FORM 10-Q/A

(MARK ONE)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934.

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2005

OR

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934.

COMMISSION FILE NUMBER: 000-21433

FORRESTER RESEARCH, INC.

(Exact name of registrant as specified in its charter)

DELAWARE		04-2797789
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification Number)
400 TECHNOLOGY SQUARE
CAMBRIDGE, MASSACHUSETTS		02139
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (617) 613 — 6000

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 R No £

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (Check one).

Large accelerated filer £		Accelerated filer R		Non-accelerated filer £

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes £ No R

As of November 4, 2005, 21,294,464 shares of the registrant’s common stock were outstanding.

 

 

FORRESTER RESEARCH, INC.

INDEX TO FORM 10-Q/A

		PAGE
EXPLANATORY NOTE			3
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements			4
Consolidated Balance Sheets as of September 30, 2005 (restated) and December 31, 2004			4
Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2005 (restated) and 2004			5
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2005 (restated) and 2004			6
Notes to Consolidated Financial Statements (restated)			7
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (restated)			15
ITEM 4. Controls and Procedures			23
PART II. OTHER INFORMATION
ITEM 6. Exhibits			25
EX-31.1 Section 302 Certification of CEO
EX-31.2 Section 302 Certification of CFO
EX-32.1 Section 906 certification of CEO
EX-32.2 Section 906 Certification of CFO

EXPLANATORY NOTE

We are filing this Quarterly Report on Form 10-Q/A (the “Amended Report”) to correct an error in the accounting for performance-based stock options to purchase 940,500 shares of common stock granted on March 31, 2005, reflected in our financial statements reported on Form 10-Q for the period ended September 30, 2005 (the “Original Report”). As a result of the error, we did not record non-cash stock-based compensation expense of approximately $729,000 and $1,019,000 for the three and nine month periods ended September 30, 2005 as required by Accounting Principles Board Opinion (“APB”) No. 25, “Accounting for Stock Issued to Employees.” We are filing this Amended Report in order to restate our financial statements to reflect this expense and the related income tax effect.

For the reason discussed above, we are filing this Amended Report in order to amend Part I. Item 1. “Financial Statements,” Part I. Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” Part I. Item 4. “Controls and Procedures” and Part II. Item 6 “Exhibits” to the extent necessary to reflect the adjustment discussed above and to reflect the results of our evaluations of disclosure controls and procedures and internal control over financial reporting, taking into consideration this restatement. The remaining Items of our Original Report are not amended hereby.

In order to preserve the nature and character of the disclosures set forth in the Original Report, except as expressly noted above, this report speaks as of the date of the filing of the Original Report, November 8, 2005, and we have not updated the disclosures in this report to speak as of the later date. All information contained in this Amended Report is subject to updating and supplementing as provided in our reports filed with the SEC subsequent to the date of the Original Report.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

FORRESTER RESEARCH, INC.

CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)

		SEPTEMBER 30,				DECEMBER 31,
		2005				2004
		(UNAUDITED)
		(restated)
ASSETS
Current assets:
Cash and cash equivalents		$	52,468			$	37,328
Marketable securities			82,090				90,112
Accounts receivable, net			28,653				39,210
Deferred commissions			6,314				6,834
Prepaid expenses and other current assets			5,626				5,509
Total current assets			175,151				178,993
Long-term assets:
Property and equipment, net			6,080				6,410
Goodwill			52,915				52,875
Deferred income taxes			43,283				42,860
Non-marketable investments			13,493				13,430
Intangible assets, net			4,320				6,992
Other assets			780				1,312
Total long-term assets			120,871				123,879
Total assets		$	296,022			$	302,872
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	1,956			$	3,741
Accrued expenses			26,379				26,928
Deferred revenue			67,671				72,357
Total current liabilities			96,006				103,026
Stockholders’ equity:
Preferred stock, $.01 par value Authorized — 500 shares Issued and outstanding — none			—				—
Common stock, $.01 par value Authorized — 125,000 shares Issued — 25,267 and 24,729 shares as of September 30, 2005 and December 31, 2004, respectively
Outstanding — 21,280 and 21,684 shares as of September 30, 2005 and December 31, 2004, respectively			253				247
Additional paid-in capital			189,777				180,310
Retained earnings			78,831				71,077
Treasury stock, at cost — 3,987 and 3,045 shares as of September 30, 2005 and December 31, 2004, respectively			(66,314	)			(50,056	)
Accumulated other comprehensive loss			(2,531	)			(1,732	)
Total stockholders’ equity			200,016				199,846
Total liabilities and stockholders’ equity		$	296,022			$	302,872

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

FORRESTER RESEARCH, INC.

CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)

		THREE MONTHS ENDED								NINE MONTHS ENDED
		SEPTEMBER 30,								SEPTEMBER 30,
		2005				2004				2005				2004
						(UNAUDITED)
		(restated)								(restated)
Revenues:
Research services		$	24,987			$	23,544			$	72,203			$	69,579
Advisory services and other			14,038				10,335				39,850				30,950
Total revenues			39,025				33,879				112,053				100,529
Operating expenses:
Cost of services and fulfillment			15,758				13,266				46,207				40,782
Selling and marketing			12,717				11,036				37,685				33,701
General and administrative			4,843				4,291				13,361				11,687
Depreciation			859				744				2,615				2,801
Amortization of intangible assets			786				1,384				2,742				5,112
Reorganization costs			—				—				—				8,751
Total operating expenses			34,963				30,721				102,610				102,834
Income (loss) from operations			4,062				3,158				9,443				(2,305	)
Other income:
Other income, net			722				680				2,226				2,168
Realized gains on sales of securities			—				678				1,489				678
Realized gains on non-marketable investments			241				313				532				370
Income before income tax provision			5,025				4,829				13,690				911
Income tax provision			2,467				1,618				5,936				305
Net income		$	2,558			$	3,211			$	7,754			$	606
Basic net income per common share		$	0.12			$	0.15			$	0.36			$	0.03
Diluted net income per common share		$	0.12			$	0.14			$	0.35			$	0.03
Basic weighted average common shares outstanding			21,287				21,952				21,470				22,094
Diluted weighted average common shares outstanding			21,931				22,345				21,872				22,577

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

FORRESTER RESEARCH, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

		NINE MONTHS ENDED
		SEPTEMBER 30,
		2005				2004
		(UNAUDITED)
		(restated)
Cash flows from operating activities:
Net income		$	7,754			$	606
Adjustments to reconcile net income to net cash provided by operating activities —
Depreciation			2,615				2,801
Amortization of intangible assets			2,742				5,112
Realized gains on sales of securities			(1,489	)			(678	)
Realized gains on non-marketable investments			(532	)			(370	)
Tax benefit from exercises of employee stock options			1,243				256
Deferred income taxes			(739	)			(2	)
Non-cash reorganization costs			—				1,541
Non-cash stock-based compensation			1,019				—
Increase in provision for doubtful accounts			100				224
Amortization of premium on marketable securities			829				635
Changes in assets and liabilities, net of acquisition —
Accounts receivable			9,282				15,541
Deferred commissions			520				849
Prepaid expenses and other current assets			(294	)			(296	)
Accounts payable			(1,785	)			(116	)
Accrued expenses			1,234				(3,722	)
Deferred revenue			(2,572	)			(8,770	)
Net cash provided by operating activities			19,927				13,611
Cash flows from investing activities:
Purchases of property and equipment			(2,376	)			(2,423	)
Purchases of non-marketable investments			(300	)			(2,263	)
Proceeds from non-marketable investments			516				—
Decrease in other assets			788				842
Purchases of marketable securities			(179,612	)			(107,478	)
Proceeds from sales and maturities of marketable securities			185,776				121,623
Net cash provided by investing activities			4,792				10,301
Cash flows from financing activities:
Proceeds from issuance of common stock			7,201				2,959
Acquisition of treasury stock			(16,258	)			(12,623	)
Structured stock repurchase			—				54
Net cash used in financing activities			(9,057	)			(9,610	)
Effect of exchange rate changes on cash and cash equivalents			(522	)			(66	)
Net increase in cash and cash equivalents			15,140				14,236
Cash and cash equivalents, beginning of period			37,328				22,385
Cash and cash equivalents, end of period		$	52,468			$	36,621
Supplemental disclosure of cash flow information:
Cash paid for income taxes		$	509			$	1,201

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

FORRESTER RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 — INTERIM CONSOLIDATED FINANCIAL STATEMENTS

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for reporting on Form 10-Q. Accordingly, certain information and footnote disclosures required for complete financial statements are not included herein. It is recommended that these financial statements be read in conjunction with the consolidated financial statements and related notes that appear in the Annual Report of Forrester Research, Inc. (“Forrester”) as reported on Form 10-K for the year ended December 31, 2004. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the financial position, results of operations, and cash flows as of the dates and for the periods presented have been included. The results of operations for the nine months ended September 30, 2005 may not be indicative of the results that may be expected for the year ended December 31, 2005, or any other period.

Forrester is restating the financial results included in its previously issued consolidated financial statements as of September 30, 2005 and for the periods ended September 30, 2005, to correct an error under GAAP relating to non-cash stock-based compensation expense. Such adjustments are reflected in the accompanying consolidated financial statements and notes thereto, as discussed in Note 2 below.

Stock-Based Compensation

Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation” and SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure” requires the measurement of the fair value of stock options or warrants to be included in the statement of income or disclosed in the notes to financial statements. Forrester has determined it will continue to account for stock-based compensation for employees under Accounting Principles Board Opinion (“APB”) No. 25 and elect the disclosure-only alternative under SFAS No. 123.

On March 31, 2005, Forrester issued stock options to its employees to purchase 940,500 shares of common stock. These options vest only if certain pro-forma earnings per share (“EPS”) goals are achieved for the year ended December 31, 2005. The vesting of these options will be over 24 or 36 months, or the options could be forfeited, depending on the actual pro-forma EPS achieved. Under APB No. 25, these stock options are accounted for as options with variable terms until the performance criteria are met based upon 2005 financial performance, as the awards contain performance criteria that could result in the forfeiture of the entire stock option. For the three and nine month periods ended September 30, 2005, Forrester recorded non-cash stock-based compensation expense of $729,000 and $1,019,000, respectively. The compensation expense represents the vested portion of the intrinsic value of the options granted and is based on an estimated vesting period of 36 months. The total non-cash stock-based compensation expense included in the consolidated statements of income is included in the following expense categories (in thousands):

		THREE MONTHS ENDED								NINE MONTHS ENDED
		SEPTEMBER 30,								SEPTEMBER 30,
		2005				2004				2005				2004
		(UNAUDITED)
		(restated)								(restated)
Cost of services and fulfillment		$	400				—			$	559				—
Selling and marketing			158				—				221				—
General and administrative			171				—				239				—
Total		$	729				—			$	1,019				—

Compensation expense will be measured throughout the performance period based upon the intrinsic value of the options and will be recognized over the estimated vesting period.

If compensation cost for Forrester’s stock option plans had been determined using the fair value method prescribed in SFAS No. 123, net income (loss) for the three and nine months ended September 30, 2005 and 2004 would have been approximately as follows (in thousands, except per share data):

		THREE MONTHS ENDED								NINE MONTHS ENDED
		SEPTEMBER 30,								SEPTEMBER 30,
		2005				2004				2005				2004
		(IN THOUSANDS)								(IN THOUSANDS)
		(restated)								(restated)
Net income, as reported		$	2,558			$	3,211			$	7,754			$	606
Add: Non-cash stock-based compensation expense			729				—				1,019				—
Less: Total stock-based employee compensation expense determined under fair value based method for all awards			(973	)			(1,045	)			(2,919	)			(3,334	)
Pro-forma net income (loss)		$	2,314			$	2,166			$	5,854			$	(2,728	)
Basic net income per share — as reported		$	0.12			$	0.15			$	0.36			$	0.03
Diluted net income per share — as reported		$	0.12			$	0.14			$	0.35			$	0.03
Basic net income (loss) per share — pro forma		$	0.11			$	0.10			$	0.27			$	(0.12	)
Diluted net income (loss) per share — pro forma		$	0.11			$	0.10			$	0.27			$	(0.12	)

Income Taxes

Forrester provides for income taxes on an interim basis according to management’s estimate of the effective tax rate expected to be applicable for the full fiscal year ending December 31.

NOTE 2 — RESTATEMENT

The previously issued consolidated financial statements as of September 30, 2005 and for the three and nine month periods ended September 30, 2005, have been restated to correct an error in the accounting for performance-based common stock options granted on March 31, 2005. On March 31, 2005, Forrester issued performance-based stock options to employees to purchase a total of 940,500 shares of common stock that are based upon attainment of 2005 financial goals. Because the number of option shares were not fixed at the time of grant, Forrester was required to account for these options as options with variable terms until the performance criteria were met. As a result, non-cash stock-based compensation expense of $729,000 and $1,019,000 related to this option grant, and $60,000 and $83,000 of related tax benefit, is reflected in the accompanying consolidated financial statements for the three and nine month periods ended September 30, 2005, respectively.

The following lists the accounts in the consolidated statements of income and balance sheet that were affected by the aforementioned restatement, with comparisons of the restated amounts to the originally reported amounts and the effect of such restatements on net income per share:

		THREE MONTHS ENDED								NINE MONTHS ENDED
		SEPTEMBER 30, 2005								SEPTEMBER 30, 2005
						(IN THOUSANDS, EXCEPT PER SHARE DATA)
		As restated				As reported				As restated				As reported
Cost of services and fulfillment		$	15,758			$	15,358			$	46,207			$	45,648
Selling and marketing		$	12,717			$	12,559			$	37,685			$	37,464
General and administrative		$	4,843			$	4,672			$	13,361			$	13,122
Total operating expenses		$	34,963			$	34,234			$	102,610			$	101,591
Income from operations		$	4,062			$	4,791			$	9,443			$	10,462
Income before income tax provision		$	5,025			$	5,754			$	13,690			$	14,709
Income tax provision		$	2,467			$	2,527			$	5,936			$	6,019
Net income		$	2,558			$	3,227			$	7,754			$	8,690
Basic net income per share		$	0.12			$	0.15			$	0.36			$	0.40
Diluted net income per share		$	0.12			$	0.15			$	0.35			$	0.40

		SEPTEMBER 30, 2005
		(IN THOUSANDS)
		As restated				As reported
Accrued expenses		$	26,379			$	26,462
Total current liabilities		$	96,006			$	96,089
Additional paid-in capital		$	189,777			$	188,758
Retained earnings		$	78,831			$	79,767
Total stockholders’ equity		$	200,016			$	199,933

All applicable amounts relating to the aforementioned restatements have been reflected in these consolidated financial statements and notes hereto.

NOTE 3 — INTANGIBLE ASSETS

A summary of Forrester’s amortizable intangible assets as of September 30, 2005 is as follows:

		GROSS CARRYING				ACCUMULATED				NET
		AMOUNT				AMORTIZATION				CARRYING AMOUNT
		(IN THOUSANDS)
Amortized intangible assets:
Customer relationships		$	19,960			$	15,640			$	4,320
Research content			2,444				2,444				—
Registered trademarks			570				570				—
Subtotal		$	22,974			$	18,654			$	4,320

Amortization expense related to identifiable intangible assets was approximately $786,000 and $1,384,000 during the three months ended September 30, 2005 and 2004, respectively, and $2,742,000 and $5,112,000 during the nine months ended September 30, 2005 and 2004, respectively. Estimated amortization expense related to identifiable intangible assets that will continue to be amortized is as follows:

		AMOUNTS
		(IN THOUSANDS)
Remaining three months ending December 31, 2005		$	786
Year ending December 31, 2006			2,069
Year ending December 31, 2007			1,234
Year ending December 31, 2008			231
Total		$	4,320

NOTE 4 — REORGANIZATIONS

In November 2003, Forrester acquired the assets of GigaGroup S.A. (“GigaGroup”). In January 2004, Forrester announced a reduction of its workforce by approximately 15 positions in connection with the integration of GigaGroup’s operations. As a result, Forrester recorded an initial reorganization charge of $1,957,000 during the three months ended March 31, 2004. Approximately 53% of the terminated employees had been members of the sales force, while 27% and 20% had held administrative and research roles, respectively. The charge consisted primarily of severance and related benefit costs, and other payments for professional services incurred in connection with the reorganization. During the three-months ended June 30, 2004 and December 31, 2004, Forrester provided for additional severance and related benefits costs of $240,000 and $313,000, respectively.

In connection with the integration of GigaGroup’s operations, Forrester vacated and subleased office space in San Francisco, Amsterdam and London during the three-months ended June 30, 2004. As a result of these vacancies and related subleases, Forrester recorded reorganization charges of approximately $4,693,000 related to the excess of contractual lease commitments over the contracted sublease revenue and $1,861,000 for the write-off of related leasehold improvements and furniture and fixtures.

The activity related to the January 2004 reorganization during the nine months ended September 30, 2005 is as follows:

		Accrued as of								Accrued as of
		December 31,				Cash				September 30,
		2004				Payments				2005
						(IN THOUSANDS)
Workforce reduction		$	442			$	363			$	79
Facility consolidation and other related costs			4,218				961				3,257
Total		$	4,660			$	1,324			$	3,336

The accrued costs related to the 2004 reorganizations are expected to be paid in the following periods:

		TOTAL				2005				2006				2007				2008				2009				Thereafter
		(IN THOUSANDS)
Workforce reduction		$	79			$	79			$	—			$	—			$	—			$	—			$	—
Facility consolidation and other related costs			3,257				307				1,224				1,208				166				178				174
Total		$	3,336			$	386			$	1,224			$	1,208			$	166			$	178			$	174

In connection with prior reorganizations of its workforce, Forrester has consolidated its office space. As a result of these consolidations, Forrester has aggregate accrued facility consolidation costs of $106,000 as of September 30, 2005. The activity related to these costs during the nine months ended September 30, 2005 is as follows:

		Accrued as of								Accrued as of
		December 31,				Cash				September 30,
		2004				Payments				2005
		(IN THOUSANDS)
Facility costs		$	677			$	571			$	106

These accrued facility costs are expected to be paid in the following periods:

		TOTAL				2005				2006
		(IN THOUSANDS)
Facility costs		$	106			$	18			$	88

NOTE 5 — NET INCOME PER COMMON SHARE

Basic net income per common share for the three and nine months ended September 30, 2005 and 2004 was computed by dividing the net income by the basic weighted average number of common shares outstanding during the period. Diluted net income per common share for the three and nine months ended September 30, 2005 and 2004 was computed by dividing net income by the diluted weighted average number of common shares outstanding during the period. The weighted average number of common equivalent shares outstanding has been determined in accordance with the treasury-stock method. Common stock equivalents consist of common stock issuable on the exercise of outstanding options when dilutive. A reconciliation of basic to diluted weighted average shares outstanding is as follows:

		THREE MONTHS ENDED								NINE MONTHS ENDED
		SEPTEMBER 30,								SEPTEMBER 30,
		2005				2004				2005				2004
		(IN THOUSANDS)
Basic weighted average common shares outstanding			21,287				21,952				21,470				22,094
Weighted average common equivalent shares			644				393				402				483
Diluted weighted average shares outstanding			21,931				22,345				21,872				22,577

During the-three month periods ended September 30, 2005 and 2004, options to purchase approximately 1,136,336 and 2,772,000 shares of common stock, respectively, were excluded from the calculation of diluted weighted average shares outstanding as the effect would have been anti-dilutive.

During the nine-month periods ended September 30, 2005 and 2004, options to purchase approximately 2,395,466 and 2,459,000 shares of common stock, respectively, were excluded from the calculation of diluted weighted average shares outstanding as the effect would have been anti-dilutive.

NOTE 6 — COMPREHENSIVE INCOME

The components of total comprehensive income (loss) for the three and nine months ended September 30, 2005 and 2004 are as follows:

		THREE MONTHS ENDED								NINE MONTHS ENDED
		SEPTEMBER 30,								SEPTEMBER 30,
		2005				2004				2005				2004
		(IN THOUSANDS)
		(restated)								(restated)
Unrealized (loss) gain on marketable securities, net of taxes		$	(103	)		$	1,487			$	(464	)		$	756
Reclassification adjustment for realized gains in net income, net of taxes			—				—				(1,122	)			—
Cumulative translation adjustment			61				(94	)			787				(253	)
Total other comprehensive (loss) income		$	(42	)		$	1,393			$	(799	)		$	503
Reported net income			2,558				3,211				7,754				606
Total comprehensive income		$	2,516			$	4,604			$	6,955			$	1,109

NOTE 7 — MARKETABLE INVESTMENT

As of March 31, 2004, Forrester held an approximately 1.1% ownership interest in Greenfield Online, Inc. (“Greenfield”), an Internet-based market research firm. This investment was accounted for as a cost basis investment and valued at approximately $267,000 as of March 31, 2004. In July 2004, Greenfield (NASDAQ: SRVY) completed an initial public offering in which Forrester’s ownership interest was converted to approximately 136,000 shares of common stock. Upon consummation of the offering, Forrester received a conversion payment of approximately $463,000, and participated in the offering by selling approximately 21,000 shares of common stock for which net proceeds of approximately $256,000 were received. In December 2004, Greenfield completed a secondary offering in which Forrester participated and sold an additional 26,000 shares of common stock, receiving net proceeds of approximately $445,000. In March 2005, Forrester sold the remainder of its holdings, approximately 89,000 shares of common stock, received net proceeds of approximately $1.7 million and recognized a gain of approximately $1.5 million related to the sale of these shares.

NOTE 8 — NON-MARKETABLE INVESTMENTS

In June 2000, Forrester committed to invest $20.0 million in two technology-related private equity investment funds with capital contributions required to be funded over an expected period of five years. During the three months ended September 30, 2005 and 2004, Forrester contributed approximately $425,000 and $412,500 to these investment funds, respectively. During the nine months ended September 30, 2005 and 2004, Forrester contributed approximately $738,000 and $2.0 million to these investment funds, respectively, resulting in total cumulative contributions of approximately $18.6 million to date. One of these investments is being accounted for using the cost method and, accordingly, is valued at cost unless an other than temporary impairment in its value occurs or the investment is liquidated. The other investment is being accounted for using the equity method. During the three and nine months ended September 30, 2005, gains of $241,000 and $532,000, respectively, were recorded in the consolidated statements of income related to distributions received. During the three and nine months ended September 30, 2004, gains of $313,000 and $370,000, respectively, were recorded in the consolidated statements of income related to distributions received. During the three and nine months ended September 30, 2005 and 2004 there were no impairments recorded. During the three months and nine months ended September 30, 2005 and 2004, fund management charges of approximately $84,000 and $253,000 were included in other income, net for each period in the consolidated statements of income, respectively, bringing the total cumulative fund management charges paid by Forrester to approximately $2.2 million as of September 30, 2005. Fund management charges are recorded as a reduction of the investments’ carrying value.

Forrester has adopted a cash bonus plan to pay bonuses, after the return of invested capital, measured by the proceeds of a portion of its share of net profits from these investments, if any, to certain key employees, subject to the terms and conditions of the plan. The payment of such bonuses would result in compensation expense with respect to the amounts so paid. To date, no bonuses have been paid under this plan. The principal purpose of this

cash bonus plan was to retain key employees by allowing them to participate in a portion of the potential return from Forrester’s technology-related investments if they remained employed by the Company. The plan was established at a time when technology and internet companies were growing significantly, and providing incentives to retain key employees during that time was important.

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

NOTE 9 — STOCK REPURCHASE

In October 2001, Forrester announced a program authorizing the repurchase of up to $50.0 million of its common stock. The shares repurchased may be used, among other things, in connection with Forrester’s employee stock option and stock purchase plans and for potential acquisitions. In February 2005, the Board of Directors authorized the repurchase of up to an additional $50.0 million of common stock. As of September 30, 2005, Forrester had repurchased approximately 3,987,000 shares of common stock at an aggregate cost of approximately $66.3 million.

NOTE 10 — OPERATING SEGMENT AND ENTERPRISE WIDE REPORTING

During 2004, Forrester viewed its operations within the following three operating groups (“Operating Groups”): (i) North America, (ii) Europe and, (iii) World Markets which includes Asia, Middle East, Africa, and Latin America. Effective January 1, 2005, Forrester reorganized the operating groups as follows (i) Americas, (ii) Europe, Middle East and Africa (EMEA) and (iii) Asia Pacific. All of the Operating Groups generate revenues through sales of the same research and advisory and other service offerings. Each of the Operating Groups is composed of sales forces responsible for clients located in such Operating Group’s region and research personnel focused primarily on issues generally more relevant to clients in that region. Forrester evaluates reportable segment performance and allocates resources based on direct margin. Direct margin, as presented below, is defined as operating income excluding certain selling and marketing expenses, general and administrative expenses, depreciation expense, amortization of intangibles, non-cash stock-based compensation expense and reorganization charges. The accounting policies used by the reportable segments are the same as those used by Forrester.

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

The following tables present information about reportable segments. Segment information for the three and nine months ended September 30, 2004 has been restated to conform to the current year’s presentation.

		Americas				EMEA				Asia Pacific				Consolidated
Three months ended September 30, 2005 (restated)
Revenue		$	30,087			$	7,518			$	1,420			$	39,025
Direct Margin			12,270				598				496				13,364
Corporate expenses															(8,516	)
Amortization of intangible assets															(786	)
Reorganization costs															—
Income from operations														$	4,062
Three months ended September 30, 2004
Revenue		$	25,722			$	6,786			$	1,371			$	33,879
Direct Margin			10,969				788				787				12,544
Corporate expenses															(8,002	)
Amortization of intangible assets															(1,384	)
Reorganization costs															—
Income from operations														$	3,158
Nine months ended September 30, 2005 (restated)
Revenue		$	85,039			$	22,662			$	4,352			$	112,053
Direct Margin			32,272				1,102				1,929				35,303
Corporate expenses															(23,118	)
Amortization of intangible assets															(2,742	)
Reorganization costs															—
Income from operations														$	9,443
Nine months ended September 30, 2004
Revenue		$	75,089			$	21,212			$	4,228			$	100,529
Direct Margin			30,476				1,724				2,452				34,652
Corporate expenses															(23,094	)
Amortization of intangible assets															(5,112	)
Reorganization costs															(8,751	)
Loss from operations														$	(2,305	)

Net revenues by geographic client location and as a percentage of total revenues are as follows:

		THREE MONTHS ENDED								NINE MONTHS ENDED
		SEPTEMBER 30,								SEPTEMBER 30,
		2005				2004				2005				2004
		(IN THOUSANDS)
United States		$	27,681			$	22,813			$	78,142			$	67,676
Europe (excluding United Kingdom)			4,657				4,728				13,958				13,475
United Kingdom			2,983				2,871				8,936				9,095
Canada			1,843				1,651				5,679				4,874
Other			1,861				1,816				5,338				5,409
		$	39,025			$	33,879			$	112,053			$	100,529

		THREE MONTHS ENDED								NINE MONTHS ENDED
		SEPTEMBER 30,								SEPTEMBER 30,
		2005				2004				2005				2004
United States			71	%			67	%			70	%			67	%
Europe (excluding United Kingdom)			12				14				12				13
United Kingdom			8				9				8				9
Canada			5				5				5				5
Other			4				5				5				6
			100	%			100	%			100	%			100	%

NOTE 11 — RECENT ACCOUNTING PRONOUNCEMENTS

In December 2004, the Financial Accounting Standards Board (FASB) revised SFAS No. 123 (SFAS No. 123-R) which requires the measurement of the cost of employee services received in exchange for an award of an equity instrument based on the grant-date fair value of the award. The measured cost is to be recognized over the period during which an employee is required to provide service in exchange for the award, usually the vesting period. The provisions of SFAS No. 123-R are effective for all employee equity awards granted and to any unvested awards outstanding as of January 1, 2006. Retrospective application is permitted. The adoption of this statement is expected to have a material adverse impact on Forrester’s results of operations. Forrester is currently assessing the transition method it will use upon adoption.

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

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “expects,” “believes,” “anticipates,” “intends,” “plans,” “estimates,” or similar expressions are intended to identify these forward-looking statements. These statements include, but are not limited to, statements about the success of and demand for our research and advisory products and services, and our ability to achieve success as the industry consolidates. 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. Important factors that could cause actual future activities and results to differ include, among others, our ability to anticipate business and economic conditions, market trends, competition, the ability to attract and retain professional staff, possible variations in our quarterly operating results, risks associated with our ability to offer new products and services, the actual amount of the charge and any cost savings related to reductions in force and associated actions, and our dependence on renewals of our membership-based research services and on key personnel. We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise.

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

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

administrative expenses include the costs of the technology, operations, finance, and strategy groups and our other administrative functions. Overhead costs are allocated over these categories according to the number of employees in each group. Amortization of intangible assets represents the cost of amortizing acquired intangible assets such as customer relationships.

Agreement value, client retention, dollar retention and enrichment are metrics we believe are important to understanding our business. We believe that the “agreement value” of contracts to purchase research and advisory services provides a significant measure of our business volume. We calculate agreement value as the total revenues recognizable from all research and advisory service contracts in force at a given time, without regard to how much revenue has already been recognized. No single client accounted for more than 3% of agreement value at September 30, 2005. We calculate client retention as the number of client companies who renewed with memberships as a percentage of those that would have expired. We calculate dollar retention as a percentage of the dollar value of all client membership contracts renewed during the most recent twelve-month fiscal period to the total dollar value of all client membership contracts that expired during the period. We calculate enrichment as a percentage of the dollar value of client membership contracts renewed during the period to the dollar value of the corresponding expiring contracts. Client retention, dollar retention, and enrichment are not necessarily indicative of the rate of future retention of our revenue base. A summary of our key metrics is as follows:

										Absolute				Percentage
		SEPTEMBER 30,								Increase				Increase
		2005				2004				(Decrease)				(Decrease)
Agreement Value (In Millions)		$	133.9			$	125.4			$	8.5				6.8	%
Client Retention			78.0	%			75.0	%			3.0	%			4.0	%
Dollar Retention			88.0	%			86.0	%			2.0	%			2.3	%
Enrichment			105.0	%			113.0	%			(8.0	)%			(7.1	)%
Number of clients			1,957				1,832				125				6.8	%

The increase in agreement value from September 30, 2004 to September 30, 2005 is primarily due to an increase in the number of clients. Client retention and dollar retention increases in 2005 reflect an improving economic environment. The decrease in enrichment reflects more clients renewing memberships at the same level as the prior year, coupled with an increase in advisory-only contracts from clients purchased during the membership term.

RESTATEMENT

On January 31, 2006, we announced that we would restate certain of our previously issued financial statements because they contained errors under GAAP relating to the accounting for performance-based stock options to purchase 940,500 shares of common stock granted on March 31, 2005. The necessary restatement required the recording of approximately $729,000 and $1,019,000 of non-cash stock-based compensation expense and $60,000 and $83,000 of related tax benefit, for the three and nine month periods ended September 30, 2005, respectively.

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 that most subjective judgment or those most important to the portrayal of our financial condition and results of operations. If actual results differ significantly

from management’s estimates and projections, there could be a material effect on our financial statements. This is not a comprehensive list of all of our accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by generally accepted accounting principles, with no need for management’s judgment in their application. There are also areas in which management’s judgment in selecting any available alternative would not produce a materially different result. For further discussion of the application of these and our other accounting policies, see Management’s Discussion and Analysis of Financial Condition and Results of Operations and the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2004, previously filed with the SEC.

•		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, the estimate of which requires us to make estimates of such fair values. The amount of revenue recognized is limited to the amount that is not contingent on future performance conditions. Research service revenues are recognized ratably over the term of the agreement. Advisory service revenues are recognized during the period in which the services are performed. Events revenues are recognized upon completion of the events. In certain cases, where estimates of fair value cannot be made for events or advisory services, the amounts are recognized ratably and included in research service revenues. While our historical business practice has been to offer membership contracts with a non-cancelable term, effective April 1, 2005, we offer clients a money back guarantee, which gives them the right to cancel their membership contracts prior to the end of the contract term. For contracts that can be terminated during the contract term, any refund would be issued on a pro-rata basis only. Reimbursed out of pocket expenses are recorded as advisory revenue. Furthermore, our revenue recognition determines the timing of commission expenses that are deferred and expensed to operations as the related revenue is recognized. We evaluate the recoverability of deferred commissions at each balance sheet date. As of September 30, 2005, deferred revenues and deferred commissions totaled $67.7 million and $6.3 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 $831,000 as of September 30, 2005. Management specifically analyzes accounts receivable and historical bad debts, customer concentrations, current economic trends, and changes in our customer payment terms when evaluating the adequacy of the allowance for doubtful accounts. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required, and if the financial condition of our customers were to improve, the allowances may be reduced accordingly.
•		NON-MARKETABLE INVESTMENTS. We hold minority interests in technology-related companies and equity investment funds that totaled approximately $13.5 million as of September 30, 2005. These investments are in companies that are not publicly traded, and, therefore, because no established market for these securities exists, the estimate of the fair value of our investments requires significant judgment. We have a policy in place to review the fair value of our investments on a regular basis to evaluate the carrying value of the investments in these companies which consists primarily of reviewing the investee’s revenue and earnings trends relative to predefined milestones and overall business prospects. We record impairment charges when we believe that an investment has experienced a decline in value that is other than temporary. During the three and nine months ended September 30, 2005, we have no investments that have experienced a decline in value which we believe is permanent or temporary and accordingly no impairment charges have been recorded. Future adverse changes in market conditions or poor operating results of underlying investments could result in losses or an inability to recover the carrying value of the investments that may not be reflected in an investment’s current carrying value, thereby possibly requiring an impairment charge in the future.
•		GOODWILL AND OTHER INTANGIBLE ASSETS. At September 30, 2005, we had goodwill and identified intangible assets with finite lives related to our acquisitions that totaled approximately $52.9 million and $4.3 million, respectively. SFAS No. 142, “Goodwill and Other Intangible Assets”, requires that goodwill and intangible assets with indefinite lives no longer be amortized but instead be measured for impairment at least annually or whenever events indicate that there may be an impairment. In order to determine if an impairment exists, an analysis is done 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 September 30, 2005, we believe that the carrying value of our goodwill is not impaired. Future events could cause us to conclude that impairment indicators exist and that goodwill associated with our acquired businesses is impaired. Any resulting impairment loss could have a material adverse impact on our financial condition and results of operations.
		Intangible assets with finite lives 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 $43.3 million as of September 30, 2005. 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 incorrect.

RESULTS OF OPERATIONS

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

		THREE MONTHS ENDED								NINE MONTHS ENDED
		SEPTEMBER 30,								SEPTEMBER 30,
		2005				2004				2005				2004
Research services			64	%			69	%			64	%			69	%
Advisory services and other			36				31				36				31
Total revenues			100				100				100				100
Cost of services and fulfillment			40				39				41				40
Selling and marketing			33				33				34				33
General and administrative			12				13				12				12
Depreciation			2				2				2				3
Amortization of intangible assets			2				4				2				5
Reorganization costs			—				—				—				9
Income (loss) from operations			11				9				9				(2	)
Other income, net			2				2				2				2
Realized gains on sales of securities			—				2				1				1
Realized gains on non-marketable investments			—				1				—				—
Income before income tax provision			13				14				12				1
Income tax provision			6				5				5				—
Net income			7	%			9	%			7	%			1	%

THREE MONTHS ENDED SEPTEMBER 30, 2005 AND SEPTEMBER 30, 2004

REVENUES.

		THREE MONTHS ENDED								Absolute				Percentage
		SEPTEMBER 30,								Increase				Increase
		2005				2004				(Decrease)				(Decrease)
Revenues (in millions)		$	39.0			$	33.9				5.1				15	%
Revenues from research services (in millions)		$	25.0			$	23.5				1.5				6	%
Advisory services and other revenues (in millions)		$	14.0			$	10.3				3.7				36	%
Revenues attributable to customers outside of the United States (in millions)		$	11.3			$	11.1				0.2				2	%
Revenues attributable to customers outside of the United States as a percentage of total revenues			29	%			33	%			(4	)%			(12	)%
Number of events			1				1				—				—

The increase in total revenues is primarily attributable to increased demand for advisory services, improving economic conditions and an increase in the number of clients. No single client company accounted for more than 3% of revenues during the three months ended September 30, 2005 or 2004.

Research services revenues as a percentage of total revenues declined from 69% in the three months ended September 30, 2004 to 64% in the three months ended September 30, 2005 as customer demand is shifting towards advisory services. The increase in advisory services and other revenues is primarily attributable to increased demand for more customized services.

The decrease in international revenues as a percentage of total revenues is primarily attributable to demand for our products and services growing at a faster rate domestically than internationally. International revenues increased 2% to $11.3 million in the three months ended September 30, 2005 from $11.1 million in the three months ended September 30, 2004.

COST OF SERVICES AND FULFILLMENT.

		THREE MONTHS ENDED								Absolute				Percentage
		SEPTEMBER 30,								Increase				Increase
		2005				2004				(Decrease)				(Decrease)
Cost of services and fulfillment (in millions)		$	15.8			$	13.3			$	2.5				19	%
Cost of services and fulfillment as a percentage of total revenues			40	%			39	%			1	%			3	%
Number of research and fulfillment employees			317				265				52				20	%

The increase in cost of services and fulfillment both in dollars and as a percentage of total revenues is primarily attributable to increased compensation costs resulting from an increase in the number of research employees, the recording of non-cash stock-based compensation expense related to the March 31, 2005 grant, increased survey costs and increased incentive compensation paid for the performance of advisory services.

SELLING AND MARKETING.

		THREE MONTHS ENDED								Absolute				Percentage
		SEPTEMBER 30,								Increase				Increase
		2005				2004				(Decrease)				(Decrease)
Selling and marketing expenses (in millions)		$	12.7			$	11.0			$	1.7				15	%
Selling and marketing expenses as a percentage of total revenues			33	%			33	%			—				—
Number of selling and marketing employees			254				218				36				17	%

The increase in selling and marketing expenses is primarily attributable to increased compensation expense resulting from an increase in average headcount, annual increases in compensation costs, costs associated with the Forrester

magazine, the first issue of which was published in February 2005, and the recording of non-cash stock-based compensation expense related to the March 31, 2005 grant.

GENERAL AND ADMINISTRATIVE.

		THREE MONTHS ENDED								Absolute				Percentage
		SEPTEMBER 30,								Increase				Increase
		2005				2004				(Decrease)				(Decrease)
General and administrative expenses (in millions)		$	4.8			$	4.3			$	0.5				12	%
General and administrative expenses as a percentage of total revenues			12	%			13	%			(1	)%			(8	)%
Number of general and administrative employees			95				85				10				12	%

The increase in general and administrative expenses is primarily attributable to increased compensation expense resulting from an increase in average headcount, annual increases in compensation costs and the recording of non-cash stock-based compensation expense related to the March 31, 2005 grant. The decrease in general and administrative expenses as a percentage of revenue is primarily attributable to an increased revenue base.

DEPRECIATION. Depreciation expense increased 15% to $859,000 in the three months ended September 30, 2005 from $744,000 in the three months ended September 30, 2004. The increase is primarily attributable to computer and software assets purchases.

AMORTIZATION OF INTANGIBLE ASSETS. Amortization of intangible assets decreased to $786,000 in the three months ended September 30, 2005 from $1.4 million in the three months ended September 30, 2004. This decrease in amortization expense is primarily attributable to the accelerated method we are using to amortize our acquired intangible assets according to the expected cash flows to be received from these assets. Additionally, research content and registered trademarks that were acquired in connection with the acquisition of Giga Information Group, Inc. in 2003 were fully amortized by the end of 2004.

OTHER INCOME, NET. Other income, net, consisting primarily of interest income, increased 6% to $722,000 during the three months ended September 30, 2005 from $680,000 during the three months ended September 30, 2004. The increase is primarily attributable to an increase in the average cash and investment balances available for investment in 2005 as compared to 2004.

REALIZED GAINS ON NON-MARKETABLE INVESTMENTS. Gains on non-marketable investments resulted from a distribution from one of our investments and totaled $241,000 and $313,000 in the three months ended September 30, 2005 and 2004, respectively.

PROVISION FOR INCOME TAXES. During the three months ended September 30, 2005, we recorded an income tax provision of $2.5 million, which reflected an effective tax rate of 49%. During the three months ended September 30, 2004, we recorded an income tax provision of $1.6 million, which reflected an effective tax rate of 33.5%. The increase in our effective tax rate for fiscal year 2005 resulted primarily from a decrease in tax-exempt investment income relative to our pre-tax income in 2005 as compared to 2004, and an increase relative to our pre-tax income of the non-deductible amortization of bond premium paid on tax-exempt bonds.

NINE MONTHS ENDED SEPTEMBER 30, 2005 AND SEPTEMBER 30, 2004

REVENUES.

		NINE MONTHS ENDED								Absolute				Percentage
		SEPTEMBER 30,								Increase				Increase
		2005				2004				(Decrease)				(Decrease)
Revenues (in millions)		$	112.1			$	100.5				11.6				12	%
Revenues from research services (in millions)		$	72.2			$	69.6				2.6				4	%
Advisory services and other revenues (in millions)		$	39.9			$	31.0				8.9				29	%
Revenues attributable to customers outside of the United States (in millions)		$	33.9			$	32.9				1.1				3	%
Revenues attributable to customers outside of the United States as a percentage of total Revenues			30	%			33	%			(3	)%			(9	)%

		NINE MONTHS ENDED								Absolute				Percentage
		SEPTEMBER 30,								Increase				Increase
		2005				2004				(Decrease)				(Decrease)
Number of events			5				4				1				25	%

The increase in total revenues is primarily attributable to increased demand for advisory services, improving economic conditions and an increase in the number of clients. No single client company accounted for more than 2% of revenues during the nine months ended September 30, 2005 or 2004.

Research services revenues as a percentage of total revenues declined from 69% in the nine months ended September 30, 2004 to 64% in the nine months ended September 30, 2005 as customer demand is shifting towards advisory services. The increase in advisory services and other revenues is primarily attributable to increased demand for more customized services.

The decrease in international revenues as a percentage of total revenues is primarily attributable to demand for our products and services growing at a faster rate domestically than internationally. International revenues increased 3% to $33.9 million in the nine months ended September 30, 2005 from $32.9 million in the nine months ended September 30, 2004.

COST OF SERVICES AND FULFILLMENT.

		NINE MONTHS ENDED								Absolute				Percentage
		SEPTEMBER 30,								Increase				Increase
		2005				2004				(Decrease)				(Decrease)
Cost of services and fulfillment (in millions)		$	46.2			$	40.8			$	5.4				13	%
Cost of services and fulfillment as a percentage of total revenues			41	%			40	%			1	%			3	%
Number of research fulfillment employees			317				265				52				20	%

The increase in cost of services and fulfillment both in dollars and as a percentage of total revenues is primarily attributable to increased compensation costs resulting from an increase in the number of research employees and the recording of non-cash stock-based compensation expense related to the March 31, 2005 grant, increased survey costs and increased incentive compensation paid for the performance of advisory services.

SELLING AND MARKETING.

		NINE MONTHS ENDED								Absolute				Percentage
		SEPTEMBER 30,								Increase				Increase
		2005				2004				(Decrease)				(Decrease)
Selling and marketing expenses millions)		$	37.7			$	33.7			$	4.0				12	%
Selling and marketing expenses as a percentage of total revenues			34	%			33	%			1	%			3	%
Number of selling and marketing employees			254				218				36				17	%

The increase in selling and marketing expenses both in dollars and as a percentage of total revenues is primarily attributable to increased compensation expense resulting from an increase in average headcount, annual increases in compensation costs, costs associated with the Forrester magazine, the first issue of which was published in February 2005, and the recording of non-cash stock-based compensation expense related to the March 31, 2005 grant.

GENERAL AND ADMINISTRATIVE.

		NINE MONTHS ENDED								Absolute				Percentage
		SEPTEMBER 30,								Increase				Increase
		2005				2004				(Decrease)				(Decrease)
General and administrative expenses (in millions)		$	13.4			$	11.7			$	1.7				15	%
General and administrative expenses as a percentage of total revenues			12	%			12	%			—				—
Number of general and administrative employees			95				85				10				12	%

The increase in general and administrative expenses is primarily attributable to increased compensation expense resulting from an increase in average headcount, annual increases in compensation costs and the recording of non-cash stock-based compensation expense related to the March 31, 2005 grant.

DEPRECIATION. Depreciation expense decreased 7% to $2.6 million in the nine months ended September 30, 2005 from $2.8 million in the nine months ended September 30, 2004. The decrease is primarily attributable to computer and software assets purchased prior to 2002 becoming fully depreciated and to the write-off of certain depreciable assets in connection with office vacancies.

AMORTIZATION OF INTANGIBLE ASSETS. Amortization of intangible assets decreased to $2.7 million in the nine months ended September 30, 2005 from $5.1 million in the nine months ended September 30, 2004. This decrease in amortization expense is primarily attributable to the accelerated method we are using to amortize our acquired intangible assets according to the expected cash flows to be received from these assets. Additionally, research content and registered trademarks that were acquired in connection with the acquisition of Giga Information Group, Inc. in 2003 were fully amortized by the end of 2004.

OTHER INCOME, NET. Other income, net, consisting primarily of interest income, was $2.2 million during the nine months ended September 30, 2005 and 2004 as a result of an increase in the average cash and investment balances available for investment in 2005 as compared to 2004 offset by lower returns on invested capital.

REALIZED GAINS ON SALES OF SECURITIES. Gains on sales of securities primarily resulted from the sale of the remaining total of approximately 89,000 shares of Greenfield Online, Inc. in March 2005.

REALIZED GAINS ON NON-MARKETABLE INVESTMENTS. Gains on non-marketable investments resulted from a distributions from one of our investments and totaled $532,000 and $370,000 in the nine months ended September 30, 2005 and 2004, respectively.

REORGANIZATION COSTS. Reorganization costs in the nine months ended September 30, 2004 consisted primarily of costs associated with lease losses and fixed-asset write-offs resulting from office vacancies.

PROVISION FOR INCOME TAXES. During the nine months ended September 30, 2005, we recorded an income tax provision of $5.9 million, which reflected an effective tax rate of 43%. During the nine months ended September 30, 2004, we recorded an income tax provision of $305,000, which reflected an effective tax rate of 33.5%. The increase in our effective tax rate for fiscal year 2005 resulted primarily from a decrease in tax-exempt investment income relative to our pre-tax income in 2005 as compared to 2004, and an increase relative to our pre-tax income of the non-deductible amortization of bond premium paid on tax-exempt bonds.

LIQUIDITY AND CAPITAL RESOURCES

We have financed our operations primarily through funds generated from operations. Memberships for research services, which constituted approximately 64% of our revenues during the nine months ended September 30, 2005, are annually renewable and are generally payable in advance. We generated cash from operating activities of $19.9 million and $13.6 million during the nine months ended September 30, 2005 and 2004, respectively. The increase in cash provided from operations is primarily attributable to the increase in our income from operations.

During the nine months ended September 30, 2005, we generated $4.8 million of cash from investing activities, consisting primarily of $6.2 million received from net sales of marketable securities, offset by $2.4 million for capital expenditures. We regularly invest excess funds in short-and intermediate-term interest-bearing obligations of investment grade.

In June 2000, we committed to invest $20.0 million in two technology-related private equity investment funds over an expected period of five years. As of September 30, 2005, we had contributed approximately $18.6 million to the funds. The timing and amount of future contributions are entirely within the discretion of the investment funds. In July 2000, we adopted a cash bonus plan to pay bonuses, after the return of invested capital, measured by the proceeds of a portion of the share of net profits from these investments, if any, to certain key employees who must remain employed with us at the time any bonuses become payable under the plan, subject to the terms and

conditions of the plan. The principal purpose of this cash bonus plan was to retain key employees by allowing them to participate in a portion of the potential return from Forrester’s technology-related investments if they remained employed by the Company. The plan was established at a time when technology and internet companies were growing significantly, and providing incentives to retain key employees during that time was important. To date, we have not paid any bonuses under this plan.

In December 2003, we committed to invest an additional $2.0 million over an expected period of two years in an annex fund of one of the two private equity investment funds. As of September 30, 2005, we had contributed approximately $1.6 million to the annex fund. The timing of this additional investment is within the discretion of the fund.

During the nine months ended September 30, 2005, we used $9.1 million of cash in financing activities, consisting of $16.3 million for repurchases of our common stock offset by $7.2 million in proceeds from the exercise of employee stock options and the issuance of common stock under our employee stock purchase plan.

In February 2005, our Board of Directors authorized an additional $50.0 million to purchase common stock under the stock repurchase program. During the nine months ended September 30, 2005, we repurchased 942,000 shares of common stock at an aggregate cost of approximately $16.3 million. As of September 30, 2005, we had cumulatively repurchased approximately 4.0 million shares of common stock at an aggregate cost of approximately $66.3 million.

As of September 30, 2005, we had cash and cash equivalents of $52.5 million and marketable securities of $82.1 million. We do not have a line of credit and do not anticipate the need for one in the foreseeable future. We plan to continue to introduce new products and services and expect to make minimal 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 September 30, 2005, we had future contractual obligations as follows for operating leases*:

		FUTURE PAYMENTS DUE BY YEAR
CONTRACTUAL OBLIGATIONS		TOTAL				2005				2006				2007				2008				2009				Thereafter
		(IN THOUSANDS)
Operating leases		$	40,052			$	2,374			$	7,540			$	7,724			$	6,397			$	6,317			$	9,700

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

ITEM 4. CONTROLS AND PROCEDURES

On January 31, 2006 we announced that certain of our previously issued financial statements contained an error under accounting principles generally accepted in the United States of America (“GAAP”) relating to the recording of non-cash stock-based compensation expense for performance-based stock options granted to employees on March 31, 2005. As a result, we determined that we needed to restate our financial statements for the period ended September 30, 2005. For a more detailed discussion regarding this restatement, see Note 2 to our consolidated financial statements included herein.

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 September 30, 2005. As part of this evaluation management considered the facts and circumstances relating to the restatement discussed above and determined that there existed a material weakness with respect to our internal controls over financial reporting

related to accounting for stock-based compensation. The material weakness resulted from weaknesses in the operation of controls established to ensure that any new option grants were properly accounted for. Based on this evaluation, management, including the CEO and CFO, concluded that our company’s disclosure controls and procedures were not operating effectively as of September 30, 2005.

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 September 30, 2005 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. However, in connection with the restatement discussed above, our internal controls over financial reporting have been subsequently modified to correct this situation, with the individuals responsible for the inadvertent error being appropriately educated. In addition, in connection with our preparation for the adoption of Statement of Financial Accounting Standards (“SFAS”) 123R, additional review procedures are being devised and are expected to be implemented shortly and we have allocated more resources to accounting for stock-based compensation.

PART II. OTHER INFORMATION

ITEM 6. EXHIBITS

31.1		Certification of the Principal Executive Officer
31.2		Certification of the Principal Financial Officer
32.1		Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		FORRESTER RESEARCH, INC.
		By:		/s/ George F. Colony
		George F. Colony
		Chairman of the Board of Directors and Chief
		Executive Officer (principal executive officer)
Date: February 28, 2006
		By:		/s/ Warren Hadley
		Warren Hadley
		Chief Financial Officer and Treasurer (principal
		financial and accounting officer)
Date: February 28, 2006