note 13 "Operating Segment
and Enterprise Wide Reporting" of the Notes to our Consolidated Financial
Statements contained in Item 8 of this Annual Report on Form 10-K.

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

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

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

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

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

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

- Technographics. Technographics provides primary data and quantitative
research that analyzes how technology is considered, bought, and used by
consumers and businesses. Consumer Technographics delivers both primary
data and quantitative research, based on surveys of over 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.

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

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Below is a listing of research and topics included in Business View:

All research published in the following topic areas:

AUTOMOTIVE
BUSINESS TECHNOGRAPHICS
CONSUMER DEVICES & ACCESS
CONSUMER PACKAGED GOODS
CONSUMER TECHNOGRAPHICS
CUSTOMER EXPERIENCE
FINANCIAL SERVICES
HEALTHCARE & LIFE SCIENCE
IT SERVICES AND OUTSOURCING
IT SPENDING
MARKETING & ADVERTISING
MEDIA & ENTERTAINMENT
OTHER VERTICALS
RETAIL
TECHRANKINGS
TELECOMMUNICATIONS
TRAVEL
Select research published in the following topic areas:

APPLICATION DEVELOPMENT
COMPUTING SYSTEMS
CONTENT & COLLABORATION
ENTERPRISE APPLICATIONS
ENTERPRISE MOBILITY
IT MANAGEMENT
NETWORKING
PORTALS AND SITE TECHNOLOGY
SECURITY
SOFTWARE INFRASTRUCTURE

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

Below is a listing of research and topics included in IT View:

All research published in the following topic areas:

APPLICATION DEVELOPMENT
BUSINESS INTELLIGENCE
BUSINESS TECHNOGRAPHICS
COMPUTING SYSTEMS
CONTENT & COLLABORATION
ENTERPRISE APPLICATIONS
ENTERPRISE MOBILITY
IT MANAGEMENT
IT SERVICES &OUTSOURCING
IT SPENDING
NETWORKING
PORTALS AND SITE TECHNOLOGY
SECURITY
SOFTWARE INFRASTRUCTURE
TECHRANKINGS
TECH SECTOR ECONOMICS
Select research published in the following topic areas:

CUSTOMER EXPERIENCE

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

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

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

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

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

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

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

DATA

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

- CONSUMER AND BUSINESS TECHNOGRAPHICS DATA & SERVICES. Our Technographics
Data & Services leverage our core research findings to provide an
in-depth understanding of how consumers and businesses think about and
use technology. We combine respondent data sets from our Technographics
surveys into three offerings: Consumer Technographics North America,
Consumer Technographics Europe, and Business Technographics North
America. We also provide insight into how consumers think about, buy, and
use technology in the categories of devices and media, healthcare,
financial services, retail, and travel. Additionally, clients have access
to a Technographics data specialist to help them use the research
effectively to meet their specific business needs.

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

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

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CONSULTING

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

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

- Market Strategy

- Effective Use of Technology

- Innovation & Organizational Design

- Supply & Demand Networks

- IT Sourcing

COMMUNITY

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

- FORRESTER OVAL PROGRAM. Clients may choose to participate in one or more
of the following Forrester Oval Programs:

- The CIO Group

- Analyst Relations & Marketing Council

- Application Development Council

- Enterprise Architecture Council

- Security & Risk Management Council

Our Forrester Oval Program is an exclusive offering for senior executives
at large companies worldwide. Members receive access to the following:

- senior analyst teams for individual research-related questions,

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

- exclusive industry-specific benchmark data, and

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

- WEB SITE REVIEWS AND BOOT CAMPS. Our Web Site Reviews provide targeted,
action-oriented assessments of clients' Web sites, extranets, or
intranets. Feedback is based on comprehensive examination of the site by
our analysts, as well as any additional information a client provides
about its Web strategies. Boot Camps focus on Web design and strategy and
teach clients how to review and produce useful, user-friendly sites.

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

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PRICING AND CONTRACT SIZE

We derive our revenue from client contracts consisting of two primary
categories of revenue: research and advisory services. All the product offerings
listed above are comprised of research, advisory services, or some combination
of the two. Research offerings generate research revenues only, and Consulting
offerings consist solely of advisory services revenues. Our Data and Community
offerings, however, generate a combination of research and advisory services
revenues.

Contract pricing for annual memberships for research only is principally a
function of the number of recipients at the client. Pricing of contracts for
research and advisory services is a function of the number of research
recipients, and the amount and type of advisory services. The average contract
for annual memberships for research only at December 31, 2003 was approximately
$38,200, a decrease of 13% from $43,900 at December 31, 2002, principally as a
result of lower average contract values for contracts with legacy Giga
customers. The average contract for an annual membership for research which also
included advisory services at December 31, 2003 was approximately $78,400, a
decrease of 3% from $80,500 at December 31, 2002.

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. Principally as a result of the Giga
acquisition in February 2003, agreement value increased 62% to $126.3 million at
December 31, 2003 from $78.1 million at December 31, 2002.

RESEARCH ANALYSTS AND METHODOLOGY

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

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

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

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

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

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

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

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

Collaboration between analysts is an integral part of our process, leading
to higher-quality research and a unified perspective. All of our WholeView 2
Research begins either with a client or vendor catalyst or with discussion
sessions among analysts to generate ideas for research. Analysts test ideas
throughout the research process at both informal and weekly research meetings.
Our reports are consistent in format, and we require our analysts to write in a
structure that combines graphics with easy-to-read text to deliver concise,
decisive,

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relevant, and objective research to our clients. At the final stage of the
research process, senior analysts meet to test the conclusions of each research
report. An analyst who has not been involved in the creation of a particular
report reviews the report to ensure quality, clarity, and readability. All
research is reviewed and graded by senior research management.

SALES AND MARKETING

We sell our products and services directly through our headquarters in
Cambridge, Massachusetts and through our research centers and sales offices in
various locations in North America, Europe, and Asia. We also sell our research
products directly online through our Web site and use local independent sales
representatives to market and sell our products and services internationally in
selected international markets, including Australia and South America.

We employed 190 sales representatives as of December 31, 2003, an increase
of 81% from 105 as of December 31, 2002, principally due to our acquisition of
Giga. Our direct sales force consists of:

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

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

- Account executives who develop new business in assigned territories.

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

Our marketing activities are designed to increase awareness of the
Forrester brand and further our reputation as a leader in emerging technology
research. We actively promote brand awareness via our Web site, Forrester
Events, extensive worldwide press relations, and direct mail campaigns. 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, 2003, our research was delivered to 1,812 client
companies. No single client company accounted for more than 3% of our revenues
for the year ended December 31, 2003.

COMPETITION

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

- Quality of research and analysis.

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

- Customer service.

- Independence from vendors and clients.

- Timely delivery of information.

- 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,
research methodology, and easy-to-read formats distinguish us from our
competitors.

We compete principally in the market for research about technology. Our
principal direct competitors include other providers of similar services, such
as Gartner Group, as well as Internet and digital media measurement services. In
addition, our indirect competitors include the internal planning and marketing
staffs

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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, 2003, we employed a total of 560 persons, including 193
research staff and 190 sales representatives.

Our culture emphasizes certain key values -- including client service,
quality, and creativity -- that we believe are critical to our future growth. We
promote these values through rigorous training and frequent recognition for
achievement. We encourage teamwork and promote and recognize individuals who
foster these values. Each new employee that we hire undergoes a multi-day
training process. This training includes workshops and presentations by select
managers, 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.

RISKS AND UNCERTAINTIES

We are subject to risks and uncertainties that could cause our actual
future activities and results of operations to be materially different from
those set forth in forward-looking statements made by us. These risks and
uncertainties include:

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

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

- The timing of revenue-generating Events sponsored by us.

- The utilization of our advisory 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 products and services.

- General economic conditions.

As a result, our operating results in future quarters may be below the
expectations of securities analysts and investors, which could have an adverse
effect on the market price for our common stock. Factors such as announcements
of new products, services, offices, or strategic alliances by us or the
technology 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.
11

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 66%, 57%, and 51% of our client companies with
memberships expiring during the years ended December 31, 2003, 2002, and 2001,
respectively, renewed one or more memberships for our products and services.
These renewal rates are not necessarily indicative of the rate of future
retention of our revenue base. The increase in renewal rates from 2002 to 2003
are reflective of the acquisition of Giga during 2003 and an improving economic
environment. Any future declines in renewal rates could have an adverse effect
on our revenues.

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

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

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

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

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

INTEGRATION OF GIGA. In February 2003, we acquired Giga, a global
technology advisory firm. We may be unable to achieve all of the anticipated
benefits from this acquisition. For example, we cannot be certain that all of
Giga's customers will continue to do business with us. If we do not complete the
integration of Giga effectively, we may fail to achieve all of the benefits we
expected from the acquisition and our financial condition and results of
operations may be adversely affected.
12

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

EXECUTIVE OFFICERS

The following table sets forth information about our directors and
executive officers as of March 15, 2004.

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

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

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

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

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

Timothy M. Riley became Forrester's chief people officer (formerly 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, Pacific Fiber Company, L.P., Office Tiger LLC,
and Ascent Assurance, Inc.

14

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
also served as vice president of 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 of which we occupy approximately 85,000 square
feet and sub-lease the remainder. 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 and sales offices
in Amsterdam; Frankfurt; London; Paris; Norwalk, Connecticut; San Francisco; and
Santa Clara, and have short-term arrangements in various other locations.

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 8, 2004, the closing price of our common stock was $19.26.

As of March 8, 2004 there were approximately 52 stockholders of record of
our common stock.

The following table represents the ranges of high and low sale prices of
our common stock for the fiscal years ended December 31, 2002, and December 31,
2003:

We did not declare or pay any dividends during the fiscal years ended
December 31, 2002 and 2003. 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 derive revenues from memberships to our research product offerings and
from our advisory services and events available through what we refer to as
Research, Data, Consulting, and Community offerings. Contracts for our research
products are available through our Research, Data, or Community offerings and
are typically renewable annually and payable in advance. Research revenues are
recognized as revenue ratably over the term of the contract. Accordingly, a
substantial portion of our billings are initially recorded as deferred revenue.
Advisory services are available through our Data, Consulting, and Community
offerings to supplement and complement memberships to our research. Billings
attributable to advisory services are initially recorded as deferred revenue and
are recognized as revenue when performed. Event billings are also initially
recorded as deferred revenue and are recognized as revenue upon completion of
each event. Consequently, changes in the number and value of client contracts,
both net decreases as well as net increases, impact our revenues and other
results over a period of several months.

Our primary operating expenses consist of cost of services and fulfillment,
selling and marketing expenses, general and administrative expenses, 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.

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

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. Principally due to the acquisition of
Giga, agreement value increased 62% to $126.3 million at December 31, 2003 from
$78.1 million at December 31, 2002. Agreement value decreased 33% to $78.1
million at December 31, 2002 from $116.2 million at December 31, 2001 due to a
more difficult economic environment. No single client accounted for more than 3%
of agreement value at December 31, 2003.

Our historical experience is that a majority of client companies renew
expiring contracts each year. Approximately 66%, 57%, and 51% of our client
companies with memberships expiring during the years ended December 31, 2003,
2002, and 2001, respectively, renewed one or more memberships for our products
and services. These renewal rates are not necessarily indicative of the rate of
future retention of our revenue base. The increase in renewal rates reflects the
acquisition of Giga during 2003 and an improving economic environment.

REORGANIZATIONS

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

17

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

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Management's discussion and analysis of financial condition and results of
operations are based upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements requires
us to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. On an ongoing basis, we evaluate our policies and estimates,
including but not limited to, those related to our revenue recognition,
allowance for doubtful accounts, non-marketable investments, goodwill, and other
intangible assets and income taxes. Management bases its estimates on historical
experience and various other assumptions that are believed to be reasonable
under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.

We consider the following accounting policies to be those that require the
most subjective judgment or those most important to the portrayal of our
financial condition and results of operations. If actual results differ
significantly from management's estimates and projections, there could be a
material effect on our financial statements. This is not a comprehensive list of
all of our accounting policies. In many cases, the accounting treatment of a
particular transaction is specifically dictated by generally accepted accounting
principles, with no need for management's judgment in their application. There
are also areas in which management's judgment in selecting any available
alternative would not produce a materially different result. For a discussion of
our other accounting policies, see Note 1 in the Notes to Consolidated Financial
Statements in Item 15 of this Annual Report on Form 10-K, beginning on page F-7.

- REVENUE RECOGNITION. We generate revenues from licensing research,
performing advisory services, and hosting events. We execute contracts
that govern the terms and conditions of each arrangement. Revenues from
contracts that contain multiple deliverables are allocated among the
separate units based on their relative fair values. Research services are
recognized as revenue ratably over the term of the agreement. Advisory
services are recognized during the period in which the services are
performed. Revenue from events is recognized upon completion of the
events. Reimbursed out of pocket expenses are recorded as advisory
revenue. Furthermore, our revenue recognition determines the timing of
commission expenses that are deferred and expensed to operations as the
related revenue is recognized. We evaluate the recoverability of deferred
commissions at each balance sheet date. As of December 31, 2003, deferred
revenues and deferred commissions totaled $68.6 million and $6.0 million,
respectively.

- ALLOWANCE FOR DOUBTFUL ACCOUNTS. We maintain an allowance for doubtful
accounts for estimated losses resulting from the inability of our
customers to make contractually obligated payments that totaled
approximately $1.4 million as of December 31, 2003. 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

18

their ability to make payments, additional allowances may be required,
and if the financial condition of our customers were to improve, the
allowances may be reduced accordingly.

- NON-MARKETABLE INVESTMENTS. We hold minority interests in companies and
equity investment funds that totaled approximately $10.3 million as of
December 31, 2003. Our investments are in companies and funds 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 impairment charges when we
believe that an investment has experienced a decline in value that is
other than temporary. We recorded net impairment charges that totaled
approximately $2.4 and $4.1 during the years ended December 31, 2003 and
2002, respectively. Future adverse changes in market conditions or poor
operating results of underlying investments could result in losses or an
inability to recover the carrying value of the investments that may not
be reflected in an investment's current carrying value, thereby possibly
requiring an impairment charge in the future.

- GOODWILL AND INTANGIBLE ASSETS. At December 31, 2003, we had goodwill
and identified intangible assets with finite lives related to our
acquisitions that totaled approximately $57.0 million and $13.5 million,
respectively. SFAS No. 142, Goodwill and Other Intangible Assets,
requires that goodwill and intangible assets with indefinite lives no
longer be amortized but instead be measured for impairment at least
annually or whenever events indicate that there may be an impairment. In
order to determine if a goodwill impairment exists, we obtain an
independent appraisal which determines if the carrying amount of the
reporting unit exceeds the fair value. The estimates of the reporting
unit's fair value are based on market conditions and operational
performance. Absent an event that indicates a specific impairment may
exist, we have selected November 30th as the date of performing the
annual goodwill impairment test. As of December 31, 2003, we believe that
the carrying value of our goodwill is not impaired. Future events such as
a decline in our customer renewal rate or a loss of acquired customers
could cause us to conclude that impairment indicators exist and that
goodwill associated with our acquired businesses is impaired. Any
resulting impairment loss could have a material adverse impact on our
financial condition and results of operations.

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

- INCOME TAXES. We have deferred tax assets related to temporary
differences between the financial statement and tax bases of assets and
liabilities as well as operating loss carryforwards (primarily from stock
option exercises and the acquisition of Giga) that totaled approximately
$40.2 million as of December 31, 2003. In assessing the realizability of
deferred tax assets, management considers whether it is more likely than
not that some portion or all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets is dependent
upon the generation of future taxable income during the periods in which
those temporary differences become deductible and the carryforwards
expire. Although realization is not assured, based upon the level of our
historical taxable income and projections for our future taxable income
over the periods during which the deferred tax assets are deductible and
the carryforwards expire, management believes it is more likely than not
that we will realize the benefits of these deductible differences. The
amount of the deferred tax asset considered realizable, however, could be
reduced if estimates of future taxable income during the carry-forward
periods are reduced.

19

RESULTS OF OPERATIONS

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

YEARS ENDED DECEMBER 31, 2003 AND DECEMBER 31, 2002

REVENUES. Total revenues increased 30% to $126.0 million in 2003 from
$96.9 million in 2002. The acquisition of Giga closed on February 28, 2003, and
as such, Giga's operations have been included in the consolidated financial
statements since February 28, 2003.

Revenues from research services increased 30% to $92.3 million in 2003 from
$71.0 million in 2002. Increases in total revenues and revenues from research
services were primarily attributable to increases in agreement value and client
companies as a result of the Giga acquisition. No single client company
accounted for more than 3% of revenues during 2003 or 2002.

Advisory services and other revenues increased 30% to $33.7 million in 2003
from $26.0 million in 2002. During 2003, we held 8 Forrester Events and four
legacy-Giga events as compared to 14 Forrester Events held during 2002. The
increase in advisory services and other revenues is primarily attributable to
increases in the number of clients to 1,812 at December 31, 2003 from 1,125 at
December 31, 2002, and in the number of research employees delivering advisory
services to 193 employees at December 31, 2003 from 101 employees at December
31, 2002, which more than offset the decrease in event revenue attributable to
our holding fewer events during 2003 than during 2002. The increase in clients
and headcount in our research organization is primarily attributable to the
acquisition of Giga.

Revenues attributable to customers outside the United States increased 32%
to $36.6 million in 2003 from $27.8 million in 2002. Revenues attributable to
customers outside the United States remained constant as a percentage of total
revenues at 29% during 2003 and 2002. The increase in international revenues in
dollars is primarily attributable to the acquisition of Giga. We invoice our
United Kingdom customers in pound sterling, the functional currency of our
London subsidiary; our continental European customers in euros, the functional
currency of our Amsterdam subsidiary; and all other international customers in
U.S. dollars. The effect of changes in currency exchange rates have historically
not had a significant impact on our results of operations.

20

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

COST OF SERVICES AND FULFILLMENT. Cost of services and fulfillment
increased as a percentage of total revenues to 40% in 2003 from 35% in 2002.
These expenses increased 47% to $50.0 million in 2003 from $34.0 million in
2002. The increase in expenses and in expenses as a percentage of revenues was
primarily attributable to greater compensation costs, as headcount in our
research organization increased to 193 employees at December 31, 2003 from 101
employees at December 31, 2002. The increased headcount in our research
organization is primarily attributable to the acquisition of Giga, which
provided for an additional 91 research personnel at the time of acquisition.

SELLING AND MARKETING. Selling and marketing expenses increased as a
percentage of total revenues to 32% in 2003 from 31% in 2002. These expenses
increased 33% to $41.0 million in 2003 from $30.7 million in 2002. The increase
in expenses and in expenses as a percentage of total revenues was primarily
attributable to greater compensation costs, as headcount in our sales
organization increased to 190 employees at December 31, 2003 from 105 employees
at December 31, 2002. The increased headcount in our sales organization is
primarily attributable to the acquisition of Giga, which provided for an
additional 82 sales personnel at the time of acquisition.

GENERAL AND ADMINISTRATIVE. General and administrative expenses decreased
as a percentage of total revenues to 12% in 2003 from 13% in 2002. These
expenses increased 16% to $14.7 million in 2003 from $12.7 million in 2002. The
increase in expenses was primarily due to greater compensation costs and
professional fees as a result of the Giga acquisition. The decrease in expenses
as a percentage of revenues is primarily attributable to an increased revenue
base as a result of the acquisition of Giga.

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

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

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

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

OTHER INCOME, NET. Other income, consisting primarily of interest income,
decreased 27% to $4.0 million during 2003 from $5.5 million during 2002. The
decrease is primarily due to declines in interest income resulting from lower
cash and investment balances available for investment as a result of the cash
paid for the acquisition of Giga, coupled with lower returns on invested
capital. Other income during 2003 includes realized gains on the sales of
marketable securities of $509,000 compared to minimal losses on the sales of
marketable securities during 2002.

21

IMPAIRMENTS OF NON-MARKETABLE INVESTMENTS, NET. Net impairments of
non-marketable investments resulted in net charges of $2.4 million during 2003
compared to $4.1 million during 2002.

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

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 14 events, compared to
15 events 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 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.

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 Events
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 decrease
in expenses in absolute dollars and as a percentage of revenues was 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.

22

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.

AMORTIZATION OF INTANGIBLE ASSETS. Amortization of intangible assets
decreased to $328,000 in 2002 from $1.0 million in 2001. The decrease in expense
was principally due to the adoption of SFAS No. 142 in 2002 which resulted in a
reduction in annual amortization of $716,000 due to goodwill no longer being
amortized.

REORGANIZATION COSTS. Reorganization costs increased to $12.2 million in
2002 from $3.1 million in 2001. During 2002, these costs related to facility
consolidation costs, severance and related benefits costs in connection with the
termination of approximately 147 positions, and losses incurred in the disposal
of certain depreciable assets. During 2001, these costs related to facility
consolidation costs, severance and related benefits costs in connection with the
termination of approximately 111 positions, and losses incurred in the disposal
of certain depreciable assets.

OTHER INCOME, NET. Other income, consisting primarily of interest income,
decreased to $5.5 million in 2002, from $9.6 million in 2001. The decrease in
other income was principally due to a decline in market interest rates and a
gain of approximately $1.7 million realized on the sale of our Internet
AdWatch(TM) product in 2001 for which there was no gain in 2002.

IMPAIRMENTS OF NON-MARKETABLE INVESTMENTS. Impairments of non-marketable
investments resulted in net charges of $4.1 million during 2002 compared to $3.2
million during 2001.

PROVISION FOR INCOME TAXES. During 2002, we recorded a tax benefit of
$311,000 reflecting an effective tax rate of (111.9%). In 2002, after
subtracting our tax-exempt investment income, we had a loss before our income
tax provision. 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.

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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. Certain reclassifications have been made to the quarterly
presentation to conform with our year-end presentation. Historically, our total
revenues, operating profit, and net income in the fourth quarter have reflected
the significant positive contribution of revenues attributable to advisory
services performed and Forum events held in the fourth quarter. As a result, we
have historically experienced a decline in total revenues, operating profit, and
net income from the quarter ended December 31 to the quarter ended March 31. Our
quarterly operating results are not necessarily indicative of future results of
operations.

LIQUIDITY AND CAPITAL RESOURCES

We have financed our operations primarily through funds generated from
operations. Memberships for research services, which constituted approximately
73% of our revenues during 2003, are annually renewable and are generally
payable in advance. We generated cash from operating activities of $4.1 million
during 2003 and $5.6 million during 2002.

Included in cash from operations are deferred tax benefits of $527,000 in
2003 and $2.6 million in 2002, which resulted primarily from stock option
exercises. The offset of these deferred tax benefits has been recorded as an
increase to additional paid-in capital within stockholders' equity.

During 2003, we generated $13.0 million of cash from investing activities,
consisting primarily of $78.9 million received from net sales of marketable
securities, offset by $60.0 million paid for acquisitions, net of cash acquired,
$3.3 million for net purchases of non-marketable investments and $1.4 million
for purchases of property and equipment. We regularly invest excess funds in
short- and intermediate-term interest-bearing obligations of investment grade.

In the first quarter of 2003, we acquired Giga pursuant to a cash tender
offer and second step merger. The acquisition increased agreement value and the
number of client companies and will reduce the operating expenses of the
combined entity through economies of scale. The aggregate purchase price was
$62,510,000 in cash which consisted of $60,347,000 for the acquisition of all
outstanding shares of Giga common stock of which $60,248,000 was paid as of
December 31, 2003; $981,000 of direct acquisition costs of which $981,000 was
paid as of December 31, 2003; and $1,182,000 for severance and related benefits
costs in connection with the termination of 27 Giga employees as a result of the
acquisition of which $1,100,000 was paid as of December 31, 2003. The remaining
payments are expected to be completed by March 31, 2004.

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

25

related to this distribution agreement prior to the acquisition of GigaGroup in
November 2003. In November 2003, we acquired the assets of GigaGroup for a total
purchase price of $4.1 million, consisting of $2.9 million in cash, $71,000 of
direct acquisition costs, $521,000 of outstanding accounts receivable due to us,
and the contribution of the equity investment in GigaGroup valued at $619,000.

In June 2000, we committed to invest $20.0 million in two private equity
investment funds over a period of up to five years. As of December 31, 2003, we
had contributed approximately $15.5 million to the funds. The timing and amount
of future contributions are entirely within the discretion of the investment
funds. 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. To date, we had not paid any bonuses under
this plan.

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

During 2003, we used $6.2 million of cash in financing activities,
consisting of $8.2 million for repurchases of our common stock and $1.7 million
for the net investment in structured stock repurchase programs, offset by $3.8
million in proceeds from the exercise of employee stock options and issuance of
common stock under our employee stock purchase plan.

As of December 31, 2003, in connection with our stock repurchase program we
had repurchased 1.9 million shares of common stock at an aggregate cost of
approximately $30.3 million.

During the three months ended December 31, 2003, 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. This
agreement expired in February 2004 and we received approximately 119,000 shares
of our common stock. The $2.0 million up-front net payment is recorded in
stockholder's equity as a reduction of additional paid-in capital in the
accompanying consolidated balance sheet as of December 31, 2003.

During each of the three month periods ended March 31, 2003, June 30, 2003
and September 30, 2003, we entered into similar agreements in exchange for
up-front net payments of $2.0 million. Upon expiration of each agreement, we
received approximately $2.1 million of cash. During each of the three month
periods ended September 30, 2002 and December 31, 2002, we entered into similar
agreements in exchange for up-front net payments of $2.0 million. Upon
expiration of each of these agreements, we received 143,524 and 144,291 shares
of our stock, respectively.

As of December 31, 2003, we had cash and cash equivalents of $22.4 million
and marketable securities of $104.3 million. We do not have a line of credit and
do not anticipate the need for one in the foreseeable future. We plan to
continue to introduce new products and services and expect to make the requisite
investments in our infrastructure during the next 12 months. We believe that our
current cash balance, marketable securities, and cash flows from operations will
satisfy working capital, financing activities, and capital expenditure
requirements for at least the next two years.

As of December 31, 2003, we had future contractual obligations as follows
for operating leases and purchase obligations related to third-party survey
costs*:

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

* The above table does not include future minimum rentals to be received under
subleases of $3.7 million. The above table also does not include the remaining
$4.5 million of capital commitments to the private equity funds described
above plus an additional $2.0 million of capital committed in December 2003
due to the uncertainty in timing of capital calls made by such funds to pay
these capital commitments.

26

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

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

RECENT ACCOUNTING PRONOUNCEMENTS

In January 2003 and December 2003, the Financial Accounting Standards Board
(FASB) issued Interpretation No. 46, Consolidation for Variable Interest
Entities (FIN 46) and its revision, FIN 46-R, respectively. FIN 46 and FIN 46-R
addresses the consolidation of entities whose equity holders have either not
provided sufficient equity at risk to allow the entity to finance its own
activities or do not possess certain characteristics of a controlling financial
interest. FIN 46 and FIN 46-R require the consolidation of these entities, known
as variable interest entities (VIEs), by the primary beneficiary of the entity.
The primary beneficiary is the entity, if any, that is subject to a majority of
the risk of loss from the VIE's activities, entitled to receive a majority of
the VIE's residual returns, or both. FIN 46 and FIN 46-R are applicable for
financial statements of public entities that have interests in VIEs or potential
VIEs referred to as special purpose entities for periods ending after December
15, 2003, of which Forrester had none. Application by public entities for all
other types of entities is required in financial statements for periods ending
after March 15, 2004. Adoption of FIN 46-R is not expected to have a material
impact on our financial position, results of operations or cash flows.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

INTEREST RATE SENSITIVITY. We maintain an investment portfolio consisting
mainly of federal and state government obligations and corporate obligations,
with a weighted-average maturity of approximately 15 months. 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.

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

FOREIGN CURRENCY EXCHANGE. On a global level, we face exposure to
movements in foreign currency exchange rates. This exposure may change over time
as business practices evolve and could have a material adverse impact on our
financial results. Historically, our primary exposure had been related to non-US
dollar denominated operating expenses in Canada and Asia where we sell primarily
in US dollars. The introduction of the euro as a common currency for members of
the European Monetary Union took place in our fiscal year 1999. To date, neither
the introduction of the euro nor the effect of changes in currency exchange
rates has had a significant impact on our financial position or results of
operations. Accordingly, we have not entered into any hedging agreements.
However, we are prepared to hedge against fluctuations that the euro, or other
foreign currencies, will have on foreign exchange exposure if this exposure
becomes material. As of December 31, 2003, the total assets related to non-US
dollar denominated currencies were approximately $16.4 million.

ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements listed in the following Index to Financial
Statements are filed as a part of this 2003 Annual Report on Form 10-K under
Item 15.

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FORRESTER RESEARCH, INC.

INDEX TO FINANCIAL STATEMENTS

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

On April 1, 2002, our Audit Committee recommended, and our Board of
Directors decided, to no longer engage Arthur Andersen LLP ("Andersen") as our
independent public accountants and to engage Deloitte & Touche LLP to serve as
our independent public auditors for the fiscal year 2002.

Andersen's report on our consolidated financial statements for the year
ended December 31, 2001 did not contain an adverse opinion or disclaimer of
opinion, nor was it qualified or modified as to uncertainty, audit scope, or
accounting principles. During the year ended December 31, 2001 and through April
1, 2002, there were no disagreements with Andersen on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure which, if not resolved to Andersen's satisfaction, would have caused
it to make reference to the subject matter in connection with its report on our
consolidated financial statements for such years. There were no reportable
events as defined in Item 304(a)(1)(v) of Regulation S-K.

We provided Andersen with a copy of the foregoing disclosures. A letter
from Andersen dated April 5, 2002 and addressed to the Securities and Exchange
Commission (the "SEC") is included as Exhibit 16 to this 2003 Annual Report on
Form 10-K and states that Andersen agrees with such disclosure.

During the year ended December 31, 2001 and through April 1, 2002, we did
not consult Deloitte & Touche with respect to the application of accounting
principles to a specified transaction, either completed or proposed, or the type
of audit opinion that might be rendered on our consolidated financial
statements, or any other matter that was either the subject of a disagreement
(as defined in Item 304(a)(1)(iv) of Regulation S-K) or a reportable event (as
described in Item 304(a)(1)(v) of Regulation S-K).

ITEM 9A. CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

Our management, with the participation of our principal executive officer
and principal financial officer, has evaluated the effectiveness of our
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934, as amended (the "Exchange Act")), as
of the end of the period covered by this Annual Report on Form 10-K. Based on
such evaluation, our principal executive officer and principal financial officer
have concluded that as of such date, our disclosure controls and procedures were
designed to ensure that information required to be disclosed by us in reports
that we file or submit under the Exchange Act is recorded, processed, summarized
and reported within the time periods specified in applicable SEC rules and forms
and were effective.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There was no change in our internal control over financial reporting (as
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred
during the quarter ended December 31, 2003 that has materially affected, or is
reaso