GARTNER INC
10-Ks and 10-Qs
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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
| þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2010
OR
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number: 1-14443
GARTNER, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 04-3099750 | |
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) | |
| P.O. Box 10212 | ||
| 56 Top Gallant Road | ||
| Stamford, CT | 06902-7700 | |
| (Address of principal executive offices) | (Zip Code) | |
| (203) 316-1111 | ||
| (Registrant’s telephone number, | ||
| including area code) |
Securities registered pursuant to Section 12(b) of the Act:
| Name of each exchange | ||
| Title of each class | on which registered | |
| Common Stock, $.0005 par value per share | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act. Yes
þ
No
o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Exchange Act. Yes
o
No
þ
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
þ
No
o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes
þ
No
o
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.
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated
filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
(Check one):
|
Large accelerated filer
þ
|
Accelerated filer o | Non-accelerated filer o | Smaller reporting company o | |||
|
|
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes
o
No
þ
As of June 30, 2010, the aggregate market value of the registrant’s common stock held by
non-affiliates of the registrant was $1,679,003,400 based on the closing sale price as reported on
the New York Stock Exchange.
The number of shares outstanding of the registrant’s common stock was 95,993,389 as of January 31,
2011.
DOCUMENTS INCORPORATED BY REFERENCE
| Document | Parts Into Which Incorporated | |
|
Proxy Statement for the Annual Meeting
of Stockholders to be held June 2, 2011
(Proxy Statement)
|
Part III |
GARTNER, INC.
2010 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
2010 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
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| EX-101 INSTANCE DOCUMENT | ||||||||
| EX-101 SCHEMA DOCUMENT | ||||||||
| EX-101 CALCULATION LINKBASE DOCUMENT | ||||||||
| EX-101 LABELS LINKBASE DOCUMENT | ||||||||
| EX-101 PRESENTATION LINKBASE DOCUMENT | ||||||||
| EX-101 DEFINITION LINKBASE DOCUMENT | ||||||||
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GENERAL
Gartner, Inc. (NYSE: IT) is the world’s leading information technology research and advisory
company. We deliver the technology-related insight necessary for our clients to make the right
decisions, every day. From CIOs and senior IT leaders in corporations and government agencies, to
business leaders in high-tech and telecom enterprises and professional services firms, to
technology investors, we are the valuable partner to over 60,000
clients in 11,601 distinct
organizations. Through the resources of Gartner Research, Gartner Executive Programs, Gartner
Consulting and Gartner Events, we work with every client to research, analyze and interpret the
business of IT within the context of their individual role. Founded in 1979, Gartner is
headquartered in Stamford, Connecticut, U.S.A., and as of December
31, 2010, we had 4,461 associates, including 1,249 research
analysts and consultants, and clients in 85 countries.
The foundation for all Gartner products and services is our independent research on IT issues. The
findings from this research are delivered through our three customer segments — Research,
Consulting and Events:
| • | Research provides insight for CIOs, IT professionals, technology companies and the investment community through reports and briefings, access to our analysts, as well as peer networking services and membership programs designed specifically for CIOs and other senior executives. |
| • | Consulting consists primarily of consulting, measurement engagements and strategic advisory services (paid one-day analyst engagements) (“SAS”), which provide assessments of cost, performance, efficiency and quality focused on the IT industry. |
| • | Events consists of various symposia, conferences and exhibitions focused on the IT industry. |
For more information regarding Gartner and our products and services, visit
www.gartner.com.
References to “the Company,” “we,” “our,” and “us” are to Gartner, Inc. and its subsidiaries.
MARKET OVERVIEW
Information technology is critical to the operational and financial success of all business
enterprises and other organizations, as well as government and government agencies. Once a support
function, IT is now viewed as a strategic component of growth and operating performance.
Accordingly, it has become imperative for executives and IT professionals to invest in IT and
manage their IT spending and purchasing decisions efficiently and effectively.
As the cost of IT solutions continue to rise, executives and technology professionals have
realized the importance of making well-informed decisions and increasingly seek to maximize their
returns on IT capital investments. As a result, any IT investment decision in an enterprise is
subject to increased financial scrutiny, especially in the current challenging economic climate. In
addition, today’s IT marketplace is dynamic and complex. Technology providers continually introduce
new products with a wide variety of standards and features that are prone to shorter life cycles.
Users of technology — a group that encompasses nearly all organizations — must keep abreast of
new developments in technology to ensure that their IT systems are reliable, efficient and meet
both their current and future needs.
Given the critical nature of technology decision making and spending, business enterprises,
organizations, and governments and their agencies frequently turn to outside experts for
guidance in IT procurement, implementation and operations in order to maximize the value of their
IT investments. Accordingly, it is critical that CIOs and other executives and personnel within an
IT organization obtain value-added, independent and objective research and analysis of the IT
market to assist them in these IT-related decisions.
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OUR SOLUTION
We provide high-quality, independent and objective research and analysis of the IT industry.
Through our entire product portfolio, our global research team provides thought leadership and
insight about technology acquisition and deployment to CIOs, executives and other technology
leaders and professionals.
We employ a diversified business model that utilizes and leverages the breadth and depth of our
intellectual capital. The foundation of our business model is our ability to create and distribute
our proprietary research content as broadly as possible via published reports and briefings,
consulting and advisory services, and hosting symposia, conferences and exhibitions.
With a base of 776 research analysts, we create timely and relevant technology-related research. In
addition, we have 473 experienced consultants who combine our objective, independent research with
a practical, business perspective focused on the IT industry. Our events are among the world’s
largest of their kind, gathering highly qualified audiences of CIOs, senior business executives, IT
professionals and purchasers and providers of IT products and services.
PRODUCTS AND SERVICES
Our diversified business model provides multiple entry points and synergies that facilitate
increased client spending on our research, consulting services and events. A critical part of our
long-term strategy is to increase business volume with our most valuable clients, identifying
relationships with the greatest sales potential and expanding those relationships by offering
strategically relevant research and analysis. We also seek to extend the Gartner brand name to
develop new client relationships, and augment our sales capacity and expand into new markets around
the world. In addition, we seek to increase our revenue and operating cash flow through more
effective pricing of our products and services. These initiatives have created additional revenue
streams through more effective packaging, campaigning and cross-selling of our products and
services.
Our principal products and services are delivered via our Research, Consulting and Events segments:
| • | RESEARCH. The Gartner global research product is the fundamental building block for all Gartner services and covers all IT markets, topics and industries. We combine our proprietary research methodologies with extensive industry and academic relationships to create Gartner solutions. Our research agenda is defined by clients’ needs, focusing on the critical issues, opportunities and challenges they face every day. Our research analysts are in regular contact with both technology providers and technology users, enabling them to identify the most pertinent topics in the IT marketplace and develop relevant product enhancements to meet the evolving needs of users of our research. Our proprietary research content, presented in the form of reports, briefings, updates and related tools, is delivered directly to the client’s desktop via our website and/or product-specific portals. |
| Our research analysts provide in-depth analysis on all aspects of technology, including hardware; software and systems; services; IT management; market data and forecasts; and vertical industry issues. Clients typically sign contracts that provide access to our research content for individual users over a defined period of time, which is typically one year. Despite improving but still fragile global economic conditions, in 2010 we maintained strong research client retention, with 83% of user organizations renewing their contracts, as well as 98% wallet retention, a measure of the dollar amount of contract value we have retained with clients over the prior year. |
| There are various products and services through which our clients can take advantage of the insight gained through our rigorous research processes and proprietary methodologies: |
| Gartner Executive Programs is an exclusive organization combining the shared intelligence of the largest IT executive community in the world with customized access to Gartner insight and resources. An Executive Program membership leverages the knowledge and expertise of Gartner in ways that are specific to the CIO’s needs, and offers role-based offerings and member-only communities for peer-based collaboration. It enables CIOs, senior IT executives and other business executives to become more effective in their enterprises, grow their enterprises, fuel competitive advantage and operate more efficiently. Our Enterprise IT Leaders product provides a personalized service consisting of Gartner research, peer-interaction and networking to help senior leaders save time and money, mitigate risk and exploit new opportunities. This service provides CIO direct reports with the combined value of role-specific insights from Gartner analysts, practical advice from an exclusive community of peers, and expert coaching from a leadership partner. Approximately 4,000 CIOs and senior IT executives are members of Gartner Executive Programs. |
| Gartner for IT Leaders currently provides eight role-based research offerings to assist end-user IT leaders with effective decision making. These products align a client’s specific job-related challenges with appropriate Gartner analysts and insight, and connect IT leaders to IT peers who share common business and technology issues. Gartner for IT Leaders is an indispensable strategic resource, delivering timely, reliable insight to guide decisions and get the most from highest-priority initiatives. |
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| Gartner for Business Leaders provides a series of role-based research offerings for business leaders in the technology and communications industry—including sales professionals, product and marketing management, competitive intelligence leaders and analyst relations professionals—to achieve a higher level of success. |
| Gartner Industry Advisory Services address technology issues and topics with a focus on their impact on specific vertical industries. This service is for CIOs, CTOs, and other senior IT executives. |
|
AMR Supply Chain Leaders delivers objective, actionable insight and best practices around key supply chain
initiatives to help supply chain operations professionals build, manage and transform their global supply chains—maximizing productivity, minimizing risks and driving revenue and competitive advantage. We also offer sector-specific supply chain guidance for eight industries, including aerospace, automotive, consumer products, chemical
and process manufacturing, healthcare and life sciences, high-tech manufacturing, industrial manufacturing, and
retail.
AMR Enterprise Supply Chain Leaders provides senior supply chain executives (in large, complex enterprises with revenues of $1 billion or more) with the same in-depth insight and best practice research as Gartner for Supply Chain Leaders, plus ongoing expert coaching from a trusted advisor and the ability to confer, collaborate and compare notes with a vibrant community of experienced peers. Burton IT1 provides technical architects, systems analysts and engineers with the in-depth technical research, actionable insight and technical guidance to accelerate project timelines, mitigate execution risks and reduce IT spend. |
| Gartner Invest delivers technology research and analysis to buy-side, venture capital and private equity investors to support the activities of investors interested in technology. Content is built around a base of published qualitative and quantitative Gartner research that captures both the supply- and demand-side perspectives of IT, and contains unique Invest content. |
| • | CONSULTING. Gartner’s consultants bring together our unique Research insight, Benchmarking data, problem-solving methodologies and hands on experience to improve the return on our client’s IT investment. Our consultants provide fact-based consulting services to help our clients use and manage IT to enable business performance. We seek to accomplish three major outcomes for our clients: applying IT to drive improvements in business performance; creating sustainable IT efficiency that ensures a constant return on IT investments; and strengthening the IT organization and operations to ensure high-value services to the client’s lines of business and to enable the client to adapt to business changes. |
| We deliver our consulting solutions by capitalizing on Gartner assets that are invaluable to IT decision making, including: (1) our extensive research, which ensures that our consulting analyses and advice are based on a deep understanding of the IT environment and the business of IT; (2) our market independence, which keeps our consultants focused on our client’s success; and (3) our market-leading benchmarking capabilities, which provide relevant comparisons and best practices to assess and improve performance. |
| Gartner Consulting provides solutions aimed at IT roles and IT initiatives in various industries. We provide consulting engagements to CIO’s and IT executives, and to those professionals responsible for IT applications, enterprise architecture, go-to-market strategies, infrastructure and operations, programs and portfolio management and sourcing and vendor relationships, that are relevant to the role played by the client within the organization. We also provide targeted consulting services to professionals in the banking and investment services, education, energy and utilities, government, healthcare providers and high tech and telecom providers that utilize our in-depth knowledge of the demands of each industry. Finally, we provide actionable solutions for IT Cost Optimization, Technology Modernization and IT Sourcing Optimization initiatives. |
| • | EVENTS. Gartner symposia and conferences are gatherings of technology’s most senior IT professionals, business strategists and practitioners. Symposia and conferences give clients live access to insights developed from our latest proprietary research in a concentrated way. Informative sessions led by Gartner analysts are augmented with technology showcases, peer exchange, analyst |
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| one-on-one meetings, workshops and keynotes by technology’s top leaders. Symposia and conferences, which are not limited to Gartner research clients, also provide participants with an opportunity to interact with business executives from the world’s leading technology companies. In 2010, we held 56 Gartner events throughout the world that attracted over 37,000 attendees. |
| Gartner conferences attract high-level IT and business professionals who seek in-depth knowledge about technology products and services. Gartner Symposia are large, strategic conferences held in various locations throughout the world for senior IT and business professionals. Symposia are combined with ITxpo, an exhibition where the latest technology products and solutions are demonstrated. Gartner Summits focus on specific topics, technologies and industries, providing IT Professionals with the insight, solutions and networking opportunities to succeed in their job role. We offer Summits in Applications, Business Intelligence and Information Management, Business Process Improvement, Enterprise Architecture, IT Infrastructure and Operations, Portfolio and Production Management, Security and Risk Management, and Sourcing and Vendor Relationships, among others. Finally, we offer targeted events for CIOs and IT executives. |
COMPETITION
We believe that the principal factors that differentiate us from our competitors are:
| • | Superior IT Research Content — We believe that we create the broadest, highest-quality and most relevant research coverage of the IT industry. Our research analysis generates unbiased insight that we believe is timely, thought-provoking and comprehensive, and that is known for its high quality, independence and objectivity. |
| • | Our Leading Brand Name — For over 30 years we have been providing critical, trusted insight under the Gartner name. |
| • | Our Global Footprint and Established Customer Base — We have a global presence with clients in 85 countries on six continents. For 2010 and 2009, 44% and 45% of our revenues, respectively, were derived from sales outside of the U.S. |
| • | Substantial Operating Leverage in Our Business Model — We have the ability to distribute our intellectual property and expertise across multiple platforms, including research publications, consulting engagements, conferences and executive programs, to derive incremental revenues and profitability. |
| • | Experienced Management Team — Our management team is composed of IT research veterans and experienced industry executives. |
| • | Vast Network of Analysts and Consultants — We have 1,249 research analysts and consultants located around the world. Our analysts speak 47 languages and are located in numerous countries, enabling us to cover all aspects of IT on a global basis. |
Notwithstanding these differentiating factors, we face competition from a significant number of
independent providers of information products and services. We compete indirectly against
consulting firms and other information providers, including electronic and print media companies.
These indirect competitors could choose to compete directly with us in the future. Additionally, we
face competition from free sources of information that are available to our clients through the
Internet. Limited barriers to entry exist in the markets in which we do business. As a result, new
competitors may emerge and existing competitors may start to provide additional or complementary
services. However, we believe the breadth and depth of our research assets position us well versus
our competition. Increased competition may result in loss of market share, diminished value in our
products and services, reduced pricing and increased sales and marketing expenditures.
INTELLECTUAL PROPERTY
Our success has resulted in part from proprietary methodologies, software, reusable knowledge
capital and other intellectual property rights. We rely on a combination of copyright, trademark,
trade secret, confidentiality, non-compete and other contractual provisions to protect our
intellectual property rights. We have policies related to confidentiality, ownership and the use
and protection of Gartner’s intellectual property, and we also enter into agreements with our
employees as appropriate that protect our intellectual property, and we enforce these agreements if
necessary.
We recognize the value of our intellectual property in the marketplace and vigorously identify,
create and protect it. Additionally, we actively monitor and enforce contract compliance by our end
users.
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EMPLOYEES
As of December 31, 2010, we had 4,461 employees, of which 709 were located at our headquarters in
Stamford, Connecticut; 1,993 were located elsewhere in the United States; and 1,759 were located
outside of the United States. Our employees may be subject to collective bargaining agreements at a
company or industry level in those foreign countries where this is part of the local labor law or
practice. We have experienced no work stoppages and consider our relations with our employees to be
favorable.
AVAILABLE INFORMATION
Our Internet address is
www.gartner.com
and the investor relations section of our website
is located at
www.investor.gartner.com
.
We make available free of charge, on or through the
investor relations section of our website, printable copies of our annual reports on Form 10-K,
quarterly reports on Form 10-Q, 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 amended
(the “Exchange Act”) as soon as reasonably practicable after we electronically file such material
with, or furnish it to, the Securities and Exchange Commission (the “SEC”).
Also available at
www.investor.gartner.com
, under the “Corporate Governance” link, are printable
and current copies of our (i) CEO & CFO Code of Ethics which applies to our Chief Executive
Officer, Chief Financial Officer, controller and other financial managers, (ii) Code of Conduct,
which applies to all Gartner officers, directors and employees, (iii) Board Principles and
Practices, the corporate governance principles that have been adopted by our Board and (iv)
charters for each of the Board’s standing committees: Audit, Compensation and
Governance/Nominating.
We operate in a very competitive and rapidly changing
environment that involves numerous risks and uncertainties some
of which are beyond our control. In addition, we and our clients
are affected by global economic conditions. You should carefully
consider the following risk factors and those set forth in our
most recent Annual Report on
Form 10-K
and Quarterly Reports on
Form 10-Q,
which are incorporated by reference in this prospectus
supplement. See “Available Information.” You should
also carefully consider all of the other information in this
prospectus supplement or incorporated by reference herein. Any
of the risks described below could have a material adverse
impact on our business, prospects, results of operations and
financial condition and could therefore have a negative effect
on the trading price of our common stock. Additionally risks not
currently known to us or that we now deem immaterial may also
harm us and negatively affect your investment.
Risks
related to our business
Our operating results could be negatively impacted by general
economic conditions.
Our business is impacted by
general economic conditions, both domestic and abroad. The
severe tightening of the credit markets, significant
bankruptcies and other disruptions in the financial markets, and
the global economic recession that began in 2008 contributed to
significant slowdowns and uncertainty in global trade and
economic activity. Although global credit and general economic
conditions have improved, continuing difficulties in the
financial markets and uncertainty regarding the sustainability
of the global economic recovery could negatively and materially
affect demand for our products and services. Such difficulties
could include the ability to maintain client retention, wallet
retention and consulting utilization rates, achieve contract
value and consulting backlog growth, attract attendees and
exhibitors to our events or obtain new clients. Such
developments could negatively impact our financial condition,
results of operations, and cash flows.
We face significant competition and our failure to compete
successfully could materially adversely affect our results of
operations and financial condition.
We face
direct competition from a significant number of independent
providers of information products and services, including
information available on the Internet free of charge. We also
compete indirectly against consulting firms and other
information providers, including electronic and print media
companies, some of which may have greater financial, information
gathering and marketing resources than we do. These indirect
competitors could also choose to compete directly with us in the
future. In addition, limited barriers to entry exist in the
markets in which we do business. As a result, additional new
competitors may emerge and existing competitors may start to
provide additional or complementary services. Additionally,
technological advances may provide increased competition from a
variety of sources.
There can be no assurance that we will be able to successfully
compete against current and future competitors and our failure
to do so could result in loss of market share, diminished value
in our products and services, reduced pricing and increased
marketing expenditures. Furthermore, we may not be successful if
we cannot compete effectively on quality of research and
analysis, timely delivery of information, customer service, and
the ability to offer products to meet changing market needs for
information and analysis, or price.
We may not be able to maintain our existing products and
services.
We operate in a rapidly evolving
market, and our success depends upon our ability to deliver high
quality and timely research and analysis to our clients. Any
failure to continue to provide credible and reliable information
that is useful to our clients could have a material adverse
effect on future business and operating results. Further, if our
predictions prove to be wrong or are not substantiated by
appropriate research, our reputation may suffer and demand for
our products and services may decline. In addition, we must
continue to improve our methods for delivering our
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products and services in a cost-effective manner. Failure to
increase and improve our electronic delivery capabilities could
adversely affect our future business and operating results.
We may not be able to enhance and develop our existing
products and services, or introduce the new products and
services that are needed to remain
competitive.
The market for our products and
services is characterized by rapidly changing needs for
information and analysis on the IT industry as a whole. The
development of new products is a complex and time-consuming
process. Nonetheless, to maintain our competitive position, we
must continue to enhance and improve our products and services,
develop or acquire new products and services, deliver all
products and services in a timely manner, and appropriately
position and price new products and services relative to the
marketplace and our costs of producing them. Any failure to
achieve successful client acceptance of new products and
services could have a material adverse effect on our business,
results of operations and financial position. Additionally,
significant delays in new product or services releases or
significant problems in creating new products or services could
adversely affect our business, results of operations and
financial position.
We depend on renewals of subscription-based services and
sales of new subscription-based services for a significant
portion of our revenue, and our failure to renew at historical
rates or generate new sales of such services could lead to a
decrease in our revenues.
A large portion of our
success depends on our ability to generate renewals of our
subscription-based research products and services and new sales
of such products and services, both to new clients and existing
clients. These products and services constituted 67% and 66% of
our revenues for 2010 and 2009, respectively. Generating new
sales of our subscription-based products and services, both to
new and existing clients, is often a time consuming process. If
we are unable to generate new sales, due to competition or other
factors, our revenues will be adversely affected.
Our research subscription agreements have terms that generally
range from twelve to thirty months. Our ability to maintain
contract renewals is subject to numerous factors, including the
following:
| • | delivering high-quality and timely analysis and advice to our clients; | |
| • | understanding and anticipating market trends and the changing needs of our clients; and | |
| • | delivering products and services of the quality and timeliness necessary to withstand competition. |
Additionally, as we continue to adjust our products and service offerings to meet our clients’ continuing needs, we may shift the type and pricing of
our products which may impact client renewal rates. While our
research client retention rate was 83% at December 31, 2010
and 78% at December 31, 2009, there can be no guarantee
that we will continue to maintain this rate of client renewals.
We depend on non-recurring consulting engagements and our
failure to secure new engagements could lead to a decrease in
our revenues.
Consulting segment revenues
constituted 23% of our total revenues for 2010 and 25% for 2009.
These consulting engagements typically are project-based and
non-recurring. Our ability to replace consulting engagements is
subject to numerous factors, including the following:
| • | delivering consistent, high-quality consulting services to our clients; | |
| • | tailoring our consulting services to the changing needs of our clients; and | |
| • | our ability to match the skills and competencies of our consulting staff to the skills required for the fulfillment of existing or potential consulting engagements. |
Any material decline in our ability to replace consulting
arrangements could have an adverse impact on our revenues and
our financial condition.
The profitability and success of our conferences, symposia
and events could be adversely affected by external factors
beyond our control.
The market for desirable
dates and locations for conferences, symposia and events is
highly competitive. If we cannot secure desirable dates and
locations for our conferences, symposia and events their
profitability could suffer, and our financial condition and
results of operations may be adversely affected. In addition,
because our events are scheduled in advance and held at specific
locations, the success of these events can be affected by
circumstances outside of our control, such as labor strikes,
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transportation shutdowns and travel restrictions, economic
slowdowns, terrorist attacks, weather, natural disasters and
other world events impacting the global economy, the occurrence
of any of which could negatively impact the success of the event and as the global economy recovers, our ability to procure space for
our events and keep associated costs down could become more
challenging.
Our sales to governments are subject to appropriations and
may be terminated.
We derive significant revenues
from contracts with the U.S. government and its respective
agencies, numerous state and local governments and their
respective agencies, and foreign governments and their agencies.
At December 31, 2010 and 2009, approximately
$210.0 million and $182.0 million, respectively, of
our Research contract value and Consulting backlog was
attributable to governments. We believe substantially all of the
amount attributable to governments at December 31, 2010
will be filled in 2011. Our U.S. government contracts are
subject to the approval of appropriations by the
U.S. Congress to fund the agencies contracting for our
services, and our contracts at the state and local levels are
subject to various government authorizations and funding
approvals and mechanisms. In general, most if not all of these
contracts may be terminated at any time without cause
(“termination for convenience”). Additionally, many
state governments, their agencies, and municipalities across the
United States are under severe financial strain and are considering significant budget cuts. Should
appropriations for the governments and agencies that contract
with us be curtailed, or should government contracts be
terminated for convenience, we may experience a significant loss
of segment and consolidated revenues.
We may not be able to attract and retain qualified personnel
which could jeopardize the quality of our products and
services.
Our success depends heavily upon the
quality of our senior management, research analysts,
consultants, sales and other key personnel. We face competition
for the limited pool of these qualified professionals from,
among others, technology companies, market research firms,
consulting firms, financial services companies and electronic
and print media companies, some of which have a greater ability
to attract and compensate these professionals. Some of the
personnel that we attempt to hire are subject to non-compete
agreements that could impede our short-term recruitment efforts.
Any failure to retain key personnel or hire and train additional
qualified personnel as required to support the evolving needs of
clients or growth in our business, could adversely affect the
quality of our products and services, as well as future business
and operating results.
We may not be able to maintain the equity in our brand
name.
We believe that our “Gartner”
brand, including our independence, is critical to our efforts to
attract and retain clients and that the importance of brand
recognition will increase as competition increases. We may
expand our marketing activities to promote and strengthen the
Gartner brand and may need to increase our marketing budget,
hire additional marketing and public relations personnel, expend
additional sums to protect the brand and otherwise increase
expenditures to create and maintain client brand loyalty. If we
fail to effectively promote and maintain the Gartner brand, or
incur excessive expenses in doing so, our future business and
operating results could be adversely impacted.
Our international operations expose us to a variety of
operational risks which could negatively impact our future
revenue and growth.
We have clients in 85
countries and 44% and 45% of our revenues for 2010 and 2009,
respectively, were derived from sales outside of the U.S.
Our operating results are subject to the risks inherent in
international business activities, including general political
and economic conditions in each country, changes in market
demand as a result of tariffs and other trade barriers,
challenges in staffing and managing foreign operations, changes
in regulatory requirements, compliance with numerous foreign
laws and regulations, differences between U.S. and foreign
tax rates and laws, and the difficulty of enforcing client
agreements, collecting accounts receivable and protecting
intellectual property rights in international jurisdictions.
Furthermore, we rely on local distributors or sales agents in
some international locations. If any of these arrangements are
terminated by our agent or us, we may not be able to replace the
arrangement on beneficial terms or on a timely basis, or clients
of the local distributor or sales agent may not want to continue
to do business with us or our new agent.
Our international operations expose us to volatility in
foreign currency exchange rates.
Revenues earned
outside the U.S. are typically transacted in local currencies,
which may fluctuate significantly against the dollar. While we
may use forward exchange contracts to a limited extent to seek
to mitigate foreign currency risk, our revenues and results of operations could be adversely
affected by unfavorable foreign currency fluctuations.
Catastrophic events or geo-political conditions may disrupt
our business.
A disruption or failure of our
systems or operations or our ability to deliver our Research
content over the internet in the event of a major weather event,
cyber-attack, terrorist attack or other catastrophic event could
cause delays in completing sales, providing services, or
performing other mission-critical functions. Our corporate
headquarters is located approximately 30 miles from New
York City, and we have an operations center located in
Ft. Myers, Florida, in a hurricane-prone area. We also
operate in numerous international locations. A catastrophic
event that results in the destruction or disruption of any of
our critical business or information technology systems could
harm our ability to conduct normal business operations and
negatively impact our operating results. Abrupt political
change, terrorist activity, and armed conflict pose a risk of
general economic disruption in affected countries, which may
increase our operating costs. Additionally, these conditions
also may add uncertainty to the timing and budget decisions of
our clients.
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We may experience outages and disruptions of our online
services if we fail to maintain an adequate operations
infrastructure.
Our increasing user traffic and
complexity of our products and services demand more computing
power. We have spent and expect to continue to spend substantial
amounts to maintain data centers and equipment and to upgrade
our technology and network infrastructure to handle increased
traffic on our websites. However, any inefficiencies or
operational failures could diminish the quality of our products,
services, and user experience, resulting in damage to our
reputation and loss of current and potential users, subscribers,
and advertisers, harming our operating results and financial
condition.
Our outstanding debt obligations could impact our financial
condition or future operating results.
In
December 2010 we refinanced our debt by entering into a new
credit agreement that provides for a five-year,
$200.0 million term loan and a $400.0 million
revolving credit facility (the “2010 Credit
Agreement”). The 2010 Credit Agreement contains an
expansion feature by which the term loan and revolving facility
may be increased, at our option and under certain conditions, by
up to an additional $150.0 million in the aggregate which
may or may not be available to us depending upon prevailing
credit market conditions.
The affirmative, negative and financial covenants of the 2010
Credit Agreement could limit our future financial flexibility.
Additionally, a failure to comply with these covenants could
result in acceleration of all amounts outstanding under the
Credit Agreement, which would materially impact our financial
condition unless accommodations could be negotiated with our
lenders. No assurance can be given that we would be successful
in doing so in this current financial climate, or that any
accommodations that we were able to negotiate would be on terms
as favorable as those presently contained in the Credit
Agreement.
The associated debt service costs of the borrowing arrangement
under our 2010 Credit Agreement could impair our future
operating results. The outstanding debt may limit the amount of
cash or additional credit available to us, which could restrain
our ability to expand or enhance products and services, respond
to competitive pressures or pursue future business opportunities
requiring substantial investments of additional capital.
We may require additional cash resources which may not be
available on favorable terms or at all.
We
believe that our existing cash balances, projected cash flow
from operations, and the borrowing capacity we have under our
revolving credit facility will be sufficient for our needs.
However, we may require additional cash resources due to changed
business conditions, implementation of our strategy and stock
repurchase program, to repay indebtedness or to pursue future
business opportunities requiring substantial investments of
additional capital. If our existing financial resources are
insufficient to satisfy our requirements, we may seek additional
borrowings. Prevailing credit market conditions may negatively
affect debt availability and cost, and, as a result, financing
may not be available in amounts or on terms acceptable to us, if
at all. In addition, the incurrence of additional indebtedness
would result in increased debt service obligations and could
require us to agree to operating and financial covenants that
would further restrict our operations.
If we are unable to enforce and protect our intellectual
property rights our competitive position may be
harmed.
We rely on a combination of copyright,
trademark, trade secret, confidentiality, non-compete and other
contractual provisions to protect our intellectual property
rights. Despite our efforts to protect our intellectual property
rights, unauthorized third parties may obtain and use technology
or other information that we regard as proprietary. Our
intellectual property rights may not survive a legal challenge
to their validity or provide significant protection for us. The
laws of certain countries, particularly in emerging markets, do
not protect our proprietary rights to the same extent as the
laws of the United States. Accordingly, we may not be able to
protect our intellectual property against unauthorized
third-party copying or use, which could adversely affect our
competitive position. Our employees are subject to non-compete
agreements. When the non-competition period expires, former
employees may compete against us. If a former employee chooses
to compete against us prior to the expiration of the
non-competition period, we seek to enforce these non-compete
provisions but there is no assurance that we will be successful
in our efforts. Additionally, there can be no assurance that
another party will not assert that we have infringed its
intellectual property rights.
10
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We have grown, and may continue to grow, through acquisitions
and strategic investments, which could involve substantial
risks.
We have made and may continue to make
acquisitions of, or significant investments in, businesses that
offer complementary products and services. The risks involved in
each acquisition or investment include the possibility of paying
more than the value we derive from the acquisition, dilution of
the interests of our current stockholders or decreased working
capital, increased indebtedness, the assumption of undisclosed
liabilities and unknown and unforeseen risks, the ability to
retain key personnel of the acquired company, the inability to
integrate the business of the acquired company, the time to
train the sales force to market and sell the products of the
acquired business, the potential disruption of our ongoing
business and the distraction of management from our business.
The realization of any of these risks could adversely affect our
business. Additionally, we face competition in identifying
acquisition targets and consummating acquisitions.
We face risks related to litigation.
We are,
and may in the future be, subject to a variety of legal actions,
such as employment, breach of contract, intellectual
property-related, and business torts, including claims of unfair
trade practices and misappropriation of trade secrets. Given the
nature of our business, we are also subject to defamation
(including libel and slander), negligence, or other claims
relating to the information we publish. Regardless of the
merits, responding to any such claim could be time consuming,
result in costly litigation and require us to enter into
settlements, royalty and licensing agreements which may not be
offered or available on reasonable terms. If a successful claim
is made against us and we fail to settle the claim on reasonable
terms, our business, results of operations or financial position
could be materially adversely affected.
We face risks related to taxation.
We operate
in numerous domestic and foreign taxing jurisdictions and our
level of operations and profitability in each jurisdiction may
have an impact upon the amount of income taxes that we recognize
in any given year. In addition, our tax filings for various tax
years are subject to audit by the tax authorities in
jurisdictions where we conduct business, and in the ordinary
course of business, we may be under audit by one or more tax
authorities from time to time.
These audits may result in assessments of additional taxes, and
resolution of these matters involves uncertainties and there are
no assurances that the ultimate resolution will not exceed the
amounts we have recorded. Additionally, the results of an audit
could have a material effect on our financial position, results
of operations, or cash flows in the period or periods for which
that determination is made.
Risks
related to our Common Stock
Our operating results may fluctuate from period to period and
may not meet the expectations of securities analysts or
investors or guidance we have given, which may cause the price
of our Common Stock to decline.
Our quarterly and
annual operating results may fluctuate in the future as a result
of many factors, including the timing of the execution of
research contracts, the extent of completion of consulting
engagements, the timing of symposia and other events, the amount
of new business generated, the mix of domestic and international
business, currency fluctuations, changes in market demand for
our products and services, the timing of the development,
introduction and marketing of new products and services, and
competition in the
industry. An inability to generate sufficient earnings and cash
flow, and achieve our forecasts, may impact our operating and
other activities. The potential fluctuations in our operating
results could cause
period-to-period
comparisons of operating results not to be meaningful and may
provide an unreliable indication of future operating results.
Furthermore, our operating results may not meet the expectations
of securities analysts or investors in the future or guidance we
have given. If this occurs, the price of our stock would likely
decline.
Our stock price may be impacted by factors outside of our
control and you may not be able to resell shares of our Common
Stock at or above the price you paid.
The trading
prices of our Common Stock could be subject to significant
fluctuations in response to, among other factors, developments
in the industries in which we do business, general economic
conditions, general market conditions, changes in the nature and
composition of our stockholder base, changes in securities
analysts’ recommendations regarding our securities and our
performance relative to securities analysts’ expectations
for any quarterly period. These factors may adversely affect the
market price of our Common Stock.
Future sales of our Common Stock in the public market could
lower our stock price.
Sales of a substantial
number of shares of Common Stock in the public market by our
current stockholders, or the threat that substantial sales may
occur, could cause the market price of our Common Stock to
decrease significantly or make it difficult for us to raise
additional capital by selling stock. Furthermore, we have
various equity incentive plans that provide for awards in the
form of stock options, stock appreciation rights, restricted
stock, restricted stock units and other stock-based awards which
have the effect of adding shares of Common Stock into the public
market.
As of December 31, 2010, the aggregate number of shares of
our Common Stock issuable pursuant to outstanding grants and
awards under these plans was approximately 9.0 million
shares (approximately 3.5 million of which have vested). In
addition, approximately 7.0 million shares may be issued in
connection with future awards under our equity incentive plans.
Shares of Common Stock issued under these plans are freely
transferable without further registration under the Securities
Act of 1933, as amended (the “Securities Act”), except
for any shares held by affiliates (as that term is defined in
Rule 144 under the Securities Act). We cannot predict the
size of future issuances of our Common Stock or the effect, if
any, that future issuances and sales of shares of our Common
Stock will have on the market price of our Common Stock.
11
Table of Contents
Interests of certain of our significant stockholders may conflict with yours
. To our knowledge, as of the date of this report and based upon
SEC filings, seven institutional investors each presently hold over
5% of our Common Stock. Additionally, a representative of ValueAct
Capital Master Fund L.P. (“ValueAct Capital”) presently holds
one seat on our Board of Directors.
While no stockholder or institutional investor individually
holds a majority of our outstanding shares, these significant
stockholders may be able, either individually or acting
together, to exercise significant influence over matters
requiring stockholder approval, including the election of
directors, amendment of our certificate of incorporation,
adoption or amendment of equity plans and approval of
significant transactions such as mergers, acquisitions,
consolidations and sales or purchases of assets. In addition, in
the event of a proposed acquisition of the Company by a third
party, this concentration of ownership may delay or prevent a
change of control in us. Accordingly, the interests of these
stockholders may not always coincide with our interests or the
interests of other stockholders, or otherwise be in the best
interests of us or all stockholders.
Our anti-takeover protections may discourage or prevent a
change of control, even if a change in control would be
beneficial to our stockholders.
Provisions of our
restated certificate of incorporation and bylaws and Delaware
law may make it difficult for any party to acquire control of us
in a transaction not approved by our Board of Directors. These
provisions include:
| • | the ability of our Board of Directors to issue and determine the terms of preferred stock; | |
| • | advance notice requirements for inclusion of stockholder proposals at stockholder meetings; and | |
| • | the anti-takeover provisions of Delaware law. |
These provisions could discourage or prevent a change of control
or change in management that might provide stockholders with a
premium to the market price of their Common Stock.
There are no unresolved written comments that were received from the SEC staff 180 days or more
before the end of our fiscal year relating to our periodic or current reports under the Exchange
Act.
We lease 19 domestic and 42 international offices and we have a significant presence in Stamford,
Connecticut, Ft. Myers, Florida and Egham, the United Kingdom. The Company does not currently own
any properties.
Our corporate headquarters is located in approximately 213,000 square feet of leased office space
in three buildings located in Stamford. This facility also accommodates research and analysis,
marketing, sales, client support, production, corporate services, and administration. During 2010,
and as previously disclosed, the Company entered into an amended and restated lease agreement for
the Stamford headquarters facility that provides for a term of fifteen years. The amended lease
also grants the Company three options to renew the lease at fair market value for five years each,
an option to purchase the facility at fair market value, and $25.0 million to be provided by the
landlord to renovate the three buildings and the parking areas comprising the facility. The
renovation work will occur in 2011 and 2012.
Our Ft. Myers location consists of approximately 62,400 square feet of leased office space located
in one building for which the lease expires in January 2013, and we are currently in negotiations
for expanded lease space in this location. Our Egham location has approximately 72,000 square feet
of leased office space in two buildings for which the leases expire in 2020 and 2025, respectively.
Our 58 other domestic and international locations support our research, consulting, domestic and
international sales efforts, and other functions.
We continue to constantly assess our space needs as our business changes. We believe that our
existing facilities and the anticipated expansion in Ft. Myers are adequate for our current and
foreseeable needs. Should additional space be necessary, we believe that it will be available.
12
Table of Contents
We are involved in various legal proceedings and litigation arising in the ordinary course of
business. The outcome of these individual matters is not predictable at this time. However, we
believe that the ultimate resolution of these matters, after considering amounts already accrued
and insurance coverage, will not have a material adverse effect on our financial position, results
of operations, or cash flows in future periods.
13
Table of Contents
Our Common Stock is listed on the New York Stock Exchange under the symbol IT. As of January 31,
2011, there were 2,363 holders of record of our Common Stock. Our 2011 Annual Meeting of
Stockholders will be held on June 2, 2011 at the Company’s corporate headquarters in Stamford,
Connecticut. We did not submit any matter to a vote of our stockholders during the fourth quarter
of 2010.
The following table sets forth the high and low sale prices for our Common Stock as reported on the
New York Stock Exchange for the periods indicated:
| 2010 | 2009 | |||||||||||||||
| High | Low | High | Low | |||||||||||||
|
Quarter ended March 31
|
$ | 24.75 | $ | 18.07 | $ | 18.55 | $ | 8.33 | ||||||||
|
Quarter ended June 30
|
26.58 | 21.73 | 16.54 | 10.55 | ||||||||||||
|
Quarter ended September 30
|
29.99 | 22.72 | 18.50 | 14.14 | ||||||||||||
|
Quarter ended December 31
|
34.00 | 29.54 | 20.27 | 16.85 | ||||||||||||
DIVIDEND POLICY
We currently do not pay cash dividends on our Common Stock. In addition, our 2010 Credit Agreement
contains a negative covenant which may limit our ability to pay dividends.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
The equity compensation plan information set forth in Part III, Item 12 of this Form 10-K is hereby
incorporated by reference into this Part II, Item 5.
SHARE REPURCHASES
The Company has a $500.0 million share repurchase program which was approved by the Company’s Board
of Directors in the third quarter of 2010 and replaced the Company’s prior repurchase program.
Repurchases may be made from time-to-time through open market purchases, private transactions,
tender offers or other transactions. The amount and timing of repurchases will be subject to the
availability of stock, prevailing market conditions, the trading price of the stock, the Company’s
financial performance and other conditions. Repurchases may also be made from time-to-time in
connection with the settlement of the Company’s shared-based compensation awards. Repurchases will
be funded from cash flow from operations or borrowings.
The following table provides detail related to repurchases of our Common Stock in the three months
ended December 31, 2010 pursuant to our share repurchase program and pursuant to the settlement of
share-based compensation awards:
| Total Number | Maximum | |||||||||||||||
| of Shares | Approximate | |||||||||||||||
| Purchased | Dollar Value of | |||||||||||||||
| as Part of | Shares that May | |||||||||||||||
| Total | Publicly | Yet Be | ||||||||||||||
| Number of | Average | Announced | Purchased Under | |||||||||||||
| Shares | Price Paid | Plans or | the Plans or | |||||||||||||
| Purchased | Per Share | Programs | Programs | |||||||||||||
| Period | (#) | ($) | (#) | ($000’s) | ||||||||||||
|
October
|
43,320 | $ | 31.45 | 43,320 | ||||||||||||
|
November
|
601,295 | 31.83 | 601,295 | |||||||||||||
|
December
|
85,159 | 33.40 | 85,159 | |||||||||||||
|
|
||||||||||||||||
|
Total (1)
|
729,774 | $ | 31.99 | 729,774 | $ | 481,911 | ||||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
| (1) | For the year ended December 31, 2010, the Company repurchased 3,918,719 shares at an average price of $25.47 per share for a total cost of approximately $99.8 million. |
14
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The fiscal years presented below are for the respective twelve-month period from January 1 through
December 31. Data for all years was derived or compiled from our audited consolidated financial
statements included herein or from submissions of our Form 10-K in prior years. The selected
consolidated financial data should be read in conjunction with our consolidated financial
statements and related notes contained in this Annual Report on Form 10-K.
| (In thousands, except per share data) | 2010 | 2009 | 2008 | 2007 | 2006 | |||||||||||||||
|
STATEMENT OF OPERATIONS DATA:
|
||||||||||||||||||||
|
Revenues:
|
||||||||||||||||||||
|
Research
|
$ | 865,000 | $ | 752,505 | $ | 781,581 | $ | 683,380 | $ | 585,656 | ||||||||||
|
Consulting
|
302,117 | 286,847 | 347,404 | 325,030 | 305,231 | |||||||||||||||
|
Events
|
121,337 | 100,448 | 150,080 | 160,065 | 146,412 | |||||||||||||||
|
|
||||||||||||||||||||
|
Total revenues
|
1,288,454 | 1,139,800 | 1,279,065 | 1,168,475 | 1,037,299 | |||||||||||||||
|
Operating income
|
149,265 | 134,477 | 164,368 | 129,458 | 98,039 | |||||||||||||||
|
Income from continuing operations
|
96,285 | 82,964 | 97,148 | 70,666 | 54,258 | |||||||||||||||
|
Income from discontinued operations
|
— | — | 6,723 | 2,887 | 3,934 | |||||||||||||||
|
|
||||||||||||||||||||
|
Net income
|
$ | 96,285 | $ | 82,964 | $ | 103,871 | $ | 73,553 | $ | 58,192 | ||||||||||
|
PER SHARE DATA:
|
||||||||||||||||||||
|
Basic:
|
||||||||||||||||||||
|
Income from continuing operations
|
$ | 1.01 | $ | 0.88 | $ | 1.02 | $ | 0.68 | $ | 0.48 | ||||||||||
|
Income from discontinued operations
|
— | — | 0.07 | 0.03 | 0.03 | |||||||||||||||
|
|
||||||||||||||||||||
|
Income per share
|
$ | 1.01 | $ | 0.88 | $ | 1.09 | $ | 0.71 | $ | 0.51 | ||||||||||
|
|
||||||||||||||||||||
|
Diluted:
|
||||||||||||||||||||
|
Income from continuing operations
|
$ | 0.96 | $ | 0.85 | $ | 0.98 | $ | 0.65 | $ | 0.47 | ||||||||||
|
Income from discontinued operations
|
— | — | 0.07 | 0.03 | 0.03 | |||||||||||||||
|
|
||||||||||||||||||||
|
Income per share
|
$ | 0.96 | $ | 0.85 | $ | 1.05 | $ | 0.68 | $ | 0.50 | ||||||||||
|
|
||||||||||||||||||||
|
Weighted average shares outstanding
|
||||||||||||||||||||
|
Basic
|
95,747 | 94,658 | 95,246 | 103,613 | 113,071 | |||||||||||||||
|
Diluted
|
99,834 | 97,549 | 99,028 | 108,328 | 116,203 | |||||||||||||||
|
OTHER DATA:
|
||||||||||||||||||||
|
Cash and cash equivalents
|
$ | 120,181 | $ | 116,574 | $ | 140,929 | $ | 109,945 | $ | 67,801 | ||||||||||
|
Total assets
|
1,285,658 | 1,215,279 | 1,093,065 | 1,133,210 | 1,039,793 | |||||||||||||||
|
Long-term debt
|
180,000 | 124,000 | 238,500 | 157,500 | 150,000 | |||||||||||||||
|
Stockholders’ equity (deficit)
|
187,056 | 112,535 | (21,316 | ) | 17,498 | 26,318 | ||||||||||||||
The following items impact the comparability and presentation of our consolidated data:
| • | In December 2010 we refinanced our debt (see Note 6 — Debt in the Notes to the Consolidated Financial Statements). In conjunction with the refinancing, we recorded $3.7 million in incremental pre-tax charges related to the termination of the previous credit arrangement. |
| • | In December 2009 we acquired AMR Research, Inc. and Burton Group, Inc. (see Note 2 — Acquisitions in the Notes to the Consolidated Financial Statements). The results of these businesses are included beginning on their respective dates of acquisition. For 2010 and 2009, we recognized $7.9 million and $2.9 million, respectively in pre-tax acquisition and integration charges related to these acquisitions. |
| • | In 2008 we sold our Vision Events business, which had been part of our Events segment (see Note 3 — Discontinued Operations in the Notes to the Consolidated Financial Statements). The results of operations of this business and the gain on sale were reported as a discontinued operation. The statement of operations and per share data for 2007 and 2006 have been restated to present the results of this business as a discontinued operation. |
| • | In 2007 we recorded Other charges, which included costs for the settlement of litigation and severance, on a pre-tax basis, of $9.1 million. |
| • | We repurchased 3.9 million, 0.3 million, 9.7 million, 8.4 million, and 14.9 million of our common shares in 2010, 2009, 2008, 2007 and 2006, respectively (see Note 8 — Equity in the Notes to the Consolidated Financial Statements). |
15
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The purpose of the following Management’s Discussion and Analysis (“MD&A”) is to help facilitate
the understanding of significant factors influencing the operating results, financial condition and
cash flows of Gartner, Inc. Additionally, the MD&A also conveys our expectations of the potential
impact of known trends, events or uncertainties that may impact future results. You should read
this discussion in conjunction with our consolidated financial statements and related notes
included in this report. Historical results and percentage relationships are not necessarily
indicative of operating results for future periods. References to “the Company,” “we,” “our,” and
“us” are to Gartner, Inc. and its consolidated subsidiaries.
The following items impact the presentation and discussion of results in this MD&A section:
On December 18, 2009 we acquired AMR Research, Inc. (“AMR Research”) and on December 30, 2009 we
acquired Burton Group, Inc. (“Burton Group”) (see Note 2 — Acquisitions in the Notes to the
Consolidated Financial Statements). The operating results of these businesses have been included in
our consolidated results beginning on their respective dates of acquisition. The results of these
businesses were not material to our consolidated or segment results for 2009.
In 2008 we sold our Vision Events business, which had been part of our Events segment. As a result,
the results of operations for this business for 2008 and earlier periods have been reported as a
discontinued operation (see Note 3 — Discontinued Operations in the Notes to the Consolidated
Financial Statements).
FORWARD-LOOKING STATEMENTS
In addition to historical information, this Annual Report on Form 10-K contains certain
forward-looking statements. Forward-looking statements are any statements other than statements of
historical fact, including statements regarding our expectations, beliefs, hopes, intentions or
strategies regarding the future. In some cases, forward-looking statements can be identified by the
use of words such as “may,” “will,” “expect,” “should,” “could,” “believe,” “plan,” “anticipate,”
“estimate,” “predict,” “potential,” “continue,” or other words of similar meaning.
Forward-looking statements are subject to risks and uncertainties that could cause actual results
to differ materially from those discussed in, or implied by, the forward-looking statements.
Factors that might cause such a difference include, but are not limited to, those discussed under
Part 1, Item 1A, Risk Factors. Readers should not place undue reliance on these forward-looking
statements, which reflect management’s opinion only as of the date on which they were made. Except
as required by law, we disclaim any obligation to review or update these forward-looking statements
to reflect events or circumstances as they occur. Readers should review carefully any risk factors
described in our reports filed with the SEC.
BUSINESS OVERVIEW
Gartner, Inc. is the world’s leading information technology research and advisory company that
helps executives use technology to build, guide and grow their enterprises. We offer independent
and objective research and analysis on the information technology, computer hardware, software,
communications and related technology industries. We provide comprehensive coverage of the IT
industry to 11,601 client organizations, including approximately 400 of the Fortune
500 companies, in 85 countries. Our client base consists primarily of CIOs and other senior IT and
executives from a wide variety of business enterprises, government agencies and the investment
community.
We have three business segments: Research, Consulting and Events.
| • | Research provides insight for CIOs, other IT executives and professionals, business leaders, technology companies and the investment community through research reports and briefings, access to our analysts, as well as peer networking services and membership programs. |
| • | Consulting consists primarily of consulting engagements that utilize our research insight, benchmarking data, problem-solving methodologies and hands on experience to improve the return on an organization’s IT investment through assessments of cost, performance, efficiency and quality. |
| • | Events consists of various symposia, summits and conferences focused on the IT industry as a whole, as well as IT applicable to particular industries and particular roles within an organization. |
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BUSINESS MEASUREMENTS
We believe the following business measurements are important performance indicators for our
business segments:
| BUSINESS SEGMENT | BUSINESS MEASUREMENTS | |
|
Research
|
Contract value represents the value attributable to all of our subscription-related research products that recognize revenue on a ratable basis. Contract value is calculated as the annualized value of all subscription research contracts in effect at a specific point in time, without regard to the duration of the contract. | |
|
|
Client retention rate represents a measure of client satisfaction and renewed business relationships at a specific point in time. Client retention is calculated on a percentage basis by dividing our current clients, who were also clients a year ago, by all clients from a year ago. | |
|
|
Wallet retention rate represents a measure of the amount of contract value we have retained with clients over a twelve-month period. Wallet retention is calculated on a percentage basis by dividing the contract value of clients, who were clients one year earlier, by the total contract value from a year earlier, excluding the impact of foreign currency exchange. When wallet retention exceeds client retention, it is an indication of retention of higher-spending clients, or increased spending by retained clients, or both. | |
|
|
Number of executive program members represents the number of paid participants in executive programs. | |
|
|
||
|
Consulting
|
Consulting backlog represents future revenue to be derived from in-process consulting, measurement and strategic advisory services engagements. | |
|
|
Utilization rates represent a measure of productivity of our consultants. Utilization rates are calculated for billable headcount on a percentage basis by dividing total hours billed by total hours available to bill. | |
|
|
Billing Rate represents earned billable revenue divided by total billable hours. | |
|
|
Average annualized revenue per billable headcount represents a measure of the revenue generating ability of an average billable consultant and is calculated periodically by multiplying the average billing rate per hour times the utilization percentage times the billable hours available for one year. | |
|
|
||
|
Events
|
Number of events represents the total number of hosted events completed during the period. | |
|
|
Number of attendees represents the number of people who attend events. |
EXECUTIVE SUMMARY OF OPERATIONS AND FINANCIAL POSITION
The cornerstones of our growth strategy are to focus on producing extraordinary research content,
deliver innovative and highly differentiated product offerings, enhance our sales capability,
provide world class client service, and improve our operational effectiveness.
We had total revenues of $1,288.5 million in 2010, an increase of 13% over the prior year while
diluted earnings per share increased by $.11 per share, to $0.96. Revenues increased across all of
our geographic regions and in all three of our business segments. Total revenues were also up 13%
excluding the impact of foreign currency.
Research revenues rose 15% year-over-year, to $865.00 million in 2010, while the contribution
margin was flat at 65%. At December 31, 2010, Research contract value was almost $978.0 million,
the highest in the Company’s history, and an increase of 25% over December 31, 2009. Client
retention was 83% and wallet retention was 98% at December 31, 2010.
Consulting revenues increased 5% over 2009, while the gross contribution margin improved by 1
point. Consultant utilization was 68% for 2010, the same as 2009. We had 473 billable consultants
at December 31, 2010.
Events revenues increased 21% compared to 2009. We held 56 events in 2010, two more than the prior
year, and attendance at our events increased 22%, to 37,219. The segment contribution margin was
46% for 2010, an increase of 5 points over 2009.
For a more detailed discussion of our segment results, see Segment Results below.
We refinanced our debt in late 2010 to take advantage of favorable financing conditions and to
obtain greater financial flexibility and liquidity through a larger revolving credit facility. The
new credit arrangement provides for a five-year, $200.0 million term loan and a $400.0 million
revolving credit facility.
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Gartner generated over $205.0 million of cash from operating activities in 2010. We had $120.2
million of cash and cash equivalents as of December 31, 2010, and we had $376.0 million of
available borrowing capacity under our new revolving credit facility. We believe we have a strong
cash position and liquidity.
FLUCTUATIONS IN QUARTERLY RESULTS
Our quarterly and annual revenue, operating income, and cash flow fluctuate as a result of many
factors, including: the timing of our SymposiumITxpo series, that normally are held during the
fourth calendar quarter, and other events; the amount of new business generated; the mix of
domestic and international business; changes in market demand for our products and services;
changes in foreign currency rates; the timing of the development, introduction and marketing of new
products and services; competition in the industry; and other factors. The potential fluctuations
in our operating income could cause period-to-period comparisons of operating results not to be
meaningful and could provide an unreliable indication of future operating results.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements requires the application of appropriate accounting policies
and the use of estimates. Our significant accounting policies are described in Note 1 in the Notes
to Consolidated Financial Statements. Management considers the policies discussed below to be
critical to an understanding of our financial statements because their application requires complex
and subjective management judgments and estimates. Specific risks for these critical accounting
policies are also described below.
The preparation of our financial statements also requires us to make estimates and assumptions
about future events. We develop our estimates using both current and historical experience, as well
as other factors, including the general economic environment and actions we may take in the future.
We adjust such estimates when facts and circumstances dictate. However, our estimates may involve
significant uncertainties and judgments and cannot be determined with precision. In addition, these
estimates are based on our best judgment at a point in time and as such these estimates may
ultimately differ from actual results. On-going changes in our estimates could be material and
would be reflected in the Company’s financial statements in future periods.
Our critical accounting policies are as follows:
Revenue recognition
— We recognize revenue in accordance with SEC Staff Accounting Bulletin No.
101, Revenue Recognition in Financial Statements (“SAB 101”), and SEC Staff Accounting Bulletin No.
104, Revenue Recognition (“SAB 104”). Once all required criteria for revenue recognition have been
met, revenue by significant source is accounted for as follows:
| • | Research revenues are derived from subscription contracts for research products and are deferred and recognized ratably over the applicable contract term. Fees from research reprints are recognized when the reprint is shipped. |
| • | Consulting revenues are principally generated from fixed fee and time and material engagements. Revenues from fixed fee contracts are recognized on a proportional performance basis. Revenues from time and materials engagements are recognized as work is delivered and/or services are provided. Revenues related to contract optimization contracts are contingent in nature and are only recognized upon satisfaction of all conditions related to their payment. |
| • | Events revenues are deferred and recognized upon the completion of the related symposium, conference or exhibition. |
The majority of research contracts are billable upon signing, absent special terms granted on a
limited basis from time to time. All research contracts are non-cancelable and non-refundable,
except for government contracts that may have cancellation or fiscal funding clauses. It is our
policy to record the entire amount of the contract that is billable as a fee receivable at the time
the contract is signed with a corresponding amount as deferred revenue, since the contract
represents a legally enforceable claim.
For those government contracts that permit cancellation, historically we only recorded fees
receivables to the extent amounts were earned and deferred revenue to the extent cash was received.
As of September 30, 2010, based on an analysis of historic contract cancellations, we determined
that the likelihood of such cancellations was remote. Accordingly, as of that date we record the
entire billable contract amount as fees receivable at the time the contract is signed with a
corresponding amount to deferred revenue, consistent with other contracts. This change in estimate
had an immaterial impact.
Uncollectible fees receivable
— The allowance for losses is composed of a bad debt allowance and a
sales reserve. Provisions are charged against earnings, either as a reduction in revenues or an
increase to expense. The measurement of likely and probable losses
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and the allowance for losses is based on historical loss experience, aging of outstanding
receivables, an assessment of current economic conditions and the financial health of specific
clients. This evaluation is inherently judgmental and requires material estimates. These valuation
reserves are periodically re-evaluated and adjusted as more information about the ultimate
collectibility of fees receivable becomes available. Circumstances that could cause our valuation
reserves to increase include changes in our clients’ liquidity and credit quality, other factors
negatively impacting our clients’ ability to pay their obligations as they come due, and the
effectiveness of our collection efforts.
The following table provides our total fees receivable and the related allowance for losses (in
thousands):
| December 31, | ||||||||
| 2010 | 2009 | |||||||
|
Total fees receivable
|
$ | 372,018 | $ | 325,698 | ||||
|
Allowance for losses
|
(7,200 | ) | (8,100 | ) | ||||
|
|
||||||||
|
Fees receivable, net
|
$ | 364,818 | $ | 317,598 | ||||
|
|
||||||||
Impairment of goodwill and other intangible assets
— The evaluation of goodwill is performed in
accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC)
Topic 350, which requires goodwill to be assessed for impairment at least annually and whenever
events or changes in circumstances indicate that the carrying value may not be recoverable. In
addition, an impairment evaluation of our amortizable intangible assets is performed on a periodic
basis.
Our annual goodwill assessment requires us to estimate the fair values of our reporting units based
on estimates of future business operations and market and economic conditions in developing
long-term forecasts. If we determine that the fair value of any reporting unit is less than its
carrying amount, we must recognize an impairment charge for a portion of the associated goodwill of
that reporting unit against earnings in our financial statements.
Factors we consider important that could trigger a review for impairment include the following:
| • | Significant under-performance relative to historical or projected future operating results; |
| • | Significant changes in the manner of our use of acquired assets or the strategy for our overall business; |
| • | Significant negative industry or economic trends; |
| • | Significant decline in our stock price for a sustained period; and |
| • | Our market capitalization relative to net book value. |
Due to the numerous variables associated with our judgments and assumptions relating to the
valuation of the reporting units and the effects of changes in circumstances affecting these
valuations, both the precision and reliability of the resulting estimates are subject to
uncertainty, and as additional information becomes known, we may change our estimates.
We completed the required annual goodwill impairment testing in the quarter ended September 30,
2010 and concluded that the fair values of each of the Company’s reporting units substantially
exceeded their respective carrying values. In addition, management concluded that none of the
goodwill impairment triggers discussed above occurred in the fourth quarter of 2010. See Note 1 —
Business and Significant Accounting Policies in the Notes to the Consolidated Financial Statements
for additional goodwill disclosures.
Accounting for income taxes
— As we prepare our consolidated financial statements, we estimate our
income taxes in each of the jurisdictions where we operate. This process involves estimating our
current tax expense together with assessing temporary differences resulting from differing
treatment of items for tax and accounting purposes. These differences result in deferred tax assets
and liabilities, which are included within our consolidated balance sheets. We record a valuation
allowance to reduce our deferred tax assets when future realization is in question. We consider the
availability of loss carryforwards, existing deferred tax liabilities, future taxable income and
ongoing prudent and feasible tax planning strategies in assessing the need for the valuation
allowance. In the event we determine that we are able to realize our deferred tax assets in the
future in excess of our net recorded amount, an adjustment is made to reduce the valuation
allowance and increase income in the period such determination is made. Likewise, if we determine
that
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we will not be able to realize all or part of our net deferred tax asset in the future, an
adjustment to the valuation allowance is charged against income in the period such determination is
made.
Accounting for stock-based compensation
— The Company accounts for stock-based compensation in
accordance with FASB ASC Topics 505 and 718, as interpreted by SEC Staff Accounting Bulletins No.
107 (“SAB No. 107”) and No. 110 (“SAB No. 110”). The Company recognizes stock-based compensation
expense, which is based on the fair value of the award on the date of grant, over the related
service period, net of estimated forfeitures (see Note 9 — Stock-Based Compensation in the Notes
to the Consolidated Financial Statements).
Determining the appropriate fair value model and calculating the fair value of stock compensation
awards requires the input of certain highly complex and subjective assumptions, including the
expected life of the stock compensation awards and the Company’s Common Stock price volatility. In
addition, determining the appropriate amount of associated periodic expense requires management to
estimate the rate of employee forfeitures and the likelihood of achievement of certain performance
targets. The assumptions used in calculating the fair value of stock compensation awards and the
associated periodic expense represent management’s best estimates, but these estimates involve
inherent uncertainties and the application of judgment. As a result, if factors change and the
Company deems it necessary in the future to modify the assumptions it made or to use different
assumptions, or if the quantity and nature of the Company’s stock-based compensation awards
changes, then the amount of expense may need to be adjusted and future stock compensation expense
could be materially different from what has been recorded in the current period.
Restructuring and other accruals
— We may record accruals for severance costs, costs associated
with excess facilities that we have leased, contract terminations, asset impairments, and other
costs as a result of on-going actions we undertake to streamline our organization, reposition
certain businesses and reduce ongoing costs. Estimates of costs to be incurred to complete these
actions, such as future lease payments, sublease income, the fair value of assets, and severance
and related benefits, are based on assumptions at the time the actions are initiated. These
accruals may need to be adjusted to the extent actual costs differ from such estimates. In
addition, these actions may be revised due to changes in business conditions that we did not
foresee at the time such plans were approved.
We also record accruals during the year for our various employee cash incentive programs. Amounts
accrued at the end of each reporting period are based on our estimates and may require adjustment
as the ultimate amount paid for these incentives are sometimes not known with certainty until after
year end.
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RESULTS OF OPERATIONS
Overall Results
The following tables summarize the changes in selected line items in our Consolidated Statements of
Operation for the three years ended December 31, 2010 (dollars in thousands):
For the twelve months ended December 31, 2010 and 2009:
| Twelve Months | Twelve Months | Income | Income | |||||||||||||
| Ended | Ended | Increase | Increase | |||||||||||||
| December 31, | December 31, | (Decrease) | (Decrease) | |||||||||||||
| 2010 | 2009 (1) | $ | % | |||||||||||||
|
Total revenues
|
$ | 1,288,454 | $ | 1,139,800 | $ | 148,654 | 13 | % | ||||||||
|
Costs and expenses:
|
||||||||||||||||
|
Cost of services & product development
|
552,238 | 498,363 | (53,875 | ) | (11 | )% | ||||||||||
|
Selling, general and administrative
|
543,174 | 477,003 | (66,171 | ) | (14 | )% | ||||||||||
|
Depreciation
|
25,349 | 25,387 | 38 | — | % | |||||||||||
|
Amortization of intangibles
|
10,525 | 1,636 | (8,889 | ) | >(100 | )% | ||||||||||
|
Acquisition & integration charges
|
7,903 | 2,934 | (4,969 | ) | >(100 | )% | ||||||||||
|
|
||||||||||||||||
|
Operating income
|
149,265 | 134,477 | 14,788 | 11 | % | |||||||||||
|
Interest expense, net
|
(15,616 | ) | (16,032 | ) | 416 | 3 | % | |||||||||
|
Other income (expense), net
|
436 | (2,919 | ) | 3,355 | >100 | % | ||||||||||
|
Provision for income taxes
|
37,800 | 32,562 | (5,238 | ) | (16 | )% | ||||||||||
|
|
||||||||||||||||
|
Net income
|
$ | 96,285 | $ | 82,964 | $ | 13,321 | 16 | % | ||||||||
|
|
||||||||||||||||
For the twelve months ended December 31, 2009 and 2008:
| Twelve Months | Twelve Months | Income | Income | |||||||||||||
| Ended | Ended | Increase | Increase | |||||||||||||
| December 31, | December 31, | (Decrease) | (Decrease) | |||||||||||||
| 2009 (1) | 2008 | $ | % | |||||||||||||
|
Total revenues
|
$ | 1,139,800 | $ | 1,279,065 | $ | (139,265 | ) | (11 | )% | |||||||
|
Costs and expenses:
|
||||||||||||||||
|
Cost of services & product development
|
498,363 | 572,208 | 73,845 | 13 | % | |||||||||||
|
Selling, general and administrative
|
477,003 | 514,994 | 37,991 | 7 | % | |||||||||||
|
Depreciation
|
25,387 | 25,880 | 493 | 2 | % | |||||||||||
|
Amortization of intangibles
|
1,636 | 1,615 | (21 | ) | (1 | )% | ||||||||||
|
Acquisition & integration charges
|
2,934 | — | (2,934 | ) | (100 | )% | ||||||||||
|
|
||||||||||||||||
|
Operating income
|
134,477 | 164,368 | (29,891 | ) | (18 | )% | ||||||||||
|
Interest expense, net
|
(16,032 | ) | (19,269 | ) | 3,237 | 17 | % | |||||||||
|
Other expense, net
|
(2,919 | ) | (358 | ) | (2,561 | ) | >(100 | )% | ||||||||
|
Provision for income taxes
|
32,562 | 47,593 | 15,031 | 32 | % | |||||||||||
|
|
||||||||||||||||
|
Income from continuing operations
|
82,964 | 97,148 | (14,184 | ) | (15 | )% | ||||||||||
|
Income from discontinued operations, net of taxes (2)
|
— | 6,723 | (6,723 | ) | (100 | )% | ||||||||||
|
|
||||||||||||||||
|
Net income
|
$ | 82,964 | $ | 103,871 | $ | (20,907 | ) | (20 | )% | |||||||
|
|
||||||||||||||||
| (1) | In December 2009 we acquired AMR Research and Burton Group. The operating results of these businesses have been included in our consolidated results of operations beginning on their respective dates of acquisition. The results of these businesses were not material to the Company’s 2009 consolidated operating results. | |
| (2) | Includes the gain on sale and operating results of the Company’s Vision Events business, which was sold in 2008. |
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2010 VERSUS 2009
TOTAL REVENUES for the twelve months ended December 31, 2010 increased $148.7 million, or 13%,
compared to the twelve months ended December 31, 2009. Revenues increased across all of our
geographic regions and in all three of our business segments. Total revenues were also up 13%
excluding the impact of foreign currency, which had an immaterial impact year-over-year.
An overview of our results by geographic region follows:
| • | Revenues from sales to United States and Canadian clients increased 15%, to $765.8 million in 2010 from $663.8 million in 2009, with a substantial portion of the increase due to the AMR Research and Burton Group businesses. | |
| • | Revenues from sales to clients in Europe, the Middle East and Africa (“EMEA”) increased to $380.8 million in 2010 from $360.8 million in 2009, a 6% increase. | |
| • | Revenues from sales to clients in our Other International region increased 23%, to $141.9 million in 2010 from $115.2 million in 2009. |
An overview of our results by segment follows:
| • | Research revenues increased 15% in 2010, to $865.0 million compared to $752.5 million in 2009, and comprised 67% and 66% of our total revenues in 2010 and 2009, respectively. | |
| • | Consulting revenues increased 5% in 2010 to $302.1 million, compared to $286.8 million in 2009, and comprised approximately 23% and 25% of our total revenues in 2010 and 2009, respectively. | |
| • | Events revenues were $121.3 million in 2010, an increase of 21% from $100.4 million in 2009, and comprised approximately 10% and 9% of our total revenues in 2010 and 2009, respectively. |
Please refer to the section of this MD&A below entitled “Segment Results” for a further discussion
of revenues and results by segment.
COST OF SERVICES AND PRODUCT DEVELOPMENT (“COS”) increased 11% in 2010, or $53.9 million, to $552.2
million compared to $498.4 million in 2009. The impact of foreign currency on the year-over-year
increase was not significant. We recognized $36.8 million in higher payroll, commissions, and
related personnel costs in 2010, primarily due to the impact of the increased headcount from the
AMR Research and Burton Group businesses. We had $12.0 million in higher conference and travel
costs in 2010, due to the additional events we held and increased attendees, as well as a general
increase in travel activity from the depressed 2009 levels, when the Company had strict travel
restrictions in place due to the economic downturn. We also had $2.2 million in higher equity
compensation expense due to a higher level of achievement on performance-based stock units.
Cost of services and product development as a percentage of sales was 43% in 2010 and 44% in 2009,
a 1 point improvement, primarily driven by the substantial increase in our fourth quarter 2010
revenues, which increased 16% over the fourth quarter of 2009, and was substantially greater than
the increase in the quarterly cost of services. The improvement reflects the operating leverage of
our business model.
SELLING, GENERAL AND ADMINISTRATIVE (“SG&A”) expense increased by $66.2 million in 2010, or 14%, to
$543.2 million from $477.0 million in 2009. Excluding the unfavorable impact of foreign exchange,
SG&A expense increased 13% year-over-year. We had $47.0 million of higher sales commissions,
payroll and benefits, and other personnel charges in 2010, which included the additional headcount
costs attributable to the AMR Research and Burton Group businesses. We also had $4.3 million of
additional stock-based compensation expense due to the higher level of achievement on
performance-based stock units and higher travel charges of $7.1 million, primarily due to
additional sales headcount and the loosening of travel restrictions. The unfavorable impact of
foreign currency added $3.1 million of additional expense.
DEPRECIATION expense decreased slightly year-over-year. Capital spending increased to $21.7 million
in 2010 from $15.1 million in 2009, a 43% increase. The Company had reduced its capital expenditures
in 2009 due to the economic downturn.
AMORTIZATION OF INTANGIBLES was $10.5 million in 2010 compared to $1.6 million in 2009. The
increase is due to the amortization of the intangibles acquired from AMR Research and Burton Group.
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ACQUISITION AND INTEGRATION CHARGES
was $7.9 million in 2010 and $2.9 million in 2009.
Included is these charges are legal fees and consultant fees in connection with the acquisitions
and integration of AMR Research and Burton Group, as well as severance costs related to redundant
headcount.
OPERATING INCOME increased 11% year-over-year, to $149.3 million in 2010 from $134.5 million in
2009. The increase was due to the significantly higher gross contribution from our three business
segments in 2010, which increased 15% year-over-year, to $742.3 million in 2010 from $642.9 million
in 2009. The increased gross contribution was partially offset by higher charges in 2010 for SG&A
as well as higher intangible amortization and acquisition and integration charges related to our
acquisitions. Operating income as a percentage of revenues was 12% for both 2010 and 2009.
Please refer to the section of this MD&A entitled “Segment Results” below for a further discussion
of revenues and results by segment.
INTEREST EXPENSE, NET was $15.6 million in 2010 and $16.0 million in 2009, a 3% decline. The 2010
period includes $3.7 million of incremental expense related to the refinancing of our debt in
December 2010 (See Note 6 — Debt in the Notes to the Consolidated Financial Statements). Excluding
the $3.7 million incremental charge, Interest expense, net would have declined approximately 26%
year-over-year, due to lower average debt outstanding and a lower weighted-average rate.
OTHER INCOME (EXPENSE), NET was $0.4 million in 2010 and consisted of a $2.4 million gain for an
insurance recovery related to a prior period loss offset by net foreign currency exchange losses.
The $(2.9) expense in 2009 primarily consisted of net foreign currency exchange losses.
PROVISION FOR INCOME TAXES was $37.8 million in 2010 compared to $32.6 million in 2009 and the
effective tax rate was 28.2% for both periods. Year-over-year increases in the rate attributable to
higher financial statement cost of repatriation and higher net
reserve increases were substantially offset by reductions in the rate year over year attributable to larger releases of valuation
allowances.
The Internal Revenue Service (“IRS”) has completed its examination of the federal income tax return
of the Company for the tax year ended December 31, 2007. In December 2010, the Company received a
report of the audit findings. The Company disagrees with certain of the proposed adjustments and
intends to vigorously dispute this matter through applicable IRS and judicial procedures, as
appropriate. The Company believes that it has recorded reserves sufficient to cover exposures
related to these issues. However, the resolution of such matters involves uncertainties and there
are no assurances that the ultimate resolution will not exceed the amounts recorded. Although the final resolution of the proposed adjustments is uncertain, we believe the
ultimate disposition of this matter will not have a material adverse effect on our consolidated
financial position, cash flows, or results of operations.
NET INCOME was $96.3 million in 2010 and $83.0 million in 2009, an increase of $13.3 million, or
16%, primarily due to a $14.8 million year-over-year increase in operating income. We also had a
$0.4 million gain from other income (expense) activity in 2010 compared to a loss of $(2.9) million
in 2009, as well as slightly lower interest expense in 2010. These increases were partially offset
by higher income tax charges in 2010.
Basic earnings per share increased 15% year-over-year while diluted earnings per share increased
13% year-over-year. The increased earnings per share were due to the higher net income in 2010,
which was slightly reduced by higher weighted-average shares outstanding in 2010.
2009 VERSUS 2008
TOTAL REVENUES for the twelve months ended December 31, 2009 decreased $139.3 million, or 11%,
compared to the twelve months ended December 31, 2008. Revenues declined across all of our
geographic regions and in all three of our business segments. The impact of foreign currency had a
negative impact on our revenues in 2009, and excluding this impact, total revenues in 2009 were
down 8% compared to 2008. Our revenues and operating results were negatively impacted by global
economic conditions in 2009.
An overview of our results by geographic region follows:
| • | Revenues from sales to United States and Canadian clients decreased 8%, to $663.8 million in 2009 from $723.2 million in 2008. | |
| • | Revenues from sales to clients in Europe, the Middle East and Africa (“EMEA”) decreased to $360.8 million in 2009 from $430.4 million in 2008, a 16% decrease. |
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| • | Revenues from sales to clients in our Other International region decreased 8%, to $115.2 million in 2009 from $125.4 million in 2008. |
An overview of our results by segment follows:
| • | Research revenues decreased 4% in 2009 to $752.5 million compared to $781.6 million in 2008, and comprised approximately 66% and 61% of our total revenues in 2009 and 2008, respectively. | |
| • | Consulting revenues decreased 17% in 2009 to $286.8 million, compared to $347.4 million in 2008, and comprised approximately 25% and 27% of our total revenues in 2009 and 2008, respectively. | |
| • | Events revenues were $100.4 million in 2009, a decrease of 33% from $150.1 million in 2008, and comprised approximately 9% and 12% of our total revenues in 2009 and 2008, respectively. |
Please refer to the section of this MD&A below entitled “Segment Results” for a further discussion
of revenues and results by segment.
COST OF SERVICES AND PRODUCT DEVELOPMENT decreased $73.8 million year-over-year, or 13%. The
favorable impact of foreign currency translation reduced expense by about $19.0 million. We had
lower conference expenses of $18.5 million primarily due to discontinued events. We also had
reduced travel and internal meeting charges of $16.7 million and lower personnel costs of about
$12.5 million, primarily due to our tight cost controls. The remaining $7.1 million net decrease
was spread across a number of other expense categories. Cost of services and product development as
a percentage of sales declined by 1 point, to 44% in 2009 from 45% in 2008, primarily due to tight
expense controls across our businesses.
SELLING, GENERAL AND ADMINISTRATIVE (“SG&A”) expense decreased by about $38.0 million in 2009, or
7%, compared to 2008, despite increasing our sales force. The impact of foreign currency
translation reduced expense by about $18.0 million. We also had lower travel, internal meeting, and
recruiting costs of about $19.0 million, again due to our tight cost controls. The remaining net
reduction was spread across a number of other expense categories. Excluding the 60 sales associates
that joined us from AMR Research and Burton Group, we had 942 quota-bearing sales associates at
December 31, 2009, a 2% increase from the prior year end. This additional investment in sales
associates resulted in $9.0 million of higher payroll and benefits costs, which was offset by lower
G&A charges.
DEPRECIATION expense decreased 2% year-over-year which reflects reduced capital spending during
2009. Capital spending decreased to $15.1 million in 2009 from $24.3 million in 2008, a 38%
decline, which reflects the Company’s reduced 2009 capital expenditures.
AMORTIZATION OF INTANGIBLES was $1.6 million for both 2009 and 2008.
ACQUISITION AND INTEGRATION CHARGES
was $2.9 million in 2009 and zero in 2008. Included is
these charges are legal fees and consultant fees in connection with the acquisitions and
integration of AMR Research and Burton Group, as well as severance costs related to redundant
headcount.
OPERATING INCOME decreased 18% year-over-year, to $134.5 million in 2009 from $164.4 million in
2008. Operating income as a percentage of revenues declined 1 point year-over-year, primarily due
to lower profitability in our Consulting and Events segments and the $2.9 million acquisition and
integration charge related to AMR Research and Burton Group.
Please refer to the section of this MD&A entitled “Segment Results” below for a further discussion
of revenues and results by segment.
INTEREST EXPENSE, NET was $16.0 million in 2009 and $19.3 million in 2008, a 17% decline. The 2009
period includes $1.1 million of expense related to the discontinuance of hedge accounting on an
interest rate swap contract (See Note 6 — Debt in the Notes to the Consolidated Financial
Statements). Excluding the $1.1 million charge, Interest expense, net would have declined
approximately 22% year-over-year. The year-over-year decline is primarily attributable to a
reduction in the weighted-average amount of debt outstanding.
24
Table of Contents
OTHER (EXPENSE) INCOME, NET of $(2.9) million in 2009 consisted of net foreign currency exchange
losses. The $(0.4) million Other expense in 2008 primarily consisted of a $1.2 million gain related
to the settlement of a litigation matter offset by net foreign currency exchange losses.
PROVISION FOR INCOME TAXES on continuing operations was $32.6 million in 2009 as compared to $47.6
million in 2008. The effective tax rate was 28.2% in 2009 and 32.9% in 2008. The lower effective
tax rate in 2009 as compared to 2008 is attributable to several items. The most significant of
these items include the following: (a) the release of reserves for uncertain tax positions relating
to the expiration of statutes of limitation was larger in 2009 than in 2008 while pretax income was
lower, and (b) differences relating to the taxability of life insurance contracts year-over-year.
INCOME FROM DISCONTINUED OPERATIONS, NET OF TAXES, includes the results of the Company’s Vision
Events business, which we sold in early 2008. The $6.7 million of income for 2008 includes a net
gain on sale of approximately $7.1 million and a $(0.4) million operating loss.
NET INCOME was $83.0 million in 2009 and $103.9 million in 2008, a decline of $20.9 million or 20%.
The decline was primarily driven by the reduced contributions by our three business segments in the
2009 period and to a lesser extent, the $2.9 million acquisition and integration charge we recorded
related to AMR Research and Burton Group. These decreases were partially offset by lower SG&A
charges, a lower effective income tax rate, and reduced interest expense. Also contributing to the
year-over-year decline in net income was the $6.7 million net gain from the sale of the Company’s
former Vision Events business recorded in the 2008 period.
Basic earnings per share from continuing operations decreased 14% year-over-year. Diluted earnings
per share from continuing operations decreased 13% year-over-year.
SEGMENT RESULTS
We evaluate reportable segment performance and allocate resources based on gross contribution
margin. Gross contribution is defined as operating income excluding certain Cost of services and
product development charges, and SG&A, Depreciation, Acquisition and integration charges,
Amortization of intangibles, and Other charges. Gross contribution margin is defined as gross
contribution as a percentage of revenues.
The following sections present the results of our three segments:
Research
| 2010 vs. 2009 | 2009 vs. 2008 | |||||||||||||||||||||||||||||||
| As Of And | As Of And | As Of And | As Of And | |||||||||||||||||||||||||||||
| For The | For the | For The | For the | |||||||||||||||||||||||||||||
| Twelve Months | Twelve Months | Twelve Months | Twelve Months | |||||||||||||||||||||||||||||
| Ended | Ended | Percentage | Ended | Ended | Percentage | |||||||||||||||||||||||||||
| December 31, | December 31, | Increase | Increase | December 31, | December 31, | Increase | Increase | |||||||||||||||||||||||||
| 2010 | 2009 | (Decrease) | (Decrease) | 2009 | 2008 | (Decrease) | (Decrease) | |||||||||||||||||||||||||
|
Financial Measurements:
(1)
|
||||||||||||||||||||||||||||||||
|
Revenues (2)
|
$ | 865,000 | $ | 752,505 | $ | 112,495 | 15 | % | $ | 752,505 | $ | 781,581 | $ | (29,076 | ) | (4 | )% | |||||||||||||||
|
Gross contribution (2)
|
$ | 564,527 | $ | 489,862 | $ | 74,665 | 15 | % | $ | 489,862 | $ | 495,440 | $ | (5,578 | ) | (1 | )% | |||||||||||||||
|
Gross contribution margin
|
65 | % | 65 | % | — | — | 65 | % | 63 | % | 2 points | — | ||||||||||||||||||||
|
Business Measurements:
(3)
|
||||||||||||||||||||||||||||||||
|
Contract value (2)
|
$ | 977,710 | $ | 784,443 | $ | 193,267 | 25 | % | $ | 784,443 | $ | 834,321 | $ | (49,878 | ) | (6 | )% | |||||||||||||||
|
Client retention
|
83 | % | 78 | % | 5 points | — | 78 | % | 82 | % | (4) points | — | ||||||||||||||||||||
|
Wallet retention
|
98 | % | 87 | % | 11 points | — | 87 | % | 95 | % | (8) points | — | ||||||||||||||||||||
|
Exec. program members
|
4,297 | 3,651 | 646 | 18 | % | 3,651 | 3,733 | (82 | ) | (2 | )% | |||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
| (1) | The operating results of AMR Research and Burton Group are included beginning on their respective dates of acquisition in December 2009. The operating results of these businesses were not material to the Research segment in 2009. | |
| (2) | Dollars in thousands. | |
| (3) | The 2009 and 2008 metrics exclude AMR Research and Burton Group. |
25
Table of Contents
2010 VERSUS 2009
Research revenues increased 15% in 2010, but excluding the favorable effect of foreign currency
translation, revenues increased 14%. Approximately 39% of the $112.5 million revenue increase was
attributable to the AMR Research and Burton Group businesses. The segment gross contribution margin
was flat at 65%, despite additional headcount expenses from the AMR Research and Burton Group
businesses.
Research contract value was $977.7 million at December 31, 2010, an increase of 25% compared to
December 31, 2009 and the highest reported contract value in the Company’s history. Excluding the
favorable impact of foreign currency translation, research contract value increased 20% over 2009.
We attribute the increase to our continuing focus on sales effectiveness and the improving economic
environment. The increase is also due to the AMR Research and Burton Group businesses, which
contributed approximately 30% of the $193.3 million increase in contract value. Client retention
and wallet retention improved 5 points and 11 points, respectively.
2009 VERSUS 2008
Research revenues declined 4% year-over-year, but excluding the unfavorable effect of foreign
currency translation, Research revenues were down about 1%.
In spite of lower revenues, the Research contribution margin increased 2 points year-over-year. The
improved margin was primarily driven by tight cost controls, which resulted in lower costs
concentrated in personnel, travel, and internal meetings, and our ability to implement price
increases for our products.
Contract value decreased 6% when comparing December 31, 2009 to December 31, 2008, but excluding
the impact of foreign currency translation, contract value was down 1% year-over-year.
While down year-over-year, contract value increased $42.0 million in the fourth quarter of 2009, or
6%, with growth across all industries, geographies, and client sizes. We believe the increase
reflects both improved sales effectiveness as well as an improving economic environment.
Consulting
| 2010 vs. 2009 | 2009 vs. 2008 | |||||||||||||||||||||||||||||||
| As Of And | As Of And | As Of And | As Of And | |||||||||||||||||||||||||||||
| For the | For the | For the | For the | |||||||||||||||||||||||||||||
| Twelve Months | Twelve Months | Twelve Months | Twelve Months | |||||||||||||||||||||||||||||
| Ended | Ended | Percentage | Ended | Ended | Percentage | |||||||||||||||||||||||||||
| December 31, | December 31, | Increase | Increase | December 31, | December 31, | Increase | Increase | |||||||||||||||||||||||||
| 2010 | 2009 | (Decrease) | (Decrease) | 2009 | 2008 | (Decrease) | (Decrease) | |||||||||||||||||||||||||
|
Financial Measurements:
(1)
|
||||||||||||||||||||||||||||||||
|
Revenues (2)
|
$ | 302,117 | $ | 286,847 | $ | 15,270 | 5 | % | $ | 286,847 | $ | 347,404 | $ | (60,557 | ) | (17 | )% | |||||||||||||||
|
Gross contribution (2)
|
$ | 121,885 | $ | 112,099 | $ | 9,786 | 9 | % | $ | 112,099 | $ | 141,395 | $ | (29,296 | ) | (21 | )% | |||||||||||||||
|
Gross contribution margin
|
40 | % | 39 | % | 1 point | — | 39 | % | 41 | % | (2) points | — | ||||||||||||||||||||
|
Business Measurements:
(3)
|
||||||||||||||||||||||||||||||||
|
Backlog (2)
|
$ | 100,839 | $ | 90,891 | $ | 9,948 | 11 | % | $ | 90,891 | $ | 97,169 | $ | (6,278 | ) | (6 | )% | |||||||||||||||
|
Billable headcount
|
473 | 442 | 31 | 7 | % | 442 | 499 | (57 | ) | (11 | )% | |||||||||||||||||||||
|
Consultant utilization
|
68 | % | 68 | % | — | — | 68 | % | 72 | % | (4) points | — | ||||||||||||||||||||
|
Average annualized revenue
per billable headcount (2)
|
$ | 424 | $ | 409 | $ | 15 | 4 | % | $ | 409 | $ | 460 | $ | (51 | ) | (11 | )% | |||||||||||||||
|
|
||||||||||||||||||||||||||||||||
| (1) | The operating results of AMR Research and Burton Group are included beginning on their respective dates of acquisition in December 2009. The operating results of these businesses were not material to the Consulting segment in 2009. | |
| (2) | Dollars in thousands. | |
| (3) | The 2009 and 2008 metrics exclude AMR Research and Burton Group. |
26
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2010 VERSUS 2009
Consulting revenues increased 5% in 2010, but excluding the unfavorable impact of foreign currency
translation, revenues increased 6%. The AMR Research and Burton Group businesses added
approximately 35% of the $15.3 million revenue increase. The gross contribution margin improved by
1 point, primarily due to additional revenues in our contract optimization and SAS businesses, both
of which have higher margins than core consulting.
Consulting billable headcount was 473 at December 31, 2010, an increase of 7% year-over-year.
Backlog was $100.8 million at December 31, 2010, and increase of $9.9 million or 11% over the prior
year. Backlog increased across all of our geographic regions. The AMR Research and Burton Group
businesses added approximately $0.3 million of the increase.
2009 VERSUS 2008
Consulting revenues declined 17% when comparing 2009 with 2008, with the majority of the decline in
core consulting, and to a lesser extent, in our SAS and contract optimization businesses. The
decline in core consulting was driven by lower headcount, utilization, and billing rates. The
decline in revenue in our contract optimization business reflects a large contract received at the
end of 2008 which was not repeated in 2009. SAS revenues declined due to approximately 17% fewer
fulfilled SAS days. Excluding the unfavorable impact of foreign currency, overall Consulting
revenues were down about 15%.
The 2 point decline in the Consulting contribution margin reflects lower revenue in our SAS and
contract optimization businesses, which have higher margins than core consulting. To a lesser
extent, the decline also reflects lower utilization and billing rates in core consulting.
We ended 2009 with 442 billable consultants, a decline of 11% from the prior year end as we tightly
managed resources to match demand. The decline reflects normal attrition as well as the termination
of approximately 30 consultants in January 2009 to better align our delivery resources with lower
backlog.
Consulting backlog declined 6% year-over-year but increased 7% sequentially in the fourth quarter
of 2009 to $90.9 million, as demand for our consulting services was solid in the U.S. while demand
in Europe lagged.
Events
| 2010 vs. 2009 | 2009 vs. 2008 | |||||||||||||||||||||||||||||||
| As Of And | As Of And | As Of And | As Of And | |||||||||||||||||||||||||||||
| For the | For the | For the | For the | |||||||||||||||||||||||||||||
| Twelve Months | Twelve Months | Twelve Months | Twelve Months | |||||||||||||||||||||||||||||
| Ended | Ended | Percentage | Ended | Ended | Percentage | |||||||||||||||||||||||||||
| December 31, | December 31, | Increase | Increase | December 31, | December 31, | Increase | Increase | |||||||||||||||||||||||||
| 2010 | 2009 | (Decrease) | (Decrease) | 2009 | 2008 | (Decrease) | (Decrease) | |||||||||||||||||||||||||
|
Financial Measurements:
(1)
|
||||||||||||||||||||||||||||||||
|
Revenues (2)
|
$ | 121,337 | $ | 100,448 | $ | 20,889 | 21 | % | $ | 100,448 | $ | 150,080 | $ | (49,632 | ) | (33 | )% | |||||||||||||||
|
Gross contribution (2)
|
$ | 55,884 | $ | 40,945 | $ | 14,939 | 37 | % | $ | 40,945 | $ | 64,954 | $ | (24,009 | ) | (37 | )% | |||||||||||||||
|
Gross contribution margin
|
46 | % | 41 | % | 5 points | — | 41 | % | 43 | % | (2) points | — | ||||||||||||||||||||
|
Business Measurements:
(3)
|
||||||||||||||||||||||||||||||||
|
Number of events
|
56 | 54 | 2 | 4 | % | 54 | 70 | (16 | ) | (23 | )% | |||||||||||||||||||||
|
Number of attendees
|
37,219 | 30,610 | 6,609 | 22 | % | 30,610 | 41,352 | (10,742 | ) | (26 | )% | |||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
| (1) | The operating results of AMR Research and Burton Group are included beginning on their respective dates of acquisition in December 2009. The operating results of these businesses were not material to the Events segment in 2009. | |
| (2) | Dollars in thousands. | |
| (3) | The 2009 and 2008 metrics exclude AMR Research and Burton Group. |
2010 VERSUS 2009
Events revenues increased $20.9 million in 2010, or 21%, compared to 2009, with little impact from
foreign currency translation. We held 2 additional events in 2010, for a total of 56 events, which
consisted of 48 ongoing events and 8 new event launches. We
27
Table of Contents
discontinued 6 events that had been
held in prior years. We had a 22% increase in attendees and a 24% increase in exhibitors, while
average revenue increased 12% for attendees but was down slightly for exhibitors. Revenues
increased $21.1 million and $5.2 million from our ongoing and new events, respectively, which was
partially offset by a $5.4 million revenue loss from discontinued events.
The gross contribution margin increased 5 points, primarily due to higher contribution from our
ongoing events, reflecting the strength in attendee volume and average revenue per attendee as well
as higher exhibitor volume.
2009 VERSUS 2008
Events revenue was down $49.6 million, or 33% in 2009 due to the impact of discontinued events and
a decline in revenue from our on-going events. We held 54 events in 2009, a decline of 16 events
compared to the prior year. The 54 events held in 2009 consisted of 51 on-going events and 3 new
events. The number of attendees at our 51 on-going events was down 12% while the number of
exhibitors was down 31%. Excluding the unfavorable impact of foreign currency, Events revenues were
down 32% year-over-year.
Approximately $24.0 million of the revenue decrease was due to 19 discontinued events, including
our Spring Symposium, which was a significant event in prior years. We discontinued these events in
2009 in response to the difficult operating environment, with tight travel restrictions and budget
cuts at many companies due to the weak economy. We also had a $30.0 million decline in revenue from
our 51 on-going events. These declines were slightly offset by approximately $4.0 million in higher
revenue from new event launches and other miscellaneous events revenues. The Events contribution
margin was down 2 points year-over-year primarily due to lower average attendee and exhibitor
revenue at our 51 on-going events.
While the number of attendees was down significantly year-over-year, this trend began to show
improvement in the fourth quarter of 2009 with attendance at our on-going events up 2%. We also
began to see improvement in exhibitor participation. We believe these trends reflect a loosening of
corporate travel budgets, resumed growth in marketing spend by technology companies, and our
continuing efforts to increase client retention by enhancing the value and experience that our
clients derive from our events.
LIQUIDITY AND CAPITAL RESOURCES
On December 22, 2010, the Company entered into a new credit facility with a syndication of banks
led by JPMorgan Chase to take advantage of favorable financing conditions and to obtain greater
financial flexibility and liquidity through a larger revolving credit facility. The new credit
arrangement provides for a five-year, $200.0 million term loan and a $400.0 million revolving
credit facility. The new credit facility contains an expansion feature by which the term loan and
revolving credit facility may be increased, at the Company’s option and under certain conditions,
by up to an additional $150.0 million in the aggregate.
We finance our operations primarily through cash generated from our on-going operating activities,
and our 2010 operating cash flow increased 27% over the prior year. As of December 31, 2010, we had
$120.2 million of cash and cash equivalents and $376.0 million of available borrowing capacity
under our revolving credit facility. Our cash and cash equivalents are held in numerous locations
throughout the world, with approximately 75% held outside the United States as of December 31,
2010.
We believe that we have adequate liquidity and that the cash we expect to earn from our on-going
operating activities, our existing cash balances, and the expanded borrowing capacity we have under
our revolving credit facility will be sufficient for our expected short-term and foreseeable
long-term operating needs.
The following table summarizes the Company’s changes in cash and cash equivalents for the three
years ending December 31, 2010:
| 2010 vs. 2009 | 2009 vs. 2008 | |||||||||||||||||||||||
| Twelve Months | Twelve Months | Twelve Months | Twelve Months | |||||||||||||||||||||
| Ended | Ended | Dollar | Ended | Ended | Dollar | |||||||||||||||||||
| December 31, | December 31, | Increase | December 31, | December 31, | Increase | |||||||||||||||||||
| 2010 | 2009 | (Decrease) | 2009 | 2008 | (Decrease) | |||||||||||||||||||
|
Cash provided by operating activities
|
$ | 205,499 | $ | 161,937 | $ | 43,562 | $ | 161,937 | $ | 184,350 | $ | (22,413 | ) | |||||||||||
|
Cash used by investing activities
|
(33,845 | ) | (119,665 | ) | 85,820 | (119,665 | ) | (16,455 | ) | (103,210 | ) | |||||||||||||
|
Cash used in financing activities
|
(171,556 | ) | (73,780 | ) | (97,776 | ) | (73,780 | ) | (119,835 | ) | 46,055 | |||||||||||||
|
|
||||||||||||||||||||||||
|
Net increase (decrease)
|
98 | (31,508 | ) | 31,606 | (31,508 | ) | 48,060 | (79,568 | ) | |||||||||||||||
|
Effects of exchange rates
|
3,509 | 7,153 | (3,644 | ) | 7,153 | (17,076 | ) | 24,229 | ||||||||||||||||
|
Beginning cash and cash equivalents
|
116,574 | 140,929 | (24,355 | ) | 140,929 | 109,945 | 30,984 | |||||||||||||||||
|
|
||||||||||||||||||||||||
|
Ending cash and cash equivalents
|
$ | 120,181 | $ | 116,574 | $ | 3,607 | $ | 116,574 | $ | 140,929 | $ | (24,355 | ) | |||||||||||
|
|
||||||||||||||||||||||||
28
Table of Contents
2010 VERSUS 2009
Operating
Our 2010 operating cash flow increased by $43.6 million, or 27%, primarily due to the $13.3 million
increase in net income, a $9.0 million decrease in cash payments for income taxes, and a $12.1
million decrease in payments for severance, interest payments on our debt, and excess facilities.
We also received $2.4 million in cash in 2010 from an insurance recovery, and approximately $19.8
million of improvements in our working capital accounts, which includes increased cash collections
on our receivables. Partially offsetting these increases were $8.0 million in acquisition and
integration payments made in 2010 related to the acquisitions of AMR Research and Burton Group and
$5.0 million more in 2010 bonus payments.
Investing
Cash used in our investing activities declined by $85.8 million in 2010 due to the acquisitions of
AMR Research and Burton Group in 2009. We paid $104.5 million in cash for these acquisitions in
December 2009 and an additional $12.2 million in January 2010. We used $21.7 million of cash in
2010 for capital expenditures compared to $15.1 million in the 2009 period, an increase of $6.6
million, or 43%.
Financing
Cash used in our financing activities was $97.8 million higher in 2010 compared to 2009, with a
total of $171.6 million used in 2010 compared to $73.8 million used in 2009. The additional cash
used was due to higher debt repayments and additional share repurchases in 2010.
On a net basis, we repaid $108.8 million of debt in 2010 compared to $87.3 million in the prior
year, an increase in cash used of $21.6 million. We used $99.8 million of cash for share
repurchases in 2010 compared to $3.7 million in 2009, an increase in cash used of $96.1 million. We
also paid $4.8 million in cash in 2010 for fees related to our debt refinancing. Partially
offsetting these higher uses of cash was an additional $24.7 million in cash realized from option
exercises and excess tax benefits as a higher average stock price in 2010 resulted in a
significantly increased number of option exercises.
2009 VERSUS 2008
Operating
Our operating cash flow decreased by 12% in 2009, or $22.4 million. We had a decline of
approximately $23.0 million in cash from our core operations, along with $14.5 million more in cash
taxes paid and $8.0 million in higher severance payments due to the workforce reduction completed
in early January 2009. Partially offsetting the declines were $14.8 million in lower interest
payments on our debt, bonus payments, and payments on our excess facilities, and an $8.3 million
improvement in working capital. The improved working capital primarily reflects improved cash
collection on receivables.
Investing
We used an additional $103.2 million of cash in our investing activities in 2009 due to the $104.5
million of cash used for the acquisitions of AMR Research and Burton Group. We had $15.1 million of
capital expenditures in 2009, a decline of 38% compared to the $24.3 million of capital
expenditures in 2008. The decline reflects the Company’s tight focus on reducing costs. We also
realized $7.8 million of cash proceeds in 2008 from the sale of our Vision Events business.
Financing
Cash used in financing activities declined by $46.1 million, primarily due to a significant decline
in the use of cash for stock repurchases. Cash used for stock repurchases declined by about $197.1
million. Offsetting the decline in cash used for share repurchases was an increase in the use of
cash to repay debt of about $108.7 million and a decline in cash proceeds from option exercises and
excess tax benefits from equity compensation of approximately $42.3 million.
29
Table of Contents
OBLIGATIONS AND COMMITMENTS
At December 31, 2010, we had $220.0 million outstanding under our 2010 Credit Agreement which
provides for a five-year, $200.0 million term loan and a $400.0 million revolving credit facility.
The 2010 Credit Agreement contains an expansion feature by which the term loan and revolving credit
facility may be increased, at the Company’s option and under certain conditions, by up to an
additional $150.0 million in the aggregate.
The term loan will be repaid in 19 consecutive quarterly installments commencing March 31, 2011,
plus a final payment due on December 22, 2015, and may be prepaid at any time without penalty or
premium at the Company’s option. The revolving credit facility may be used for loans, and up to
$40.0 million may be used for letters of credit. The revolving loans may be borrowed, repaid and
re-borrowed until December 22, 2015, at which time all amounts borrowed must be repaid. See Note 6
— Debt in the Notes to the Consolidated Financial Statements for additional information regarding
the 2010 Credit Agreement.
Commitments
The following table presents our contractual cash commitments due after December 31, 2010 (in
thousands):
| Less Than | 2-3 | 4-5 | More Than | |||||||||||||||||
| Commitment Type: | 1 Year | Years | Years | 5 Years | Total | |||||||||||||||
|
Operating leases (1)
|
$ | 30,775 | $ | 43,300 | $ | 27,875 | $ | 66,640 | $ | 168,590 | ||||||||||
|
Debt outstanding (2)
|
20,000 | 70,000 | 130,156 | — | 220,156 | |||||||||||||||
|
Deferred compensation arrangement (3)
|
1,930 | 4,230 | 2,865 | 17,265 | 26,290 | |||||||||||||||
|
Tax liabilities (4)
|
1,275 | — | — | — | 1,275 | |||||||||||||||
|
|
||||||||||||||||||||
|
Totals
|
$ | 53,980 | $ | 117,530 | $ | 160,896 | $ | 83,905 | $ | 416,311 | ||||||||||
|
|
||||||||||||||||||||
| (1) | The Company leases various facilities, furniture, and computer equipment expiring between 2011 and 2025. | |
| (2) |
Represents amounts due under the 2010 Credit Agreement. Amounts drawn under the revolver credit
arrangement have been classified in the 4-5 Years category since the amounts are not contractually due
until December 2015.
|
|
| Interest payments on our outstanding debt are excluded from the amounts payable due to the variable nature of the interest rates and resulting payment amounts. Information regarding current interest rates on the Company’s debt is contained in Note 6 — Debt in the Notes to the Consolidated Financial Statements. For the years ended December 31, 2010, 2009 and 2008, we paid cash interest on our debt of $11.5 million, $13.9 million, and $22.4 million, respectively. | ||
| (3) | Represents the Company’s liability to participants in the supplemental deferred compensation arrangement. Amounts payable to active employees whose payment date is unknown have been included in the More Than 5 Years category since the Company cannot determine when the amounts will be paid. | |
| (4) | Includes interest and penalties. In addition to the $1.3 million liability, approximately $15.8 million of unrecognized tax benefits have been recorded as liabilities, and we are uncertain as to if or when such amounts may be settled. Related to the unrecognized tax benefits not included in the table, the Company has also recorded a liability for potential interest and penalties of $2.5 million. |
QUARTERLY FINANCIAL DATA
The following tables present our quarterly operating results for the two year period ended December
31, 2010:
| 2010 | ||||||||||||||||
| (In thousands, except per share data) | First | Second | Third | Fourth | ||||||||||||
|
Revenues
|
$ | 295,833 | $ | 314,195 | $ | 296,122 | $ | 382,304 | ||||||||
|
Operating income
|
29,198 | 34,230 | 32,763 | 53,074 | ||||||||||||
|
Net income
|
19,403 | 20,113 | 20,075 | 36,694 | ||||||||||||
|
Net income per share (1)
|
||||||||||||||||
|
Basic
|
$ | 0.20 | $ | 0.21 | $ | 0.21 | $ | 0.38 | ||||||||
|
|
||||||||||||||||
|
Diluted
|
$ | 0.19 | $ | 0.20 | $ | 0.20 | $ | 0.37 | ||||||||
|
|
||||||||||||||||
30
Table of Contents
| 2009 | ||||||||||||||||
| (In thousands, except per share data) | First | Second | Third | Fourth | ||||||||||||
|
Revenues
|
$ | 273,533 | $ | 269,971 | $ | 267,469 | $ | 328,827 | ||||||||
|
Operating income
|
34,451 | 30,761 | 27,521 | 41,744 | ||||||||||||
|
Net income
|
19,996 | 17,185 | 20,067 | 25,716 | ||||||||||||
|
Net income per share (1)
|
||||||||||||||||
|
Basic
|
$ | 0.21 | $ | 0.18 | $ | 0.21 | $ | 0.27 | ||||||||
|
|
||||||||||||||||
|
Diluted
|
$ | 0.21 | $ | 0.18 | $ | 0.21 | $ | 0.26 | ||||||||
|
|
||||||||||||||||
| (1) | The aggregate of the four quarters’ basic and diluted earnings per common share may not equal the reported full calendar year amounts due to the effects of share repurchases, dilutive equity compensation, and rounding. |
NEW ACCOUNTING STANDARDS
Accounting guidance issued by the various standard setting and governmental authorities that have
not yet become effective with respect to our Consolidated Financial Statements are described below,
together with our assessment of the potential impact they may have on our Consolidated Financial
Statements:
In January 2010, the FASB issued ASU 2010-06,
“Fair Value Measurements and Disclosures.”
ASU
2010-06 requires fair value hierarchy disclosures to be further disaggregated by class of assets
and liabilities. A class is often a subset of assets or liabilities within a line item in the
balance sheet. In addition, significant transfers between Levels 1 and 2 of the fair value
hierarchy are required to be disclosed. These additional disclosure requirements became effective
January 1, 2010. In general, we do not anticipate transfers between the different levels of the
fair value hierarchy, and for the year ended December 31, 2010, there were none. Our required fair
value disclosures are presented in Note 12 —
Fair Value Disclosures
, herein in the Notes to the
Consolidated Financial Statements. Beginning January 1, 2011, the FASB will also require additional
disclosures regarding changes in Level 3 instruments. The Company currently does not have any Level
3 instruments.
In September 2009, the FASB issued ASU 2009-13,
“Revenue Arrangements with Multiple Deliverables.”
ASU 2009-13 requires companies to allocate revenue in arrangements involving multiple deliverables
based on the estimated selling price of each deliverable, even though such deliverables are not
sold separately either by the company itself or other vendors. ASU 2009-13 eliminates the
requirement that all undelivered elements must have objective and reliable evidence of fair value
before a company can recognize the portion of the overall arrangement fee that is attributable to
items that already have been delivered. As a result, the new guidance is expected to allow some
companies to recognize revenue on transactions that involve multiple deliverables earlier than
under current requirements. ASU 2009-13 will be effective for Gartner beginning January 1, 2011.
The Company’s multiple revenue arrangements are limited and as a result we do not expect any impact
on our Consolidated Statement of Operations related to the adoption of this guidance.
INTEREST RATE RISK
We have exposure to changes in interest rates arising from borrowings under our 2010 Credit
Agreement, and at December 31, 2010 we had $200.0 million outstanding under the term loan and $20.0
million outstanding under the revolver. Borrowings under this facility are floating rate, which may
be either prime-based or Eurodollar-based. Interest rates under these borrowings include a base
rate plus a margin between 0.50% and 1.25% on prime borrowings and between 1.50% and 2.25% on
Eurodollar-based borrowings.
As of December 31, 2010, the annualized interest rate on the term loan was 2.30%, which consisted
of a 0.3% three-month Eurodollar base rate plus a margin of 2.0%, and 2.26% on the revolver, which
consisted of a 0.26% one-month Eurodollar base rate plus a margin of 2.0%. We have an interest rate swap contract which effectively converts the floating base rate
on the first $200.0 million of our borrowings to a 2.26% fixed rate.
The Company only hedges the base interest rate risk on the first $200.0 million of its outstanding
borrowings. Accordingly, we are exposed to interest rate risk on borrowings in excess of $200.0
million. A 25 basis point increase or decrease in interest rates would change pre-tax annual
interest expense on the additional $400.0 million borrowing capacity under the 2010 Credit
Agreement by approximately $1.0 million.
31
Table of Contents
FOREIGN CURRENCY EXCHANGE RISK
We have customers in 85 countries and 44% and 45% of our revenues for 2010 and 2009, respectively,
were derived from sales outside of the U.S. As a result we conduct business in numerous currencies
other than the U.S dollar. Among the major foreign currencies in which we conduct business are the
Euro, the British Pound, the Japanese Yen, the Australian dollar, and the Canadian dollar. Our
foreign currency exposure results in both translation risk and transaction risk:
TRANSLATION RISK
We are exposed to foreign currency translation risk since the functional currencies of our foreign
operations are generally denominated in the local currency. Translation risk arises since the
assets and liabilities that we report for our foreign subsidiaries are translated into U.S. dollars
at the exchange rates in effect at the balance sheet dates, and these exchange rates fluctuate over
time. These foreign currency translation adjustments are deferred and are recorded as a component
of stockholders’ equity and do not impact our operating results.
A measure of the potential impact of foreign currency translation on our Condensed Consolidated
Balance Sheets can be determined through a sensitivity analysis of our cash and cash equivalents.
As of December 31, 2010, we had over $120.0 million of cash and cash equivalents, a substantial
portion of which was denominated in foreign currencies. If the foreign exchange rates of the major
currencies in which we operate changed in comparison to the U.S. dollar by 10%, the amount of cash
and cash equivalents we would have reported on December 31, 2010 would have increased or decreased
by approximately $5.0 million.
Because our foreign subsidiaries generally operate in a local functional currency that differs from
the U.S. dollar, revenues and expenses in these foreign currencies translate into higher or lower
revenues and expenses in U.S. dollars as the U.S. dollar continuously weakens or strengthens
against these other currencies. Therefore, changes in exchange rates may affect our consolidated
revenues and expenses (as expressed in U.S. dollars) from foreign operations. Historically, this
impact on our consolidated earnings has not been material since foreign currency movements in the
major currencies in which we operate tend to impact our revenues and expenses fairly equally.
TRANSACTION RISK
We also have foreign exchange transaction risk since we typically enter into transactions in the
normal course of business that are denominated in foreign currencies that differ from the local
functional currency in which the foreign subsidiary operates.
We typically enter into foreign currency forward exchange contracts to offset the effects of
foreign currency transaction risk. These contracts are normally short term in duration and
unrealized and realized gains and losses are recognized in current period earnings. At December 31,
2010, we had 63 outstanding foreign currency forward contracts with a total notional amount of
$250.2 million and a net unrealized gain of $0.6 million. All of these contracts matured by the end
of January 2011.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentration of credit risk consist
primarily of short-term, highly liquid investments classified as cash equivalents, accounts
receivable, and interest rate swap contracts. The majority of the Company’s cash and cash
equivalents and its interest rate swap contract are with investment grade commercial banks that are
participants in the Company’s 2010 Credit Agreement. Accounts receivable balances deemed to be
collectible from customers have limited concentration of credit risk due to our diverse customer
base and geographic dispersion.
Our consolidated financial statements for 2010, 2009, and 2008, together with the reports of KPMG
LLP, our independent registered public accounting firm, are included herein in this Annual Report
on Form 10-K.
None.
32
Table of Contents
DISCLOSURE CONTROLS AND PROCEDURES
Management
conducted an evaluation, as of December 31, 2010, of the effectiveness of the design and
operation of our disclosure controls and procedures, (as such term is defined in Rules 13a- 15(e)
and 15d- 15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) under the
supervision and with the participation of our chief executive officer and chief financial officer.
Based upon that evaluation, our chief executive officer and chief financial officer have concluded
that our disclosure controls and procedures are effective in alerting them in a timely manner to
material Company information required to be disclosed by us in reports filed or submitted under the
Act.
MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Gartner management is responsible for establishing and maintaining adequate internal control over
financial reporting as defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Gartner’s internal
control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with accounting principles generally accepted in the United States.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. In addition, projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because of changes in conditions and
that the degree of compliance with the policies or procedures may deteriorate. Management assessed
the effectiveness of our internal control over financial reporting as
of December 31, 2010. In making this assessment, management used the criteria set forth in the Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Management’s assessment was reviewed with the Audit Committee of the Board of Directors.
Based on its assessment of internal control over financial reporting, management has concluded
that, as of December 31, 2010, Gartner’s internal control over financial reporting was effective.
The effectiveness of management’s internal control over financial reporting as of December 31, 2010
has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their
report which is included in this Annual Report on Form 10-K in Part IV, Item 15.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There were no changes in our internal controls over financial reporting during the quarter ended
December 31, 2010 that have materially affected, or are reasonably likely to materially affect, our
internal controls over financial reporting.
Not applicable.
33
Table of Contents
The information required to be furnished pursuant to this item will be set forth under the captions
“Proposal One: Election of Directors,” “Executive Officers,” “Corporate Governance,” “Section 16(a)
Beneficial Ownership Reporting Compliance” and “Miscellaneous — Available Information” in the
Company’s Proxy Statement to be filed with the SEC no later than April 30, 2011. If the Proxy
Statement is not filed with the SEC by April 30, 2011, such information will be included in an
amendment to this Annual Report filed by April 30, 2011. See also Item 1. Business — Available
Information.
The information required to be furnished pursuant to this item is incorporated by reference from
the information set forth under the caption “Executive Compensation” in the Company’s Proxy
Statement to be filed with the SEC no later than April 30, 2011. If the Proxy Statement is not
filed with the SEC by April 30, 2011, such information will be included in an amendment to this
Annual Report filed by April 30, 2011.
The information required to be furnished pursuant to this item will be set forth under the caption
“Security Ownership of Certain Beneficial Owners and Management” in the Company’s Proxy Statement
to be filed with the SEC by April 30, 2011. If the Proxy Statement is not filed with the SEC by
April 30, 2011, such information will be included in an amendment to this Annual Report filed by
April 30, 2011.
The information required to be furnished pursuant to this item will be set forth under the captions
“Transactions With Related Persons” and “Corporate Governance — Director Independence” in the
Company’s Proxy Statement to be filed with the SEC by April 30, 2011. If the Proxy Statement is not
filed with the SEC by April 30, 2011, such information will be included in an amendment to this
Annual Report filed by April 30, 2011.
The information required to be furnished pursuant to this item will be set forth under the caption
“Principal Accountant Fees and Services” in the Company’s Proxy Statement to be filed with the SEC
no later than April 30, 2011. If the Proxy Statement is not filed with the SEC by April 30, 2011,
such information will be included in an amendment to this Annual Report filed by April 30, 2011.
34
Table of Contents
(a) 1. and 2. Consolidated Financial Statements and Schedules
The reports of our independent registered public accounting firm and consolidated financial
statements listed in the Index to Consolidated Financial Statements herein are filed as part of
this report.
All financial statement schedules not listed in the Index have been omitted because the information
required is not applicable or is shown in the consolidated financial statements or notes thereto.
3. Exhibits
| EXHIBIT | ||
| NUMBER | DESCRIPTION OF DOCUMENT | |
|
|
||
|
3.1a(1)
|
Restated Certificate of Incorporation of the Company. | |
|
|
||
|
3.2(2)
|
Bylaws as amended through May 1, 2007. | |
|
|
||
|
4.1(1)
|
Form of Certificate for Common Stock as of June 2, 2005. | |
|
|
||
|
4.2*
|
Credit Agreement, dated as of December 22, 2010, among the Company, the several lenders from time to time parties thereto, and JPMorgan Chase Bank, N.A. as administrative agent | |
|
|
||
|
10.1(3)
|
Lease dated April 16, 2010 between Soundview Farms and the Company for premises at 56 Top Gallant Road, 70 Gatehouse Road, and 88 Gatehouse Road, Stamford, Connecticut. | |
|
|
||
|
10.2(3)
|
First Amendment to Lease dated April 16, 2010 between Soundview Farms and the Company for premises at 56 Top Gallant Road, 70 Gatehouse Road, and 88 Gatehouse Road, Stamford, Connecticut. | |
|
|
||
|
10.3(4)+
|
1991 Stock Option Plan as amended and restated on October 19, 1999. | |
|
|
||
|
10.4(5)+
|
2002 Employee Stock Purchase Plan, as amended and restated effective June 1, 2008. | |
|
|
||
|
10.5(6)+
|
1999 Stock Option Plan. | |
|
|
||
|
10.6(7)+
|
2003 Long-Term Incentive Plan, as amended and restated on June 4, 2009. | |
|
|
||
|
10.7(8)+
|
Amended and Restated Employment Agreement between Eugene A. Hall and the Company dated as of December 31, 2008. | |
|
|
||
|
10.8(8)+
|
Company Deferred Compensation Plan, effective January 1, 2009. | |
|
|
||
|
10.9(9)+
|
Form of Stock Appreciation Right Agreement for executive officers. | |
|
|
||
|
10.10(9)+
|
Form of Performance Stock Unit Agreement for executive officers. | |
|
|
||
|
21.1*
|
Subsidiaries of Registrant. | |
|
|
||
|
23.1*
|
Consent of Independent Registered Public Accounting Firm | |
|
|
||
|
24.1
|
Power of Attorney (see Signature Page). | |
|
|
||
|
31.1*
|
Certification of chief executive officer under Section 302 of the Sarbanes-Oxley Act of 2002. | |
|
|
||
|
31.2*
|
Certification of chief financial officer under Section 302 of the Sarbanes-Oxley Act of 2002. | |
|
|
||
|
32*
|
Certification under Section 906 of the Sarbanes-Oxley Act of 2002. |
| * | Filed with this document. |
35
Table of Contents
| + | Management compensation plan or arrangement. | |
| (1) | Incorporated by reference from the Company’s Current Report on Form 8-K dated June 29, 2005 as filed on July 6, 2005. | |
| (2) | Incorporated by reference from the Company’s Current Report on Form 8-K dated May 3, 2007 as filed on May 3, 2007. | |
| (3) | Incorporated by reference from the Company’s Quarterly Report on form 10-Q as filed on August 9, 2010 | |
| (4) | Incorporated by reference from the Company’s Annual Report on Form 10-K filed on December 22, 1999. | |
| (5) | Incorporated by reference from the Company’s Quarterly Report on Form 10-Q as filed on May 8, 2008. | |
| (6) | Incorporated by reference from the Company’s Form S-8 as filed on February 16, 2000. | |
| (7) | Incorporated by reference from the Company’s Proxy Statement (Schedule 14A) as filed on April 21, 2009. | |
| (8) | Incorporated by reference from the Company’s Annual Report on Form 10-K as filed on February 20, 2009. | |
| (9) | Incorporated by reference from the Company’s Current Report on Form 8-K dated February 10, 2010 as filed on February 16, 2010. |
36
Table of Contents
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
GARTNER, INC.
CONSOLIDATED FINANCIAL STATEMENTS
GARTNER, INC.
CONSOLIDATED FINANCIAL STATEMENTS
| 38 | |
| 39 | |
| 40 | |
| 41 | |
| 42 | |
| 43 | |
| 44 |
All financial statement schedules have been omitted because the information required is not
applicable or is shown in the consolidated financial statements or notes thereto.
37
Table of Contents
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Gartner, Inc.:
The Board of Directors and Stockholders
Gartner, Inc.:
We have audited the accompanying consolidated balance sheets of Gartner, Inc. and subsidiaries (the
Company) as of December 31, 2010 and 2009, and the related consolidated statements of operations,
stockholders’ equity (deficit) and comprehensive income (loss), and cash flows for each of the
years in the three-year period ended December 31, 2010. These consolidated financial statements are
the responsibility of the Company’s management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Gartner, Inc. and subsidiaries as of December 31, 2010
and 2009, and the results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2010, in conformity with U.S. generally accepted accounting
principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the Company’s internal control over financial reporting as of December 31,
2010, based on criteria established in
Internal Control — Integrated Framework
issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated
February 15, 2011 expressed an unqualified opinion on the effectiveness of the Company’s internal
control over financial reporting.
/s/ KPMG LLP
New York, New York
February 15, 2011
February 15, 2011
38
Table of Contents
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Gartner, Inc.:
The Board of Directors and Stockholders
Gartner, Inc.:
We have audited Gartner, Inc. and subsidiaries’ (the Company) internal control over financial
reporting as of December 31, 2010, based on criteria established in
Internal Control — Integrated
Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
The Company’s management is responsible for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of internal control over financial reporting,
included in the accompanying Management’s Annual Report on Internal Control Over Financial
Reporting. Our responsibility is to express an opinion on the Company’s internal control over
financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, and testing
and evaluating the design and operating effectiveness of internal control based on the assessed
risk. Our audit also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
company’s internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2010, based on criteria established in
Internal Control —
Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway
Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets of Gartner, Inc. and subsidiaries as of
December 31, 2010 and 2009, and the related consolidated statements of operations, stockholders’
equity (deficit) and comprehensive income (loss), and cash flows for each of the years in the
three-year period ended December 31, 2010, and our report dated February 15, 2011 expressed an
unqualified opinion on those consolidated financial statements.
/s/ KPMG LLP
New York, New York
February 15, 2011
February 15, 2011
39
Table of Contents
GARTNER, INC.
(IN THOUSANDS, EXCEPT SHARE DATA)
| December 31, | ||||||||
| 2010 | 2009 | |||||||
|
ASSETS
|
||||||||
|
Current assets:
|
||||||||
|
Cash and cash equivalents
|
$ | 120,181 | $ | 116,574 | ||||
|
Fees receivable, net of allowances of $7,200 and $8,100 respectively
|
364,818 | 317,598 | ||||||
|
Deferred commissions
|
71,955 | 70,253 | ||||||
|
Prepaid expenses and other current assets
|
64,148 | 53,400 | ||||||
|
|
||||||||
|
Total current assets
|
621,102 | 557,825 | ||||||
|
Property, equipment and leasehold improvements, net
|
47,614 | 52,466 | ||||||
|
Goodwill
|
510,265 | 513,612 | ||||||
|
Intangible assets, net
|
13,584 | 24,113 | ||||||
|
Other assets
|
93,093 | 67,263 | ||||||
|
|
||||||||
|
Total Assets
|
$ | 1,285,658 | $ | 1,215,279 | ||||
|
|
||||||||
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
||||||||
|
Current liabilities:
|
||||||||
|
Accounts payable and accrued liabilities
|
$ | 247,733 | $ | 255,966 | ||||
|
Deferred revenues
|
523,263 | 437,207 | ||||||
|
Current portion of long-term debt
|
40,156 | 205,000 | ||||||
|
|
||||||||
|
Total current liabilities
|
811,152 | 898,173 | ||||||
|
Long-term debt
|
180,000 | 124,000 | ||||||
|
Other liabilities
|
107,450 | 80,571 | ||||||
|
|
||||||||
|
Total liabilities
|
1,098,602 | 1,102,744 | ||||||
|
Stockholders’ equity:
|
||||||||
|
Preferred stock:
|
||||||||
|
$.01 par value, authorized 5,000,000 shares; none issued or outstanding
|
— | — | ||||||
|
Common stock:
|
||||||||
|
$.0005 par value, authorized 250,000,000 shares for both periods;
156,234,415 shares issued for both periods
|
78 | 78 | ||||||
|
Additional paid-in capital
|
611,782 | 590,864 | ||||||
|
Accumulated other comprehensive income, net
|
14,638 | 11,322 | ||||||
|
Accumulated earnings
|
605,677 | 509,392 | ||||||
|
Treasury stock, at cost, 60,245,718 and 60,356,672 common shares, respectively
|
(1,045,119) | (999,121 | ) | |||||
|
|
||||||||
|
Total stockholders’ equity
|
187,056 | 112,535 | ||||||
|
|
||||||||
|
Total Liabilities and Stockholders’ Equity
|
$ | 1,285,658 | $ | 1,215,279 | ||||
|
|
||||||||
See Notes to Consolidated Financial Statements.
40
Table of Contents
GARTNER, INC.
(IN THOUSANDS, EXCEPT PER SHARE DATA)
| Year Ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
Revenues:
|
||||||||||||
|
Research
|
$ | 865,000 | $ | 752,505 | $ | 781,581 | ||||||
|
Consulting
|
302,117 | 286,847 | 347,404 | |||||||||
|
Events
|
121,337 | 100,448 | 150,080 | |||||||||
|
|
||||||||||||
|
Total revenues
|
1,288,454 | 1,139,800 | 1,279,065 | |||||||||
|
Costs and expenses:
|
||||||||||||
|
Cost of services and product development
|
552,238 | 498,363 | 572,208 | |||||||||
|
Selling, general and administrative
|
543,174 | 477,003 | 514,994 | |||||||||
|
Depreciation
|
25,349 | 25,387 | 25,880 | |||||||||
|
Amortization of intangibles
|
10,525 | 1,636 | 1,615 | |||||||||
|
Acquisition and integration charges
|
7,903 | 2,934 | — | |||||||||
|
|
||||||||||||
|
Total costs and expenses
|
1,139,189 | 1,005,323 | 1,114,697 | |||||||||
|
|
||||||||||||
|
Operating income
|
149,265 | 134,477 | 164,368 | |||||||||
|
Interest income
|
1,156 | 830 | 3,121 | |||||||||
|
Interest expense
|
(16,772 | ) | (16,862 | ) | (22,390 | ) | ||||||
|
Other income (expense), net
|
436 | (2,919 | ) | (358 | ) | |||||||
|
|
||||||||||||
|
Income before income taxes
|
134,085 | 115,526 | 144,741 | |||||||||
|
Provision for income taxes
|
37,800 | 32,562 | 47,593 | |||||||||
|
|
||||||||||||
|
Income from continuing operations
|
96,285 | 82,964 | 97,148 | |||||||||
|
Income from discontinued operations, net of taxes
|
— | — | 6,723 | |||||||||
|
|
||||||||||||
|
Net income
|
$ | 96,285 | $ | 82,964 | $ | 103,871 | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
Net income per share:
|
||||||||||||
|
Basic:
|
||||||||||||
|
Income from continuing operations
|
$ | 1.01 | $ | 0.88 | $ | 1.02 | ||||||
|
Income from discontinued operations
|
— | — | .07 | |||||||||
|
|
||||||||||||
|
|
$ | 1.01 | $ | 0.88 | $ | 1.09 | ||||||
|
|
||||||||||||
|
Diluted:
|
||||||||||||
|
Income from continuing operations
|
$ | 0.96 | $ | 0.85 | $ | 0.98 | ||||||
|
Income from discontinued operations
|
— | — | .07 | |||||||||
|
|
||||||||||||
|
|
$ | 0.96 | $ | 0.85 | $ | 1.05 | ||||||
|
|
||||||||||||
|
Weighted average shares outstanding:
|
||||||||||||
|
Basic
|
95,747 | 94,658 | 95,246 | |||||||||
|
Diluted
|
99,834 | 97,549 | 99,028 | |||||||||
See Notes to Consolidated Financial Statements.
41
Table of Contents
GARTNER, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) AND COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS)
(IN THOUSANDS)
| Accumulated | ||||||||||||||||||||||||
| Other | Total | |||||||||||||||||||||||
| Additional | Comprehensive | Stockholders’ | ||||||||||||||||||||||
| Common | Paid-In | Income | Accumulated | Treasury | Equity | |||||||||||||||||||
| Stock | Capital | (Loss), Net | Earnings | Stock | (Deficit) | |||||||||||||||||||
|
Balance at December 31, 2007
|
$ | 78 | $ | 545,268 | $ | 23,641 | $ | 322,557 | $ | (874,046 | ) | $ | 17,498 | |||||||||||
|
Comprehensive income:
|
||||||||||||||||||||||||
|
Net income
|
— | — | — | 103,871 | — | 103,871 | ||||||||||||||||||
|
Other comprehensive loss:
|
||||||||||||||||||||||||
|
Foreign currency translation adjustments
|
— | — | (20,497 | ) | — | — | (20,497 | ) | ||||||||||||||||
|
Interest rate swaps, net of tax
|
— | — | (6,060 | ) | — | — | (6,060 | ) | ||||||||||||||||
|
Pension unrecognized gain, net
of tax
|
— | — | 1,175 | — | — | 1,175 | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Other comprehensive loss
|
(25,382 | ) | (25,382 | ) | ||||||||||||||||||||
|
Comprehensive income
|
78,489 | |||||||||||||||||||||||
|
Issuances under stock plans
|
— | (10,128 | ) | — | — | 55,874 | 45,746 | |||||||||||||||||
|
Excess tax benefits from stock
compensation
|
— | 14,831 | — | — | — | 14,831 | ||||||||||||||||||
|
Purchase of shares for treasury
|
— | — | — | — | (198,576 | ) | (198,576 | ) | ||||||||||||||||
|
Stock compensation expense
|
— | 20,696 | — | — | — | 20,696 | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Balance at December 31, 2008
|
$ | 78 | $ | 570,667 | $ | (1,741 | ) | $ | 426,428 | $ | (1,016,748 | ) | $ | (21,316 | ) | |||||||||
|
Comprehensive income:
|
||||||||||||||||||||||||
|
Net income
|
— | — | — | 82,964 | — | 82,964 | ||||||||||||||||||
|
Other comprehensive income:
|
||||||||||||||||||||||||
|
Foreign currency translation
adjustments
|
— | — | 9,088 | — | — | 9,088 | ||||||||||||||||||
|
Interest rate swaps, net of tax
|
— | — | 3,535 | — | — | 3,535 | ||||||||||||||||||
|
Pension unrecognized gain, net of tax
|
— | — | 440 | — | — | 440 | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Other comprehensive income
|
13,063 | 13,063 | ||||||||||||||||||||||
|
Comprehensive income
|
96,027 | |||||||||||||||||||||||
|
Issuances under stock plans
|
— | (6,522 | ) | — | — | 21,371 | 14,849 | |||||||||||||||||
|
Excess tax benefits from stock
compensation
|
— | 653 | — | — | — | 653 | ||||||||||||||||||
|
Purchase of shares for treasury
|
— | — | — | — | (3,744 | ) | (3,744 | ) | ||||||||||||||||
|
Stock compensation expense
|
— | 26,066 | — | — | — | 26,066 | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Balance at December 31, 2009
|
$ | 78 | $ | 590,864 | $ | 11,322 | $ | 509,392 | $ | (999,121 | ) | $ | 112,535 | |||||||||||
|
Comprehensive income:
|
||||||||||||||||||||||||
|
Net income
|
— | — | — | 96,285 | — | 96,285 | ||||||||||||||||||
|
Other comprehensive income:
|
||||||||||||||||||||||||
|
Foreign currency translation
adjustments
|
— | — | 582 | — | — | 582 | ||||||||||||||||||
|
Interest rate swaps, net of tax
|
— | — | 3,746 | — | — | 3,746 | ||||||||||||||||||
|
Pension unrecognized gain, net of tax
|
— | — | (1,012 | ) | — | — | (1,012 | ) | ||||||||||||||||
|
|
||||||||||||||||||||||||
|
Other comprehensive income
|
3,316 | 3,316 | ||||||||||||||||||||||
|
Comprehensive income
|
99,601 | |||||||||||||||||||||||
|
Issuances under stock plans
|
— | (30,254 | ) | — | — | 53,822 | 23,568 | |||||||||||||||||
|
Excess tax benefits from stock
compensation
|
— | 18,520 | — | — | — | 18,520 | ||||||||||||||||||
|
Purchase of shares for treasury
|
— | — | — | — | (99,820 | ) | (99,820 | ) | ||||||||||||||||
|
Stock compensation expense
|
— | 32,652 | — | — | — | 32,652 | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Balance at December 31, 2010
|
$ | 78 | $ | 611,782 | $ | 14,638 | $ | 605,677 | $ | (1,045,119 | ) | $ | 187,056 | |||||||||||
|
|
||||||||||||||||||||||||
See Notes to Consolidated Financial Statements.
42
Table of Contents
GARTNER, INC.
(IN THOUSANDS)
| Year Ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
Operating activities:
|
||||||||||||
|
Net income
|
$ | 96,285 | $ | 82,964 | $ | 103,871 | ||||||
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
||||||||||||
|
Depreciation and amortization of intangibles
|
35,874 | 27,023 | 27,495 | |||||||||
|
Stock-based compensation expense
|
32,634 | 26,066 | 20,696 | |||||||||
|
Excess tax benefits from stock-based compensation expense
|
(18,364 | ) | (2,392 | ) | (14,831 | ) | ||||||
|
Deferred taxes
|
(2,609 | ) | 5,003 | 2,617 | ||||||||
|
Amortization and write-off of debt issue costs
|
1,567 | 1,480 | 1,222 | |||||||||
|
Gain on sale of business
|
— | — | (7,061 | ) | ||||||||
|
Changes in assets and liabilities:
|
||||||||||||
|
Fees receivable, net
|
(48,177 | ) | 25,349 | 20,987 | ||||||||
|
Deferred commissions
|
(2,184 | ) | (16,750 | ) | (1,403 | ) | ||||||
|
Prepaid expenses and other current assets
|
(376 | ) | 13,059 | (21 | ) | |||||||
|
Other assets
|
(34,130 | ) | 532 | 2,907 | ||||||||
|
Deferred revenues
|
85,336 | 5,101 | (308 | ) | ||||||||
|
Accounts payable, accrued, and other liabilities
|
59,643 | (5,498 | ) | 28,179 | ||||||||
|
|
||||||||||||
|
Cash provided by operating activities
|
205,499 | 161,937 | 184,350 | |||||||||
|
|
||||||||||||
|
Investing activities:
|
||||||||||||
|
Additions to property, equipment and leasehold improvements
|
(21,694 | ) | (15,142 | ) | (24,302 | ) | ||||||
|
Acquisitions (net of cash received)
|
(12,151 | ) | (104,523 | ) | — | |||||||
|
Net proceeds from sale of business
|
— | — | 7,847 | |||||||||
|
|
||||||||||||
|
Cash used in investing activities
|
(33,845 | ) | (119,665 | ) | (16,455 | ) | ||||||
|
|
||||||||||||
|
Financing activities:
|
||||||||||||
|
Proceeds from stock issued for stock plans
|
23,527 | 14,822 | 44,702 | |||||||||
|
Proceeds from debt issuance
|
200,000 | 78,000 | 180,000 | |||||||||
|
Payments for debt issuance costs
|
(4,783 | ) | — | (801 | ) | |||||||
|
Payments on debt
|
(308,844 | ) | (165,250 | ) | (157,750 | ) | ||||||
|
Purchases of treasury stock
|
(99,820 | ) | (3,744 | ) | (200,817 | ) | ||||||
|
Excess tax benefits from stock-based compensation expense
|
18,364 | 2,392 | 14,831 | |||||||||
|
|
||||||||||||
|
Cash used by financing activities
|
(171,556 | ) | (73,780 | ) | (119,835 | ) | ||||||
|
|
||||||||||||
|
Net increase (decrease) in cash and cash equivalents
|
98 | (31,508 | ) | 48,060 | ||||||||
|
Effects of exchange rates on cash and cash equivalents
|
3,509 | 7,153 | (17,076 | ) | ||||||||
|
Cash and cash equivalents, beginning of period
|
116,574 | 140,929 | 109,945 | |||||||||
|
|
||||||||||||
|
Cash and cash equivalents, end of period
|
$ | 120,181 | $ | 116,574 | $ | 140,929 | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
Supplemental disclosures of cash flow information:
|
||||||||||||
|
Cash paid during the period for:
|
||||||||||||
|
Interest
|
$ | 11,484 | $ | 13,942 | $ | 22,380 | ||||||
|
Income taxes, net of refunds received
|
$ | 25,486 | $ | 34,438 | $ | 19,961 | ||||||
See Notes to Consolidated Financial Statements.
43
Table of Contents
GARTNER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 — BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Business.
Gartner, Inc. is a global information technology research and advisory company founded
in 1979 with its headquarters in Stamford, Connecticut. Gartner, Inc. delivers its principal
products and services through three business segments: Research, Consulting, and Events.
Basis of presentation.
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles in the United States of America (“U.S.
GAAP”), as defined in the Financial Accounting Standards Board (FASB) Accounting Standards
Codification Topic 270 for financial information and with the applicable instructions of U.S.
Securities & Exchange Commission (“SEC”) Regulation S-X. The fiscal year of Gartner, Inc. (the
“Company”) represents the period from January 1 through December 31. When used in these notes, the
terms “Gartner,” “Company,” “we,” “us,” or “our” mean Gartner, Inc. and its consolidated
subsidiaries. All references to 2010, 2009, and 2008 relate to the fiscal year unless otherwise
indicated.
In December 2009 we acquired AMR Research, Inc. (“AMR Research”) and Burton Group, Inc. (“Burton
Group”). The results of these businesses are included in our operating results beginning on their
respective dates of acquisition (see Note 2 — Acquisitions).
Principles of consolidation.
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant intercompany transactions and balances
have been eliminated.
Use of estimates.
The preparation of the accompanying consolidated financial statements requires
management to make estimates and assumptions about future events. These estimates and the
underlying assumptions affect the amounts of assets and liabilities reported, disclosures about
contingent assets and liabilities, and reported amounts of revenues and expenses. Such estimates
include the valuation of accounts receivable, goodwill, intangible assets, and other long-lived
assets, as well as tax accruals and other liabilities. In addition, estimates are used in revenue
recognition, income tax expense, performance-based compensation charges, depreciation and
amortization, and the allowance for losses. Management believes its use of estimates in the
accompanying consolidated financial statements to be reasonable.
Management continuously evaluates and revises these estimates using historical experience and other
factors, including the general economic environment and actions it may take in the future. We
adjust such estimates when facts and circumstances dictate. However, these estimates may involve
significant uncertainties and judgments and cannot be determined with precision. In addition, these
estimates are based on our best judgment at a point in time. As a result, differences between our
estimates and actual results could be material and would be reflected in the Company’s consolidated
financial statements in future periods.
Subsequent events.
The Company has evaluated the potential impact of subsequent events on the
consolidated financial statements herein through the date of filing of this Annual Report on Form
10-K. See Note 17 — subsequent events regarding a secondary offering of the Company’s shares.
Revenues.
Revenue is recognized in accordance with U.S. GAAP and SEC Staff Accounting Bulletin No.
101,
Revenue Recognition
in Financial Statements (“SAB 101”), and SEC Staff Accounting Bulletin No.
104,
Revenue Recognition
(“SAB 104”). Revenues are only recognized once all required recognition
criteria have been met. The Consolidated Statement of Operations present revenues net of any sales
or value-added taxes that we collect from customers and remit to government authorities.
The Company’s revenues by significant source are as follows:
Research
revenues are generally derived from annual subscription contracts for research products.
These revenues are deferred and recognized ratably over the applicable contract term. The Company
typically enters into annually renewable subscription contracts for research products. Reprint fees
are recognized when the reprint is shipped.
The majority of research contracts are billable upon signing, absent special terms granted on a
limited basis from time to time. Research contracts are non-cancelable and non-refundable, except
for government contracts that may have cancellation or fiscal funding clauses, which have not
produced material cancellations to date. It is our policy to record the entire amount of the
contract that is billable as a fee receivable at the time the contract is signed with a
corresponding amount as deferred revenue, since the contract represents a legally enforceable
claim.
44
Table of Contents
For those government contracts that permit cancellation, historically we only recorded fees
receivables to the extent amounts were earned and deferred revenue to the extent cash was received.
As of September 30, 2010, based on an analysis of historic contract cancellations, we determined
that the likelihood of such cancellations was remote. Accordingly, as of that date we record the
entire billable contract amount as fees receivable at the time the contract is signed with a
corresponding amount to deferred revenue, consistent with other contracts. This change in estimate
had an immaterial impact.
Consulting
revenues, primarily derived from consulting, measurement and strategic advisory services
(paid one-day analyst engagements), are principally generated from fixed fee or time and materials
engagements. Revenues for such projects are recognized as work is delivered and/or services are
provided. Unbilled fees receivable associated with consulting engagements were $29.4 million at
December 31, 2010 and $30.0 million at December 31, 2009. Revenues related to contract optimization
contracts are contingent in nature and are only recognized upon satisfaction of all conditions
related to their payment.
Events
revenues are deferred and recognized upon the completion of the related symposium,
conference or exhibition. In addition, the Company defers certain costs directly related to events
and expenses these costs in the period during which the related symposium, conference or exhibition
occurs. The Company policy is to defer only those costs, primarily prepaid site and production
services costs, which are incremental and are directly attributable to a specific event. Other
costs of organizing and producing our events, primarily Company personnel and non-event specific
expenses, are expensed in the period incurred. At the end of each fiscal quarter, the Company
assesses on an event-by-event basis whether expected direct costs of producing a scheduled event
will exceed expected revenues. If such costs are expected to exceed revenues, the Company records
the expected loss in the period determined.
Uncollectible fees receivable.
The Company maintains an allowance for losses which is composed of a
bad debt allowance and a sales reserve. Provisions are charged against earnings, either as a
reduction in revenues or as an increase to expense. The amount of the allowance for losses is based
on historical loss experience, aging of outstanding receivables, an assessment of current economic
conditions and the financial health of specific clients.
Cost of services and product development (“COS”).
COS expense includes the direct costs incurred in
the creation and delivery of our products and services.
Selling, general and administrative (“SG&A”).
SG&A expense includes direct and indirect selling
costs and general and administrative costs.
Commission expense.
The Company records commission obligations upon the signing of contracts and
amortizes the corresponding deferred commission expense over the estimated period in which the
related revenues are earned. Commission expense is included in SG&A in the Consolidated Statements
of Operations.
Stock-based compensation expense.
The Company accounts for stock-based compensation in accordance
with FASB ASC Topics 505 and 718, as interpreted by SEC Staff Accounting Bulletins No. 107 (“SAB
No. 107”) and No. 110 (“SAB No. 110”). Stock-based compensation cost is based on the fair value of
the award on the date of grant, which is expensed over the related service period, net of estimated
forfeitures. The service period is the period over which the employee performs the related
services, which is normally the same as the vesting period.
During 2010, 2009, and 2008, the Company recognized $32.6 million, $26.1 million, and $20.7
million, respectively, of stock-based compensation expense (see Note 9 — Stock-Based
Compensation), which is recorded in both COS and SG&A in the Consolidated Statements of Operations.
Income tax expense.
The provision for income taxes is the sum of the amount of income tax paid or
payable for the year as determined by applying the provisions of enacted tax laws to taxable income
for that year and the net changes during the year in deferred tax assets and liabilities. Deferred
tax assets and liabilities are recognized based on differences between the book and tax basis of
assets and liabilities using presently enacted tax rates. We credit additional paid-in capital for
realized tax benefits arising from stock transactions with employees. The tax benefit on a
nonqualified stock option is equal to the tax effect of the difference between the market price of
Common Stock on the date of exercise and the exercise price.
Cash and cash equivalents.
All highly liquid investments with original maturities of three months
or less are classified as cash equivalents. The carrying value of these investments approximates
fair value based upon their short-term maturity. Investments with maturities of more than three
months are classified as marketable securities. Interest earned on investments is classified in
Interest income in the Consolidated Statements of Operations.
Property, equipment and leasehold improvements.
The Company leases all of its facilities and
certain equipment. These leases are all classified as operating leases in accordance with FASB ASC
Topic 840. The cost of these operating leases, including any contractual
45
Table of Contents
rent increases, rent concessions, and landlord incentives, are recognized ratably over the life of
the related lease agreement. Lease expense was $23.5 million in 2010 and $22.5 million in both 2009
and 2008.
Equipment, leasehold improvements, and other fixed assets owned by the Company are recorded at cost
less accumulated depreciation and are depreciated using the straight-line method over the estimated
useful lives of the assets. Leasehold improvements are amortized using the straight-line method
over the shorter of the estimated useful lives of the assets or the remaining term of the related
leases. The Company had total depreciation expense of $25.3 million, $25.4 million, and $25.9
million in 2010, 2009, and 2008, respectively.
Property, equipment and leasehold improvements, less accumulated depreciation and amortization
consist of the following (in thousands):
| Useful Life | December 31, | |||||||||||
| (Years) | 2010 | 2009 | ||||||||||
|
Computer equipment and software
|
2 - 7 | $ | 123,988 | $ | 118,487 | |||||||
|
Furniture and equipment
|
3 - 8 | 32,093 | 32,183 | |||||||||
|
Leasehold improvements
|
2 - 10 | 46,516 | 46,945 | |||||||||
|
|
||||||||||||
|
|
202,597 | 197,615 | ||||||||||
|
Less — accumulated depreciation and amortization
|
(154,983 | ) | (145,149 | ) | ||||||||
|
|
||||||||||||
|
|
$ | 47,614 | $ | 52,466 | ||||||||
|
|
||||||||||||
The Company capitalizes certain costs incurred to develop internal use software in accordance with
FASB ASC Topic 350. At December 31, 2010 and 2009, capitalized development costs for internal use
software were $14.3 million and $16.1 million, respectively, which are net of accumulated
amortization of $23.7 million and $20.4 million, respectively. Amortization of capitalized
internal software development costs, which is classified in Depreciation in the Consolidated
Statements of Operations, totaled $7.9 million, $8.3 million, and $7.4 million during 2010, 2009,
and 2008, respectively.
The Company’s corporate headquarters is located in approximately 213,000 square feet of leased
office space in three buildings located in Stamford, Connecticut. The Stamford facility
accommodates research and analysis, marketing, sales, client support, production, corporate
services, executive offices, and administration. In April 2010, the Company entered into a new 15
year lease agreement for this facility. The new lease grants the Company three options to renew at
fair market value for five years each, and an option to purchase the facility at fair market value.
In accordance with FASB ASC Topic 840, the Company accounts for the new Stamford lease as an
operating lease arrangement. The total minimum payments the Company will be obligated to pay under
this lease, including contractual escalation clauses and reduced rents during the renovation
period, will be expensed on a straight-line basis over the lease term. As of December 31, 2010, the
total minimum lease payments under this non-cancelable lease agreement were $84.5 million.
Under the terms of the new Stamford lease, the landlord will provide up to $25.0 million to be used
to renovate the three buildings and the parking areas comprising the facility. The renovation work
will occur in 2011 and 2012. The contractual amount due from the landlord was recorded as a tenant
improvement allowance in Other assets and as deferred rent in Other liabilities on the Consolidated
Balance Sheets. As the renovation work progresses and payments are received from the landlord, the
tenant improvement receivable will be relieved and leasehold improvement assets will be recorded in
Property, equipment, and leasehold improvements. The leasehold improvement assets will be amortized
to Depreciation expense over their useful lives beginning when the assets are placed in service.
The amount recorded as deferred rent will be amortized as a reduction to rent expense (SG&A) on a
straight-line basis over the term of the lease. For the year ended December 31, 2010, approximately
$1.0 million of the deferred rent balance was amortized to rent expense.
Intangible assets.
Intangible assets are amortized using the straight-line method over their
expected useful lives. Intangible assets subject to amortization include the following (in
thousands):
| Trade | Customer | Noncompete | ||||||||||||||||||
| December 31, 2010 | Content | Name | Relationships | Agreements | Total | |||||||||||||||
|
Gross cost
|
$ | 10,634 | $ | 5,758 | $ | 7,210 | $ | 207 | $ | 23,809 | ||||||||||
|
Accumulated amortization
|
(7,089 | ) | (1,152 | ) | (1,803 | ) | (181 | ) | (10,225 | ) | ||||||||||
|
|
||||||||||||||||||||
|
Net
|
$ | 3,545 | $ | 4,606 | $ | 5,407 | $ | 26 | $ | 13,584 | ||||||||||
|
|
||||||||||||||||||||
46
Table of Contents
| Trade | Customer | Noncompete | ||||||||||||||||||
| December 31, 2009 | Content | Name | Relationships | Agreements | Total | |||||||||||||||
|
Gross cost (1)
|
$ | 10,634 | $ | 5,758 | $ | 14,910 | $ | 416 | $ | 31,718 | ||||||||||
|
Accumulated amortization
|
— | — | (7,315 | ) | (290 | ) | (7,605 | ) | ||||||||||||
|
|
||||||||||||||||||||
|
Net
|
$ | 10,634 | $ | 5,758 | $ | 7,595 | $ | 126 | $ | 24,113 | ||||||||||
|
|
||||||||||||||||||||
| (1) | The Company recorded $23.6 million of purchased intangibles from the acquisitions of AMR Research and Burton Group in December 2009 (see Note 2 — Acquisitions). |
Intangible assets will be amortized against earnings over the following period:
| Useful Life | ||||
| (Years) | ||||
|
Content
|
1.5 | |||
|
Trade Name
|
5 | |||
|
Customer Relationships
|
4 | |||
|
Noncompete Agreements
|
2-5 | |||
Aggregate amortization expense on intangible assets was $10.5 million, $1.6 million, and $1.6
million for 2010, 2009, and 2008, respectively.
The estimated future amortization expense by year from purchased intangibles is as follows (in
thousands):
|
2011
|
$ | 6,530 | ||
|
2012
|
2,955 | |||
|
2013
|
2,955 | |||
|
2014
|
1,144 | |||
|
|
||||
|
|
$ | 13,584 | ||
|
|
||||
Goodwill.
Goodwill represents the excess of the purchase price of acquired businesses over the
estimated fair value of the tangible and identifiable intangible net assets acquired. The
evaluation of goodwill is performed in accordance with FASB ASC Topic 350, which requires an annual
assessment of potential goodwill impairment at the reporting unit level. A reporting unit can be an
operating segment or a business if discrete financial information is prepared and reviewed by
management. Under the impairment test, if a reporting unit’s carrying amount exceeds its estimated
fair value, goodwill impairment is recognized to the extent that the reporting unit’s carrying
amount of goodwill exceeds the implied fair value of the goodwill. The fair value of reporting
units is estimated using discounted cash flows, market multiples, and other valuation techniques.
The following table presents changes to the carrying amount of goodwill by reporting segment during
the two years ended December 31, 2010 (in thousands):
| Research | Consulting | Events | Total | |||||||||||||
|
Balance, December 31, 2008 (1)
|
$ | 280,161 | $ | 84,048 | $ | 34,528 | $ | 398,737 | ||||||||
|
Foreign currency translation adjustments
|
4,386 | 1,434 | 73 | 5,893 | ||||||||||||
|
Additions due to AMR Research and Burton Group acquisitions
|
86,083 | 15,262 | 7,637 | 108,982 | ||||||||||||
|
|
||||||||||||||||
|
Balance, December 31, 2009
|
$ | 370,630 | $ | 100,744 | $ | 42,238 | $ | 513,612 | ||||||||
|
Foreign currency translation adjustments and other (2)
|
(2,109 | ) | (927 | ) | (311 | ) | (3,347 | ) | ||||||||
|
|
||||||||||||||||
|
Balance, December 31, 2010
|
$ | 368,521 | $ | 99,817 | $ | 41,927 | $ | 510,265 | ||||||||
|
|
||||||||||||||||
| (1) | The Company has not recorded charges for goodwill impairment since its adoption of the current goodwill impairment rules on January 1, 2002. Accordingly, the Company considers the goodwill amount as of December 31, 2008 to be the gross amount of goodwill. | |
| (2) | Includes the impact of foreign currency translation and certain immaterial goodwill adjustments. |
Impairment of long-lived assets and intangible assets.
The Company reviews long-lived assets and
intangible assets other than goodwill for impairment whenever events or changes in circumstances
indicate that the carrying amount of the respective asset may
47
Table of Contents
not be recoverable. Such evaluation may be based on a number of factors including current and
projected operating results and cash flows, changes in management’s strategic direction as well as
external economic and market factors.
The Company’s policy regarding long-lived assets and intangible assets other than goodwill is to
evaluate the recoverability of these assets by determining whether the balance can be recovered
through undiscounted future operating cash flows. Should events or circumstances indicate that the
carrying value might not be recoverable based on undiscounted future operating cash flows, an
impairment loss would be recognized. The amount of impairment, if any, is measured based on the
difference between projected discounted future operating cash flows using a discount rate
reflecting the Company’s average cost of funds and the carrying value of the asset.
Pension obligations.
The Company has defined-benefit pension plans in three of its international
locations (see Note 14 — Employee Benefits). Benefits earned under these plans are generally based
on years of service and level of employee compensation. The Company accounts for defined benefit
plans in accordance with the requirements of FASB ASC Topic 715. The Company determines the
periodic pension expense and related liabilities for these plans through actuarial assumptions and
valuations. The Company recognized $2.4 million, $2.2 million, and $2.2 million of expense for
these plans in 2010, 2009, and 2008, respectively. The Company classifies pension expense in SG&A
in the Consolidated Statements of Operations.
Foreign currency exposure.
All assets and liabilities of foreign subsidiaries are translated into
U.S. dollars at exchange rates in effect at the balance sheet date. The resulting translation
adjustments are recorded as foreign currency translation adjustments, a component of Accumulated
Other Comprehensive Income (Loss), net within the Stockholders’ equity section of the Consolidated
Balance Sheets. Income and expense items are translated at average exchange rates for the year.
Currency transaction gains or losses arising from transactions denominated in currencies other than
the functional currency of a subsidiary are included in results of operations in Other income
(expense), net within the Consolidated Statements of Operations. Net currency transaction (losses)
gains were $(4.8) million, $(3.6) million, and $(0.9) million in 2010, 2009, and 2008,
respectively.
We enter into foreign currency forward exchange contracts to offset the effects of adverse
fluctuations in foreign currency exchange rates. These contracts generally have a short duration
and are recorded at fair value with unrealized and realized gains and losses recorded in Other
income (expense). The net gain (loss) from these contracts was $2.8 million, $0.7 million, and
$(0.6) million for 2010, 2009, and 2008, respectively.
Fair
value disclosures.
The Company’s fair value disclosures are included in Note 13 — Fair Value
Disclosures.
Concentrations of credit risk.
Assets that may subject the Company to concentration of credit risk
consist primarily of short-term, highly liquid investments classified as cash equivalents, accounts
receivable, interest rate swaps, and a pension reinsurance asset. The majority of the Company’s
cash equivalent investments and its interest rate swap contract are with investment grade
commercial banks that are participants in the Company’s 2010 Credit Agreement. Accounts receivable
balances deemed to be collectible from customers have limited concentration of credit risk due to
our diverse customer base and geographic dispersion. The Company’s pension reinsurance asset (see
Note 14 — Employee Benefits) is maintained with a large international insurance company that was
rated investment grade as of December 31, 2010.
Stock repurchase programs.
The Company records the cost to repurchase its own shares to treasury
stock. During 2010, 2009 and 2008, the Company recorded $99.8 million, $3.7 million, and $198.6
million, respectively, of stock repurchases (see Note 8—Equity). Shares repurchased by the Company
are added to treasury shares and are not retired.
Recent Accounting Developments
In January 2010, the FASB issued ASU 2010-06,
“Fair Value Measurements and Disclosures.”
ASU
2010-06 requires fair value hierarchy disclosures to be further disaggregated by class of assets
and liabilities. A class is often a subset of assets or liabilities within a line item in the
balance sheet. In addition, significant transfers between Levels 1 and 2 of the fair value
hierarchy are required to be disclosed. These additional disclosure requirements became effective
January 1, 2010. In general, Gartner does not anticipate transfers between the different levels of
the fair value hierarchy, and for the twelve months ended December 31, 2010, there were none. Our
required fair value disclosures are presented in Note 13 —
Fair Value Disclosures.
Beginning
January 1, 2011, the FASB will also require additional disclosures regarding changes in Level 3
instruments.
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Table of Contents
In September 2009, the FASB issued ASU 2009-13,
“Revenue Arrangements with Multiple Deliverables.”
ASU 2009-13 requires companies to allocate revenue in arrangements involving multiple deliverables
based on the estimated selling price of each deliverable, even though such deliverables are not
sold separately either by the company itself or other vendors. ASU 2009-13 eliminates the
requirement that all undelivered elements must have objective and reliable evidence of fair value
before a company can recognize the portion of the overall arrangement fee that is attributable to
items that already have been delivered. As a result, the new guidance is expected to allow some
companies to recognize revenue on transactions that involve multiple deliverables earlier than
under current requirements. ASU 2009-13 will be effective for the Company beginning in the first
quarter of fiscal year 2012, but early adoption is permitted.
2 — ACQUISITIONS
In December 2009 the Company acquired all of the outstanding shares of AMR Research and Burton
Group for a total of $117.7 million in cash. The Company’s consolidated results include the
operating results of these businesses beginning on their respective acquisition dates. In September
2010 the Company finalized the allocation of the purchase price related to these acquisitions,
resulting in immaterial adjustments to recorded goodwill. The Company recorded $7.9 million of
acquisition and integration expenses related to these acquisitions during 2010 and $2.9 million in
2009. Included in these charges are legal fees and consultant fees in connection with the
acquisition and integration, as well as severance costs related to redundant headcount.
The Company received contractual indemnifications from the selling shareholders of AMR Research and
Burton Group for certain pre-acquisition liabilities, which the Company estimated at $6.1 million.
In accordance with FASB ASC Topic 805, the Company recorded a $6.1 million indemnification
receivable in Prepaid expenses and other current assets and a $6.1 million liability in Accrued
liabilities, which were included in the purchase price allocation. Separately, a portion of the
sale proceeds were placed in an escrow account pending resolution of these pre-acquisition
liabilities.
During 2010, the Company paid $5.1 million to settle these pre-acquisition liabilities and received
reimbursement from the escrow account for the same amount. As a result, the settlement of these
liabilities had no impact on the Company’s results of operations, cash flows, or recorded goodwill.
The Company believes the remaining $1.0 million recorded in Accrued liabilities is a reasonable
estimate of the amount necessary to satisfy the remaining liabilities, which is fully reimbursable
from the escrow account.
3 — DISCONTINUED OPERATIONS
In 2008 the Company sold its Vision Events business, which had been part of the Company’s Events
segment. The Company realized net cash proceeds from the sale of $7.8 million and recorded a net
gain on the sale of approximately $7.1 million after deducting direct costs to sell, a charge of
$1.8 million of allocated Events segment goodwill, and related tax charges. The results of
operations of this business and the gain on sale are recorded in Income from discontinued
operations, net of taxes in the Consolidated Statements of Operations.
4 — OTHER ASSETS
Other assets consist of the following (in thousands):
| December 31, | ||||||||
| 2010 | 2009 | |||||||
|
Security deposits
|
$ | 3,959 | $ | 3,545 | ||||
|
Debt issuance costs
|
4,987 | 1,384 | ||||||
|
Benefit plan related assets
|
36,089 | 30,903 | ||||||
|
Non-current deferred tax assets
|
21,166 | 29,527 | ||||||
|
Tenant improvement allowance (1)
|
24,570 | — | ||||||
|
Other
|
2,322 | 1,904 | ||||||
|
|
||||||||
|
Total other assets
|
$ | 93,093 | $ | 67,263 | ||||
|
|
||||||||
| (1) | Represents contractual amounts receivable for the Stamford headquarters renovation. |
49
Table of Contents
5 — ACCOUNTS PAYABLE, ACCRUED, AND OTHER LIABILITIES
Accounts payable and accrued liabilities consist of the following (in thousands):
| December 31, | ||||||||
| 2010 | 2009 | |||||||
|
Accounts payable
|
$ | 17,791 | $ | 14,312 | ||||
|
Payroll, employee benefits, severance
|
62,882 | 63,600 | ||||||
|
Bonus payable
|
64,620 | 53,264 | ||||||
|
Commissions payable
|
41,503 | 39,705 | ||||||
|
Taxes payable
|
15,030 | 17,693 | ||||||
|
Acquisition payables (1)
|
— | 13,059 | ||||||
|
Rent and other facilities costs
|
7,108 | 9,666 | ||||||
|
Professional and consulting fees
|
3,706 | 4,112 | ||||||
|
Events fulfillment liabilities
|
4,367 | 3,905 | ||||||
|
Other accrued liabilities
|
30,726 | 36,650 | ||||||
|
|
||||||||
|
Total accounts payable and accrued liabilities
|
$ | 247,733 | $ | 255,966 | ||||
|
|
||||||||
| (1) | Consists of amounts payable related to the acquisition of Burton Group in December 2009. These liabilities were paid in January 2010. |
Other liabilities consist of the following (in thousands):
| December 31, | ||||||||
| 2010 | 2009 | |||||||
|
Non-current deferred revenue
|
$ | 4,659 | $ | 3,912 | ||||
|
Long-term taxes payable
|
18,193 | 15,064 | ||||||
|
Benefit plan-related liabilities
|
44,939 | 37,977 | ||||||
|
Deferred rent — Stamford lease (1)
|
23,813 | — | ||||||
|
Other
|
15,846 | 23,618 | ||||||
|
|
||||||||
|
Total Other liabilities
|
$ | 107,450 | $ | 80,571 | ||||
|
|
||||||||
| (1) | Represents deferred rent on the Company’s Stamford lease. |
2010 Credit Agreement
On December 22, 2010, the Company entered into a new credit facility (the “2010 Credit Agreement”)
with a syndication of banks led by JPMorgan Chase to take advantage of favorable financing
conditions and to obtain greater financial flexibility and liquidity through a larger revolving
credit facility. The 2010 Credit Agreement provides for a five-year, $200.0 million term loan and a
$400.0 million revolving credit facility. In addition, the 2010 Credit Agreement contains an
expansion feature by which the term loan and revolving credit facility may be increased, at the
Company’s option and under certain conditions, by up to an additional $150.0 million in the
aggregate. The Company paid $4.8 million in debt issuance costs in 2010 related to the refinancing,
which was capitalized and will be amortized to interest expense over the term of the 2010 Credit
Agreement.
On December 22, 2010 the Company drew down $200.0 million from the term loan facility and $100.0
million from the revolving credit facility which was used to repay amounts outstanding under the
Company’s prior credit arrangement, which was terminated in connection with the refinancing. At the
end of December 2010 the Company repaid $80.0 million of the amount drawn down on the revolving
credit facility. Future amounts to be drawn down under the revolving credit facility will be used
for general working capital purposes.
The term loan will be repaid in 19 consecutive quarterly installments commencing March 31, 2011,
plus a final payment due on December 22, 2015, and may be prepaid at any time without penalty or
premium at the Company’s option. The revolving credit facility may be used for loans, and up to
$40.0 million may be used for letters of credit. The revolving loans may be borrowed, repaid and
re-borrowed until December 22, 2015, at which time all amounts borrowed must be repaid.
Amounts borrowed under the 2010 Credit Agreement bear interest at a rate equal to, at the Company’s
option, either (i) the greatest of:
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the administrative agent’s prime rate; the average rate on overnight federal funds plus 1/2 of 1%;
and the eurodollar rate (adjusted for statutory reserves) plus 1% , in each case plus a margin
equal to between 0.50% and 1.25% depending on the Company’s leverage ratio as of the end of the
four consecutive fiscal quarters most recently ended, or (ii) the eurodollar rate (adjusted for
statutory reserves) plus a margin equal to between 1.50% and 2.25%, depending on the Company’s
leverage ratio as of the end of the four consecutive fiscal quarters most recently ended.
The 2010 Credit Agreement contains certain customary restrictive loan covenants, including, among
others, financial covenants requiring a maximum leverage ratio, a minimum interest expense coverage
ratio, and covenants limiting the Company’s ability to incur indebtedness, grant liens, make
acquisitions, be acquired, dispose of assets, pay dividends, repurchase stock, make capital
expenditures, make investments and enter into certain transactions with affiliates. The Company was
in full compliance with these covenants as of December 31, 2010.
The following table provides information regarding the Company’s borrowings:
| Amount | Contractual | Amount | ||||||||||
| Outstanding | Annualized | Outstanding | ||||||||||
| December 31, | Interest Rate | December 31, | ||||||||||
| 2010 (1), (2) | December 31, | 2009 (4) | ||||||||||
| Description: | (In thousands) | 2010 (3) | (In thousands) | |||||||||
|
Term loans
|
$ | 200,000 | 2.30 | % | $ | 201,000 | ||||||
|
Revolver
|
20,156 | 2.26 | % | 128,000 | ||||||||
|
|
||||||||||||
|
Total
|
$ | 220,156 | $ | 329,000 | ||||||||
|
|
||||||||||||
| (1) | The $220.2 million outstanding includes $220.0 million borrowed under the 2010 Credit Agreement and $0.2 million borrowed under a separate arrangement related to the renovation of a leased facility. | |
| (2) | The Company had approximately $376.0 million of available borrowing capacity on the revolver (not including the expansion feature) as of December 31, 2010. | |
| (3) | The term loan rate consisted of a three-month 0.3% Eurodollar base rate plus a margin of 2.0%, while the revolver rate consisted of a one-month Eurodollar base rate of 0.26% plus a margin of 2.0%. The Company has an interest rate swap contract which converts the floating Eurodollar base rate to a fixed base rate on $200.0 million of three-month borrowings (see below). | |
| (4) | These loans were outstanding under the credit arrangement that was terminated in December 2010. These amounts were repaid in 2010. |
In December 2010, the Company recorded certain incremental pre-tax charges due to the termination
of the prior credit arrangement. These charges would have been recognized as expenses in 2011, but
accounting rules required their accelerated recognition in 2010. These accelerated pre-tax charges
included $3.3 million for deferred losses on interest rate swap contracts that had been recorded in
Other Comprehensive Income (OCI) and $0.4 million for the write-off of a portion of capitalized
debt issuance costs resulting from the extinguishment of the previous long-term indebtedness. In
accordance with FASB ASC Topic 815, the deferral of the amounts in OCI was no longer permitted
since the forecasted interest payments related to the previous debt would not occur. Both the debt
issuance and interest rate swap charges were recorded in Interest expense in the Consolidated
Statements of Operations.
Interest Rate Swap Hedge
On December 22, 2010, the Company entered into a $200.0 million notional fixed-for-floating
interest rate swap contract which it designated as a hedge of the forecasted interest payments on
the Company’s variable rate borrowings. Under the swap terms, the Company pays a base fixed rate of
2.26% and in return receives a three-month Eurodollar base rate.
The Company accounts for the interest rate swap as a cash flow hedge in accordance with FASB ASC
Topic 815. Since the swap is hedging forecasted interest payments, changes in the fair value of the
swap are recorded in OCI as long as the swap continues to be a highly effective hedge of the
designated interest rate risk. Any ineffective portion of change in the fair value of the hedge is
recorded
51
Table of Contents
in earnings. At December 31, 2010, there was no ineffective portion of the hedge. The interest rate
swap had a negative fair value to the Company of $2.1 million at December 31, 2010, which is
recorded in OCI, net of tax effect.
Letters of Credit
The Company issues letters of credit and related guarantees in the ordinary course of business. At
December 31, 2010 and 2009, the Company had outstanding letters of credit and guarantees of
approximately $4.7 million and $4.2 million, respectively.
7 — COMMITMENTS AND CONTINGENCIES
The Company leases various facilities, furniture, and computer equipment under operating lease
arrangements expiring between 2011 and 2027. The future minimum annual cash payments under
non-cancelable operating lease agreements at December 31, 2010, are as follows (in thousands):
| Year ended December 31, | ||||
|
2011
|
$ | 30,775 | ||
|
2012
|
23,582 | |||
|
2013
|
19,718 | |||
|
2014
|
16,160 | |||
|
2015
|
11,715 | |||
|
Thereafter
|
66,640 | |||
|
|
||||
|
Total minimum lease payments (1), (2)
|
$ | 168,590 | ||
|
|
||||
| (1) | Excludes $25.0 million of contractual payments receivable for leasehold improvements on the Company’s Stamford headquarters lease (see Property, equipment and leasehold improvements in Note 1 — Business and Significant Accounting Policies for additional discussion). | |
| (2) | Excludes approximately $2.5 million of contractual sublease rental income. |
We are involved in various legal proceedings and litigation arising in the ordinary course of
business. The outcome of these individual matters is not predictable at this time. However, we
believe that the ultimate resolution of these matters, after considering amounts already accrued
and insurance coverage, will not have a material adverse effect on our financial position, results
of operations, or cash flows in future periods.
The Company has various agreements that may obligate us to indemnify the other party with respect
to certain matters. Generally, these indemnification clauses are included in contracts arising in
the normal course of business under which we customarily agree to hold the other party harmless
against losses arising from a breach of representations related to such matters as title to assets
sold and licensed or certain intellectual property rights. It is not possible to predict the
maximum potential amount of future payments under these indemnification agreements due to the
conditional nature of the Company’s obligations and the unique facts of each particular agreement.
Historically, payments made by us under these agreements have not been material. As of December 31,
2010, we did not have any indemnification agreements that would require material payments.
The Company received cash proceeds of $1.2 million in 2008 related to the settlement of a
litigation matter which was recorded as a gain in Other (expense) income, net in the Consolidated
Statements of Operations.
8 — EQUITY
Common stock.
Holders of Gartner’s Common Stock, par value $.0005 per share (“Common Stock”) are
entitled to one vote per share on all matters to be voted by stockholders. The Company does not
currently pay cash dividends on its Common Stock. Also, our credit arrangement contains a negative
covenant which may limit our ability to pay dividends.
The following table summarizes transactions relating to Common Stock for the three years’ ending
December 31, 2010:
| Treasury | ||||||||
| Issued | Stock | |||||||
| Shares | Shares | |||||||
|
Balance at December 31, 2007
|
156,234,415 | 57,202,660 | ||||||
|
Issuances under stock plans
|
— | (4,568,658 | ) | |||||
|
Purchases for treasury
|
— | 9,719,573 | ||||||
|
|
||||||||
|
Balance at December 31, 2008
|
156,234,415 | 62,353,575 | ||||||
|
Issuances under stock plans
|
— | (2,302,935 | ) | |||||
|
Purchases for treasury
|
— | 306,032 | ||||||
|
|
||||||||
|
Balance at December 31, 2009
|
156,234,415 | 60,356,672 | ||||||
|
Issuances under stock plans
|
— | (4,029,673 | ) | |||||
|
Purchases for treasury
|
— | 3,918,719 | ||||||
|
|
||||||||
|
Balance at December 31, 2010
|
156,234,415 | 60,245,718 | ||||||
|
|
||||||||
52
Table of Contents
Share repurchase program.
The Company has a $500.0 million share repurchase program, of which
$481.9 million remained available for share repurchases as of December 31, 2010. The $500.0 million
share repurchase program was approved by the Company’s Board of Directors in the third quarter of
2010 and replaced the Company’s prior repurchase program, which had been largely expended.
Repurchases may be made from time-to-time through open market purchases, private transactions,
tender offers or other transactions. The amount and timing of repurchases will be subject to the
availability of stock, prevailing market conditions, the trading price of the stock, the Company’s
financial performance and other conditions. Repurchases may also be made from time-to-time in
connection with the settlement of the Company’s shared-based compensation awards. Repurchases will
be funded from cash flow from operations or borrowings. During 2010, 2009, and 2008, the Company
recorded $99.8 million, $3.7 million, and $198.6 million, respectively, of Common Stock
repurchases.
9 — STOCK-BASED COMPENSATION
The Company grants stock-based compensation awards as an incentive for employees and directors to
contribute to the Company’s long-term success. The Company currently awards stock-settled stock
appreciation rights, service- and performance-based restricted stock units, and common stock
equivalents. At December 31, 2010, the Company had approximately 7.0 million shares of Common Stock
available for awards of stock-based compensation under its 2003 Long-Term Incentive Plan.
The Company accounts for stock-based compensation in accordance with FASB ASC Topics 505 and 718,
as interpreted by SEC Staff Accounting Bulletins No. 107 (“SAB No. 107”) and No. 110 (“SAB No.
110”). Stock-based compensation expense is based on the fair value of the award on the date of
grant, which is recognized over the related service period, net of estimated forfeitures. The
service period is the period over which the related service is performed, which is generally the
same as the vesting period. At the present time, the Company issues treasury shares upon the
exercise, release or settlement of stock-based compensation awards.
Determining the appropriate fair value model and calculating the fair value of stock compensation
awards requires the input of certain highly complex and subjective assumptions, including the
expected life of the stock compensation awards and the Common Stock price volatility. In addition,
determining the appropriate amount of associated periodic expense requires management to estimate
the amount of employee forfeitures and the likelihood of the achievement of certain performance
targets. The assumptions used in calculating the fair value of stock compensation awards and the
associated periodic expense represent management’s best estimates, but these estimates involve
inherent uncertainties and the application of judgment. As a result, if factors change and the
Company deems it necessary in the future to modify the assumptions it made or to use different
assumptions, or if the quantity and nature of the Company’s stock-based compensation awards
changes, then the amount of expense may need to be adjusted and future stock compensation expense
could be materially different from what has been recorded in the current period.
The Company recognized the following amounts of stock-based compensation expense (in millions) for
the year ended December 31:
| Award type: | 2010 | 2009 | 2008 | |||||||||
|
Stock appreciation rights (SARs)
|
$ | 4.6 | $ | 4.4 | $ | 3.2 | ||||||
|
Restricted stock
|
— | — | 0.4 | |||||||||
|
Restricted stock units (RSUs)
|
27.5 | 21.3 | 14.8 | |||||||||
|
Common stock equivalents (CSEs)
|
0.5 | 0.4 | 0.4 | |||||||||
|
Options
|
— | — | 1.9 | |||||||||
|
|
||||||||||||
|
Total (1)
|
$ | 32.6 | $ | 26.1 | $ | 20.7 | ||||||
|
|
||||||||||||
| (1) | Includes charges of $3.1 million, $1.9 million, and $1.3 million in 2010, 2009, and 2008, respectively, for awards to retirement-eligible employees. |
53
Table of Contents
Stock-based compensation (in millions) was recognized as follows in the Consolidated Statements of
Operations for the year ended December 31:
| Amount recorded in: | 2010 | 2009 | 2008 | |||||||||
|
Costs of services and product development
|
$ | 14.8 | $ | 12.6 | $ | 9.6 | ||||||
|
Selling, general, and administrative
|
17.8 | 13.5 | 11.1 | |||||||||
|
|
||||||||||||
|
Total stock-based compensation expense recognized
|
$ | 32.6 | $ | 26.1 | $ | 20.7 | ||||||
|
|
||||||||||||
As of December 31, 2010, the Company had $45.7 million of total unrecognized stock-based
compensation cost, which is expected to be recognized as stock-based compensation expense over the
remaining weighted-average service period of approximately 1.8 years.
Stock-Based Compensation Awards
The following disclosures provide information regarding the Company’s stock-based compensation
awards, all of which are classified as equity awards in accordance with FASB ASC Topic 505:
Stock Appreciation Rights
Stock-settled stock appreciation rights (SARs) are settled in common shares and are similar to
stock options as they permit the holder to participate in the appreciation of the Common Stock.
SARs may be settled in shares of Common Stock by the employee once the applicable vesting criteria
have been met. SARs vest ratably over a four-year service period and expire seven years from the
grant date. The fair value of SARs awards is recognized as compensation expense on a straight-line
basis over four years. SARs are awarded only to the Company’s executive officers.
When SARs are exercised, the number of shares of Common Stock issued is calculated as follows: (1)
the total proceeds from the SARs exercise (calculated as the closing price of the Common Stock on
the date of exercise less the exercise price of the SARs, multiplied by the number of SARs
exercised) is divided by (2) the closing price of the Common Stock on the exercise date. The
Company withholds a portion of the shares of Common Stock issued upon exercise to satisfy minimum
statutory tax withholding requirements. SARs recipients do not have any of the rights of a Gartner
stockholder, including voting rights and the right to receive dividends and distributions, until
after actual shares of Common Stock are issued in respect of the award, which is subject to the
prior satisfaction of the vesting and other criteria relating to such grants.
The following table provides a summary of the changes in SARs outstanding for the year ended
December 31, 2010:
| Per Share | Weighted- | |||||||||||||||
| Per Share | Weighted- | Average | ||||||||||||||
| Weighted- | Average | Remaining | ||||||||||||||
| SARs in | Average | Grant Date | Contractual | |||||||||||||
| millions | Exercise Price | Fair Value | Term | |||||||||||||
|
Outstanding at December 31, 2009
|
2.9 | $ | 15.43 | $ | 6.09 | 4.67 | years | |||||||||
|
Granted
|
0.5 | 22.06 | 8.27 | 6.12 | years | |||||||||||
|
Forfeited
|
— | — | — | — | ||||||||||||
|
Exercised
|
(0.9 | ) | 14.60 | 6.00 | na | |||||||||||
|
|
||||||||||||||||
|
Outstanding at December 31, 2010 (1)
|
2.5 | $ | 17.22 | $ | 6.62 | 4.55 | years | |||||||||
|
|
||||||||||||||||
|
Vested and exercisable at December 31, 2010 (1)
|
0.9 | $ | 17.79 | $ | 6.70 | 3.44 | years | |||||||||
|
|
||||||||||||||||
| na=not applicable | ||
| (1) | At December 31, 2010, SARs outstanding had an intrinsic value of $40.5 million. SARs vested and exercisable had an intrinsic value of $13.5 million. | |
54
Table of Contents
The fair value of the SARs grants was determined on the date of the grant using the
Black-Scholes-Merton valuation model with the following weighted-average assumptions for the years
ended December 31:
| 2010 | 2009 | 2008 | ||||||||||
|
Expected dividend yield (1)
|
0 | % | 0 | % | 0 | % | ||||||
|
Expected stock price volatility (2)
|
40 | % | 50 | % | 36 | % | ||||||
|
Risk-free interest rate (3)
|
2.4 | % | 2.3 | % | 2.8 | % | ||||||
|
Expected life in years (4)
|
4.75 | 4.80 | 4.75 | |||||||||
| (1) | The dividend yield assumption is based on the history and expectation of the Company’s dividend payouts. Historically Gartner has not paid cash dividends on its Common Stock. | |
| (2) | The determination of expected stock price volatility was based on both historical Common Stock prices and implied volatility from publicly traded options in Common Stock. | |
| (3) | The risk-free interest rate is based on the yield of a U.S. Treasury security with a maturity similar to the expected life of the award. | |
| (4) | The expected life in years is based on the “simplified” calculation provided for in SAB No. 107. The simplified method determines the expected life in years based on the vesting period and contractual terms as set forth when the award is made. The Company continues to use the simplified method for awards of stock-based compensation since it does not have the necessary historical exercise and forfeiture data to determine an expected life for SARs, as permitted by SAB No. 110. |
Restricted Stock, Restricted Stock Units, and Common Stock Equivalents
Restricted stock awards give the awardee the right to vote and to receive dividends and
distributions on these shares; however, the awardee may not sell the restricted shares until all
restrictions on the release of the shares have lapsed and the shares are released.
Restricted stock units (RSUs) give the awardee the right to receive shares of Common Stock when the
vesting conditions are met and the restrictions lapse, and each RSU that vests entitles the awardee
to one common share. RSU awardees do not have any of the rights of a Gartner stockholder, including
voting rights and the right to receive dividends and distributions, until after the common shares
are released.
Common stock equivalents (CSEs) are convertible into Common Stock, and each CSE entitles the holder
to one common share. Members of our Board of Directors receive directors’ fees payable in CSEs
unless they opt to receive up to 50% of the fees in cash. Generally, the CSEs are converted when
service as a director terminates unless the director has elected an accelerated release.
The fair value of restricted stock, RSUs, and CSEs is determined on the date of grant based on the
closing price of the Common Stock as reported by the New York Stock Exchange on that date. The fair
value of these awards is recognized as compensation expense as follows: (i) restricted stock awards
vest based on the achievement of a market condition and are expensed on a straight-line basis over
approximately three years; (ii) service-based RSUs vest ratably over four years and are expensed on
a straight-line basis over four years; (iii) performance-based RSUs are subject to both performance
and service conditions, vest ratably over four years, and are expensed on an accelerated basis; and
(iv) CSEs vest immediately and are recorded as expense on the date of grant.
A summary of the changes in restricted stock, RSUs and CSEs during the year ended December 31, 2010
follows:
| Per Share | Per Share | Per Share | ||||||||||||||||||||||
| Weighted- | Weighted- | Common | Weighted- | |||||||||||||||||||||
| Average | Restricted | Average | Stock | Average | ||||||||||||||||||||
| Restricted | Grant Date | Stock Units | Grant Date | Equivalents | Grant Date | |||||||||||||||||||
| Stock | Fair Value | (RSUs) | Fair Value | (CSEs) | Fair Value | |||||||||||||||||||
|
Outstanding at December 31, 2009
|
200,000 | $ | 7.30 | 3,763,805 | $ | 14.57 | 135,224 | na | ||||||||||||||||
|
Granted (1), (2)
|
— | — | 1,619,624 | 22.18 | 18,298 | $ | 26.66 | |||||||||||||||||
|
Vested or released (3)
|
(200,000 | ) | 7.30 | (1,443,065 | ) | 15.23 | (36,314 | ) | na | |||||||||||||||
|
Forfeited
|
— | — | (72,093 | ) | 16.83 | — | na | |||||||||||||||||
|
|
||||||||||||||||||||||||
|
Outstanding at December 31, 2010 (4)
|
— | $ | — | 3,868,271 | $ | 16.52 | 117,208 | na | ||||||||||||||||
|
|
||||||||||||||||||||||||
| na=not available | ||
55
Table of Contents
| (1) | The 1.6 million RSUs granted in 2010 consisted of 0.9 million performance-based RSUs awarded to executives and 0.7 million service-based RSUs awarded to non-executive employees and certain board members. The number of performance-based RSUs granted was subject to the achievement of a performance condition tied to the annual increase in the Company’s subscription-based contract value for 2010, which ranged from 0% to 200% of the target number depending on the performance level achieved. The aggregate performance-based RSU target for 2010 was 0.5 million shares. The actual performance target achieved for 2010 was approximately 174%, resulting in the grant of 0.9 million performance-based RSUs. | |
| (2) | CSEs represent fees paid to directors. The CSEs vest when granted and are convertible into common shares when the director leaves the Board of Directors or earlier if the director elects to accelerate the release. | |
| (3) | These restricted shares held by the Company’s CEO vested in the fourth quarter of 2010 after the designated market conditions were achieved. There was no remaining unamortized cost on these shares. | |
| (4) | The weighted-average remaining contractual term of the RSUs is 1.1 years. The CSEs have no defined contractual term. |
Stock Options
Historically, the Company granted stock options to employees that allowed them to purchase shares
of the Common Stock at a certain price. The Company has not made any stock option grants since
2006. All outstanding options are fully vested and there is no remaining unamortized cost. The
Company received approximately $20.7 million, $12.2 million, and $42.0 million in cash from option
exercises in the twelve months ended December 31, 2010, 2009, and 2008, respectively.
The following table provides a summary of the changes in stock options outstanding for the year
ended December 31, 2010:
| Weighted | ||||||||||||
| Per Share | Average | |||||||||||
| Weighted- | Remaining | |||||||||||
| Options in | Average | Contractual | ||||||||||
| millions | Exercise Price | Term | ||||||||||
|
Outstanding at December 31, 2009
|
4.7 | $ | 10.65 | 3.07 years | ||||||||
|
Expired
|
— | 10.81 | na | |||||||||
|
Exercised (1)
|
(2.1 | ) | 10.04 | na | ||||||||
|
|
||||||||||||
|
Outstanding at December 31, 2010 (2)
|
2.6 | $ | 11.13 | 2.59 years | ||||||||
|
|
||||||||||||
| na=not applicable | ||
| (1) | Options exercised during 2010 had an aggregate intrinsic value of $34.7 million. | |
| (2) | At December 31, 2010, options outstanding had an aggregate intrinsic value of $58.2 million. | |
Employee Stock Purchase Plan
The Company has an employee stock purchase plan (the “ESPP Plan”) under which eligible employees
are permitted to purchase Common Stock through payroll deductions, which may not exceed 10% of an
employee’s compensation (or $23,750 in any calendar year), at a price equal to 95% of the closing
price of the Common Stock as reported by the New York Stock Exchange at the end of each offering
period.
At December 31, 2010, the Company had approximately 1.4 million shares available for purchase under
the ESPP Plan. The ESPP Plan is considered non-compensatory under FASB ASC Topic 718, and as a
result the Company does not record compensation expense related to these employee share purchases.
The Company received $2.8 million in cash from share purchases under the ESPP Plan in 2010 and $2.7
million in both 2009 and 2008.
56
Table of Contents
10 — COMPUTATION OF EARNINGS PER SHARE
Basic earnings per share (“EPS”) is computed by dividing net income by the weighted average number
of shares of Common Stock outstanding for the period. Diluted EPS reflects the potential dilution
of securities that could share in earnings. When the impact of common share equivalents is
antidilutive, they are excluded from the calculation.
The following table sets forth the reconciliation of the basic and diluted earnings per share
computations (in thousands, except per share amounts) for the years ended December 31:
| 2010 | 2009 | 2008 | ||||||||||
|
Numerator:
|
||||||||||||
|
Net income used for calculating basic and diluted earnings per common share
|
$ | 96,285 | $ | 82,964 | $ | 103,871 | ||||||
|
|
||||||||||||
|
Denominator:
(1)
|
||||||||||||
|
Weighted average number of common shares used in the calculation of basic earnings per share
|
95,747 | 94,658 | 95,246 | |||||||||
|
Common share equivalents associated with stock-based compensation plans
|
4,087 | 2,891 | 3,782 | |||||||||
|
|
||||||||||||
|
Shares used in the calculation of diluted earnings per share
|
99,834 | 97,549 | 99,028 | |||||||||
|
|
||||||||||||
|
Earnings per share:
|
||||||||||||
|
Basic (2)
|
$ | 1.01 | $ | 0.88 | $ | 1.09 | ||||||
|
|
||||||||||||
|
Diluted (2)
|
$ | 0.96 | $ | 0.85 | $ | 1.05 | ||||||
|
|
||||||||||||
| (1) | During 2010, 2009 and 2008, the Company repurchased 3.9 million, 0.3 million, and 9.7 million shares of its Common Stock, respectively. | |
| (2) | Basic and diluted earnings per share include income from discontinued operations of $0.07 per share in 2008. |
The following table presents the number of common share equivalents that were not included in the
computation of diluted EPS in the table above because the effect would have been antidilutive.
During periods with reported income, these common share equivalents were antidilutive because their
exercise price was greater than the average market value of a share of Common Stock during the
period. During periods with reported loss, all common share equivalents would have an antidilutive
effect.
| 2010 | 2009 | 2008 | ||||||||||
|
Antidilutive common share equivalents as of December 31 (in millions):
|
0.5 | 1.7 | 1.3 | |||||||||
|
Average market price per share of Common Stock during the year
|
$ | 26.35 | $ | 15.52 | $ | 20.17 | ||||||
11 — INCOME TAXES
Following is a summary of the components of income before income taxes for the years ended December
31 (in thousands):
| 2010 | 2009 | 2008 | ||||||||||
|
U.S.
|
$ | 78,933 | $ | 54,793 | $ | 79,393 | ||||||
|
Non-U.S.
|
55,152 | 60,733 | 65,348 | |||||||||
|
|
||||||||||||
|
Income
before income taxes
|
$ | 134,085 | $ | 115,526 | $ | 144,741 | ||||||
|
|
||||||||||||
The expense for income taxes on the above income consists of the
following components (in thousands):
| 2010 | 2009 | 2008 | ||||||||||
|
Current tax expense (benefit):
|
||||||||||||
|
U.S. federal
|
$ | 9,078 | $ | 8,749 | $ | 10,564 | ||||||
|
State and local
|
2,645 | 3,107 | 3,341 | |||||||||
|
Foreign
|
10,341 | 14,340 | 15,614 | |||||||||
|
|
||||||||||||
|
Total current
|
22,064 | 26,196 | 29,519 | |||||||||
|
Deferred tax (benefit) expense:
|
||||||||||||
|
U.S. federal
|
4,263 | 7,477 | (547 | ) | ||||||||
|
State and local
|
72 | 3,168 | 1,848 | |||||||||
|
Foreign
|
(6,013 | ) | 1,281 | (2,798 | ) | |||||||
|
|
||||||||||||
|
Total deferred
|
(1,678 | ) | 11,926 | (1,497 | ) | |||||||
|
|
||||||||||||
|
Total current and deferred
|
20,386 | 38,122 | 28,022 | |||||||||
|
|
||||||||||||
57
Table of Contents
| 2010 | 2009 | 2008 | ||||||||||
|
Benefit
(expense) relating to interest rate swap used to increase (decrease) equity
|
(2,523 | ) | (2,530 | ) | 3,776 | |||||||
|
Benefit from stock transactions with employees used to increase equity
|
18,559 | 621 | 15,876 | |||||||||
|
Benefit
(expense) relating to defined-benefit pension adjustments used to increase (decrease) equity
|
375 | (296 | ) | (594 | ) | |||||||
|
Benefit
(expense) of acquired tax assets (liabilities) used to decrease (increase) goodwill
|
1,003 | (3,355 | ) | 513 | ||||||||
|
|
||||||||||||
|
Tax expense on continuing operations
|
37,800 | 32,562 | 47,593 | |||||||||
|
Tax expense on discontinued operations
|
— | — | 622 | |||||||||
|
|
||||||||||||
|
Total tax expense
|
$ | 37,800 | $ | 32,562 | $ | 48,215 | ||||||
|
|
||||||||||||
Current and long-term deferred tax assets and liabilities are comprised of the following (in
thousands):
| December 31, | ||||||||
| 2010 | 2009 | |||||||
|
Depreciation
|
$ | — | $ | 3,261 | ||||
|
Expense accruals
|
39,892 | 28,751 | ||||||
|
Loss and credit carryforwards
|
19,999 | 35,232 | ||||||
|
Other assets
|
21,843 | 25,213 | ||||||
|
|
||||||||
|
Gross deferred tax asset
|
81,734 | 92,457 | ||||||
|
Depreciation
|
(5,595 | ) | — | |||||
|
Intangible
assets
|
(14,816 | ) | (17,259 | ) | ||||
|
Prepaid expenses
|
(9,342 | ) | (7,098 | ) | ||||
|
Other liabilities
|
(110 | ) | (1,190 | ) | ||||
|
|
||||||||
|
Gross deferred tax liability
|
(29,863 | ) | (25,547 | ) | ||||
|
Valuation allowance
|
(2,634 | ) | (19,692 | ) | ||||
|
|
||||||||
|
Net deferred tax asset
|
$ | 49,237 | $ | 47,218 | ||||
|
|
||||||||
Current net deferred tax assets and current net deferred tax liabilities were $28.4 million and
$0.4 million as of December 31, 2010 and $19.0 million and $1.2 million as of December 31, 2009,
respectively, and are included in Prepaid expenses and other current assets and Accounts payable
and accrued liabilities in the Consolidated Balance Sheets. Long-term net deferred tax assets and
long-term net deferred tax liabilities were $21.2 million and $0.0 million as of December 31, 2010
and $29.5 million and $0.1 million as of December 31, 2009, respectively, and are included in Other
assets and Other liabilities in the Consolidated Balance Sheets. It is more likely than not that
the results of future operations will generate sufficient taxable income to realize the deferred
tax assets.
The valuation allowances in 2010 relate primarily to non-U.S. net operating losses and domestic
capital loss carryforwards that more likely than not will expire unutilized. The valuation
allowances in 2009 relate primarily to those items as well as domestic foreign tax credits. The
net decrease in valuation allowance of $17.1 million in 2010 relates primarily to the following
items: (a) the release of approximately $6.0 million of valuation allowance for changes in both
actual and anticipated utilization of foreign tax credits, (b) the release of approximately $5.4
million of valuation allowance for changes in both actual and anticipated utilization of foreign
net operating losses, and (c) the release of approximately $5.5 million of valuation allowance on
federal and state capital loss carryovers.
The Company has established a full valuation allowance against domestic realized and unrealized
capital losses, as the future utilization of these losses is uncertain. As of December 31, 2010,
the Company had U.S. federal capital loss carryforwards of $2.1 million, the majority of which will
expire in 2012. The Company also had $2.1 million in state and local capital loss carryforwards
that expire over a similar period of time.
As of
December 31, 2010, the Company had state and local
tax net operating loss carryforwards of $154.5 million, of which $5.4 million expire within one to
five years, $110.0 million expire within six to fifteen years, and $39.1 million expire within
sixteen to twenty years. In addition, the Company had non-U.S. net operating loss carryforwards of
$29.0 million, of which $3.3 million expire over the next 20 years and $25.7 million that can be
carried forward indefinitely. As of December 31, 2010 the Company also had foreign tax credit
carryforwards of $4.3 million, the majority of which expire in 2018.
58
Table of Contents
The differences between the U.S. federal statutory income tax rate and the Company’s effective tax
rate on income before income taxes for the years ended December 31 follow:
| 2010 | 2009 | 2008 | ||||||||||
|
Statutory tax rate
|
35.0 | % | 35.0 | % | 35.0 | % | ||||||
|
State income taxes, net of federal benefit
|
3.3 | 3.0 | 2.8 | |||||||||
|
Foreign income taxed at different rates
|
(6.2 | ) | (5.0 | ) | (4.4 | ) | ||||||
|
Repatriation of foreign earnings
|
8.5 | 4.1 | 7.6 | |||||||||
|
Record (release) valuation allowance
|
(12.7 | ) | (4.5 | ) | (9.2 | ) | ||||||
|
Foreign tax credits
|
(0.8 | ) | (1.9 | ) | (1.0 | ) | ||||||
|
(Release) increase reserve for tax contingencies
|
2.0 | (3.5 | ) | (0.3 | ) | |||||||
|
Other items (net)
|
(0.9 | ) | 1.0 | 2.4 | ||||||||
|
|
||||||||||||
|
Effective tax rate
|
28.2 | % | 28.2 | % | 32.9 | % | ||||||
|
|
||||||||||||
As of December 31, 2010 and December 31 2009, the Company had gross unrecognized tax benefits
of $15.8 million and $13.8 million respectively. The increase is primarily attributable to
uncertainties surrounding the utilization of certain carryforward attributes. It is reasonably
possible that the gross unrecognized tax benefits will be decreased by $0.1 million within the next
12 months due primarily to anticipated settlements and the expiration of certain statutes of
limitation.
The Company classifies uncertain tax positions not expected to be settled within one year as long
term liabilities. As of December 31, 2010 and December 31, 2009, the Company had Other Liabilities
of $15.7 million and $13.5 million respectively related to long term uncertain tax positions.
The Company records accrued interest and penalties related to unrecognized tax benefits in its
income tax provision. As of December 31, 2010 and December 31, 2009, the Company had $3.8 million
and $2.8 million of accrued interest and penalties respectively, related to unrecognized tax
benefits. These amounts are in addition to the gross unrecognized tax benefits noted above. The
total amount of interest and penalties recognized in the Consolidated Statements of Operations for
years ending December 31, 2010 and 2009 was $1.0 million and $(0.5) million, respectively.
The following is a reconciliation of the beginning and ending amount of unrecognized tax benefits,
excluding interest and penalties, for the years ending December 31 (in thousands):
| 2010 | 2009 | |||||||
|
Beginning balance
|
$ | 13,804 | $ | 16,347 | ||||
|
Additions based on tax positions related to the current year
|
3,999 | 953 | ||||||
|
Additions for tax positions of prior years
|
592 | 415 | ||||||
|
Reductions for tax positions of prior years
|
(137 | ) | (334 | ) | ||||
|
Reductions for expiration of statutes
|
(610 | ) | (3,349 | ) | ||||
|
Settlements
|
(1,668 | ) | (447 | ) | ||||
|
Change in foreign currency exchange rates
|
(156 | ) | 219 | |||||
|
|
||||||||
|
Ending balance
|
$ | 15,824 | $ | 13,804 | ||||
|
|
||||||||
In 2010, the Company repatriated approximately $85.0 million from its foreign subsidiaries. The
cash cost of the repatriation was offset with the utilization of foreign tax credits and capital
loss carryovers.
The number of years with open statutes of limitation varies depending on the tax jurisdiction.
Generally, the Company’s statutes are open for tax years ended December 31, 2006 and forward.
Major taxing jurisdictions include the U.S. (federal and state), the United Kingdom, Germany,
Italy, Canada, Japan, the Netherlands, and Ireland.
The Internal Revenue Service (“IRS”) has completed its examination of the federal income tax return
of the Company for the tax year ended December 31, 2007. In December 2010, the Company received a
report of the audit findings. The Company disagrees with certain of the proposed adjustments and
intends to vigorously dispute this matter through applicable IRS and judicial procedures, as
appropriate. The Company believes that it has recorded reserves sufficient to cover exposures
related to these issues. However, the resolution of such matters involves uncertainties and there
are no assurances that the ultimate resolution will not exceed the amounts recorded. Although the final resolution of the proposed adjustments is uncertain, we believe the
ultimate disposition of this matter will not have a material adverse effect on our consolidated
financial position, cash flows, or results of operations.
As of December 31, 2010, the Company did not have any undistributed earnings of subsidiaries
outside of the United States. Accordingly, no provision for United States federal and state income taxes has been provided thereon.
59
Table of Contents
12 — DERIVATIVES AND HEDGING
The Company enters into a limited number of derivative contracts to offset the potentially negative
economic effects of interest rate and foreign exchange movements. The Company accounts for its
outstanding derivative contracts in accordance with FASB ASC Topic 815, which requires all
derivatives, to include derivatives designated as accounting hedges, to be recorded on the balance
sheet at fair value.
The following tables provide information regarding the Company’s outstanding derivatives contracts
as of, and for, the twelve months ended (in thousands, except for number of outstanding contracts):
December 31, 2010
| Unrealized | ||||||||||||||||||
| Number of | Contract | Fair Value | Gain (Loss) | |||||||||||||||
| Outstanding | Notional | Asset | Balance Sheet | Recorded in | ||||||||||||||
| Derivative Contract Type | Contracts | Amount | (Liability) (5) | Line Item | OCI (6) | |||||||||||||
|
Interest Rate Swap (1)
|
1 | $ | 76,500 | $ | (2,625 | ) | Other Liabilities | $ | — | |||||||||
|
Interest Rate Swap (2)
|
1 | 71,250 | (1,341 | ) | Other Liabilities | — | ||||||||||||
|
Interest Rate Swap (3)
|
1 | 200,000 | (2,101 | ) | Other Liabilities | (1,261 | ) | |||||||||||
|
Foreign Currency Forwards (4)
|
63 | 250,220 | 618 | Other Current Assets | — | |||||||||||||
|
|
||||||||||||||||||
|
Total
|
66 | $ | 597,970 | $ | (5,449 | ) | $ | (1,261 | ) | |||||||||
|
|
||||||||||||||||||
December 31, 2009
| Unrealized | ||||||||||||||||||
| Number of | Contract | Fair Value | Gain (Loss) | |||||||||||||||
| Outstanding | Notional | Asset | Balance Sheet | Recorded in | ||||||||||||||
| Derivative Contract Type | Contracts | Amount | (Liability) (5) | Line Item | OCI (6) | |||||||||||||
|
Interest Rate Swap (1)
|
1 | $ | 126,000 | $ | (6,594 | ) | Other Liabilities | $ | (3,956 | ) | ||||||||
|
Interest Rate Swap (2)
|
1 | 112,500 | (2,769 | ) | Other Liabilities | (1,090 | ) | |||||||||||
|
Foreign Currency Forwards (4)
|
19 | 117,300 | 740 | Other Current Assets | — | |||||||||||||
|
|
||||||||||||||||||
|
Total
|
21 | $ | 355,800 | $ | (8,623 | ) | $ | (5,046 | ) | |||||||||
|
|
||||||||||||||||||
| (1) | Changes in fair value of this swap have been recognized in earnings beginning in the third quarter of 2010. The swap was previously designated as a cash flow hedge of the forecasted interest payments on the Company’s debt, and as a result the changes in fair value were recorded in OCI, net of tax effect. Hedge accounting on this interest rate swap was discontinued in the third quarter of 2010. In December 2010 the Company refinanced its debt, and as a result the remaining deferred losses previously recorded in OCI were charged to expense (see Note 6 — Debt). The swap matures in January 2012. | |
| (2) | Changes in fair value of this swap have been recognized in earnings beginning in the third quarter of 2009. The swap was previously designated as a cash flow hedge of the forecasted interest payments on the Company’s debt, and as a result the changes in fair value were recorded in OCI, net of tax effect. Hedge accounting on this interest rate swap was discontinued in the third quarter of 2009. In December 2010 the Company refinanced its debt, and as a result the remaining deferred losses previously recorded in OCI were charged to expense (see Note 6 — Debt). The swap matures in January 2012. | |
| (3) | The Company entered into this swap on December 22, 2010. The Company designated and accounts for this swap as a cash flow hedge of the forecasted interest payments on borrowings (see Note 6 — Debt). | |
| (4) | The Company has foreign exchange transaction risk since it typically enters into transactions in the normal course of business that are denominated in foreign currencies that differ from the local functional currencies. The Company enters into short-term foreign currency forward exchange contracts to offset the economic effects of these foreign currency transaction risks. These contracts are accounted for at fair value with realized and unrealized gains and losses recognized in Other income (expense), net since the Company does not designate these contracts as hedges for accounting purposes. All 63 of the outstanding contracts at December 31, 2010 matured by the end of January 2011. | |
| (5) | See Note 13 — Fair Value Disclosures for the determination of the fair value of these instruments. | |
| (6) | Represents the unrealized gain (loss) recorded in OCI, net of tax effect. |
60
Table of Contents
At December 31, 2010 the Company’s derivative counterparties were all large investment grade
financial institutions. The Company did not have any collateral arrangements with its derivative
counterparties, and none of the derivative contracts contained credit-risk related contingent
features.
The following table provides information regarding derivative gains and losses that have been
recognized in the Consolidated Statements of Operations for the years ended December 31 (in
thousands):
| Amount recorded in: | 2010 | 2009 | 2008 | |||||||||
|
Interest expense, net (1)
|
$ | 10.7 | $ | 9.6 | $ | 2.0 | ||||||
|
Other (income) expense, net (2)
|
(2.8 | ) | (0.7 | ) | 0.6 | |||||||
|
|
||||||||||||
|
Total expense, net
|
$ | 7.9 | $ | 8.9 | $ | 2.6 | ||||||
|
|
||||||||||||
| (1) | Includes interest expense recorded on interest rate swap contracts. | |
| (2) | Includes realized and unrealized gains and losses on foreign currency forward contracts. |
13 — FAIR VALUE DISCLOSURES
FASB ASC Topic 820 provides a framework for measuring fair value and a valuation hierarchy based
upon the transparency of inputs used in the valuation of an asset or liability. Classification
within the hierarchy is based upon the lowest level of input that is significant to the resulting
fair value measurement. The valuation hierarchy contains three levels:
| • | Level 1 — Valuation inputs are unadjusted quoted market prices for identical assets or liabilities in active markets. |
| • | Level 2 — Valuation inputs are quoted prices for identical assets or liabilities in markets that are not active, quoted market prices for similar assets and liabilities in active markets and other observable inputs directly or indirectly related to the asset or liability being measured. |
| • | Level 3 — Valuation inputs are unobservable and significant to the fair value measurement. |
The Company’s financial instruments include cash and cash equivalents, fees receivable from
customers, accounts payable, and accruals which are normally short-term in nature. The Company
believes the carrying amounts of these financial instruments reasonably approximates their fair
value.
At December 31, 2010, the Company had $220.0 million of floating rate debt outstanding under its
2010 Credit Agreement, which is carried at amortized cost. The Company believes the carrying amount
of the debt reasonably approximates its fair value as the rate of interest on the term loan and
revolver are floating rate which reflect current market rates of interest for similar instruments
with comparable maturities.
The following table presents Company assets and liabilities measured at fair value on a recurring
basis utilizing Level 1 and Level 2 measurement inputs (in thousands):
| Fair Value | Fair Value | |||||||
| December 31, | December 31, | |||||||
| Description: | 2010 | 2009 | ||||||
|
Assets:
|
||||||||
|
Deferred compensation plan assets (1)
|
$ | 24,113 | $ | 20,214 | ||||
|
Foreign currency forward contracts (2)
|
618 | 740 | ||||||
|
|
||||||||
|
|
$ | 24,731 | $ | 20,954 | ||||
|
|
||||||||
|
Liabilities:
|
||||||||
|
Interest rate swap contracts (3)
|
$ | 6,067 | $ | 9,363 | ||||
|
|
||||||||
| (1) | The Company has a supplemental deferred compensation arrangement for the benefit of certain highly compensated officers, managers and other key employees (see Note 14 — Employee Benefits). The plan’s assets consist of investments in money market and mutual funds, and company-owned life insurance. |
61
Table of Contents
| The money market and mutual funds consist of cash equivalents and securities traded in active markets, and the Company considers the fair value of these assets to be based on a Level 1 input. These assets had a fair value of $7.5 million and $8.4 million as of December 31, 2010 and 2009, respectively. The fair value of the Company-owned life insurance is based on indirectly observable prices which the Company considers to be Level 2 inputs. These assets had a fair value of $16.6 million and $11.8 million at December 31, 2010 and 2009, respectively. | ||
| (2) | The Company enters into foreign currency forward exchange contracts to hedge the effects of adverse fluctuations in foreign currency exchange rates (see Note 12 — Derivatives and Hedging). Valuation of the foreign currency forward contracts is based on foreign currency exchange rates in active markets; thus the Company measures the fair value of these contracts under a Level 2 input. | |
| (3) | The Company has three interest rate swap contracts (see Note 12 — Derivatives and Hedging). To determine the fair value of the swaps, the Company relies on mark-to-market valuations prepared by third-party brokers based on observable interest rate yield curves. Accordingly, the fair value of the swaps is determined under a Level 2 input. |
With the exception of goodwill, the Company does not utilize Level 3 valuation inputs to measure
any of its assets or liabilities. Level 3 inputs are used by the Company in its periodic impairment
reviews of goodwill. Information regarding the periodic assessment of goodwill is included in Note
1 — Business and Significant Accounting Policies.
14 — EMPLOYEE BENEFITS
Savings and investment plan.
The Company has a savings and investment plan covering substantially
all domestic employees. Company contributions are based upon the level of employee contributions,
up to a maximum of 4% of the employee’s eligible salary, subject to an annual maximum. For 2010,
the maximum match was $6,600. In addition, the Company also contributes at least 1% of an
employee’s base compensation, subject to an IRS annual limitation of $2,450 for 2010. Amounts
expensed in connection with the plan totaled $14.6 million, $13.0 million, and $12.5 million, in
2010, 2009, and 2008, respectively.
Deferred compensation arrangement.
The Company has a supplemental deferred compensation arrangement
for the benefit of certain highly compensated officers, managers and other key employees which is
structured as a rabbi trust. The plan’s investment assets are classified in Other assets on the
Consolidated Balance Sheets at fair value. The value of the assets was $24.1 million and $20.2
million at December 31, 2010 and 2009, respectively.
The corresponding deferred compensation liability of $26.9 million and $23.0 million at December
31, 2010 and 2009, respectively, is carried at fair value, and is adjusted with a corresponding
charge or credit to compensation cost to reflect the fair value of the amount owed to the employees
and is included in Other liabilities on the Consolidated Balance Sheets. Total compensation expense
(benefit) recognized for this arrangement was zero in 2010, $0.1 million in 2009, and $(0.4)
million in 2008.
Defined benefit pension plans.
The Company has defined-benefit pension plans in several of its
international locations. Benefits earned under these plans are based on years of service and level
of employee compensation. The Company accounts for material defined benefit plans in accordance
with the requirements of FASB ASC Topics 715 and 960.
The following are the components of net periodic pension expense for the years ended December 31
(in thousands):
| 2010 | 2009 | 2008 | ||||||||||
|
Service cost
|
$ | 1,875 | $ | 1,465 | $ | 1,470 | ||||||
|
Interest cost
|
840 | 742 | 717 | |||||||||
|
Recognition of actuarial (gain)/loss
|
(350 | ) | (200 | ) | (74 | ) | ||||||
|
Recognition of termination benefits
|
65 | 192 | 40 | |||||||||
|
|
||||||||||||
|
Net periodic pension expense
|
$ | 2,430 | $ | 2,199 | $ | 2,153 | ||||||
|
|
||||||||||||
The following are the assumptions used in the computation of net periodic pension expense for the
years ended December 31:
| 2010 | 2009 | 2008 | ||||||||||
|
Weighted-average discount rate
|
3.95 | % | 4.85 | % | 5.09 | % | ||||||
|
Average compensation increase
|
2.80 | % | 3.27 | % | 3.27 | % | ||||||
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Table of Contents
The weighted-average discount rate was determined by utilizing the yields on long-term
corporate bonds in the relevant country with a duration consistent with the pension obligations.
The following table provides information related to changes in the projected benefit obligation (in
thousands):
| December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
Projected benefit obligation at beginning of year
|
$ | 14,358 | $ | 13,286 | $ | 13,224 | ||||||
|
Service cost
|
1,875 | 1,465 | 1,470 | |||||||||
|
Interest cost
|
840 | 742 | 717 | |||||||||
|
Actuarial gain
|
1,100 | (1,034 | ) | (1,799 | ) | |||||||
|
Addition of foreign pension plan (1)
|
1,961 | — | — | |||||||||
|
Benefits paid (2)
|
(220 | ) | (562 | ) | (583 | ) | ||||||
|
Foreign currency impact
|
(184 | ) | 461 | 257 | ||||||||
|
|
||||||||||||
|
Projected benefit obligation at end of year (3)
|
$ | 19,730 | $ | 14,358 | $ | 13,286 | ||||||
|
|
||||||||||||
| (1) | The Company adopted the defined benefit pension plan accounting provisions of FASB ASC Topics 715 and 960 for a foreign pension plan during 2010. The impact of this adoption was immaterial to the Company’s Consolidated Financial Statements. | |
| (2) | The estimated benefits to be paid in future years are as follows: $0.3 million in 2011; $0.4 million in 2012; $1.0 million in 2013; $1.1 million in 2014; $0.6 million in 2015; and $4.7 million in the five years thereafter. | |
| (3) | Measured as of December 31. |
The following table provides information related to the funded status of the plans and the amounts
recorded in the Consolidated Balance Sheets (in thousands):
| December 31, | ||||||||||||
| Funded status of the plans: | 2010 | 2009 | 2008 | |||||||||
|
Projected benefit obligation
|
$ | 19,730 | $ | 14,358 | $ | 13,286 | ||||||
|
Plan assets at fair value (1)
|
(2,130 | ) | — | — | ||||||||
|
|
||||||||||||
|
Funded status (2)
|
$ | 17,600 | $ | 14,358 | $ | 13,286 | ||||||
|
|
||||||||||||
|
Amounts recorded in the Consolidated Balance Sheets:
|
||||||||||||
|
Other assets — reinsurance asset (3)
|
$ | 11,680 | $ | 10,451 | $ | 9,141 | ||||||
|
|
||||||||||||
|
Other liabilities — accrued pension obligation
|
$ | 17,600 | $ | 14,358 | $ | 13,286 | ||||||
|
|
||||||||||||
|
Stockholders’ equity — unrealized actuarial gain (4)
|
$ | 2,205 | $ | 3,217 | $ | 2,777 | ||||||
|
|
||||||||||||
| (1) | The $2.1 million plan asset as of December 31, 2010 represents the assets of a defined benefit pension plan for which the Company adopted the accounting provisions of FASB ASC Topics 715 and 960 in 2010. These assets are considered assets of the plan for accounting purposes and are thus not recorded on the Company’s Consolidated Balance Sheets. The assets are maintained with a third-party insurance company and are invested in a diversified portfolio of equities, bonds, and other investments. The projected long-term rate of return on these plan assets is 5.0%. | |
| (2) | The Company expects to contribute $0.7 million to the plans in 2011. | |
| (3) | Consists of a reinsurance asset arrangement with a large international insurance company that was rated investment grade as of December 31, 2010. The purpose of the reinsurance asset arrangement is to fund the benefit obligation under one of the Company’s foreign defined benefit pension plans. However, the reinsurance asset is not legally segregated or restricted for purposes of meeting the pension obligation and as a result is not acknowledged as a pension plan asset for accounting purposes. As a result, the reinsurance asset is carried on the Company’s Consolidated Balance Sheets at its cash surrender value, which the Company believes reasonably approximates its fair value. | |
| (4) | The balance recorded in Stockholders’ equity, net of tax effect represents the plan’s net unrealized actuarial gain which will be amortized to net periodic pension cost over approximately 15 years. Amortization of the unrealized gain at December 31, 2010 is projected to reduce the Company’s net periodic pension cost in 2011 by approximately $0.1 million. |
63
Table of Contents
15 — SEGMENT INFORMATION
The Company manages its business in three reportable segments: Research, Consulting and Events.
Research consists primarily of subscription-based research products, access to research inquiry, as
well as peer networking services and membership programs. Consulting consists primarily of
consulting, measurement engagements, and strategic advisory services. Events consists of various
symposia, conferences and exhibitions.
The Company evaluates reportable segment performance and allocates resources based on gross
contribution margin. Gross contribution, as presented in the table below, is defined as operating
income excluding certain COS and SG&A expenses, depreciation, acquisition and integration charges,
amortization of intangibles, and Other charges. Certain bonus and fringe benefit costs included in
consolidated COS are not allocated to segment expense. The accounting policies used by the
reportable segments are the same as those used by the Company. There are no intersegment revenues.
The Company earns revenue from clients in many countries. Other than the United States, there is no
individual country in which revenues from external clients represent 10% or more of the Company’s
consolidated revenues. Additionally, no single client accounted for 10% or more of total revenue
and the loss of a single client, in management’s opinion, would not have a material adverse effect
on revenues.
The Company does not identify or allocate assets, including capital expenditures, by reportable
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 operating information about the Company’s reportable segments for the
years ended December 31 (in thousands):
| Research | Consulting | Events | Consolidated | |||||||||||||
|
2010
|
||||||||||||||||
|
Revenues
|
$ | 865,000 | $ | 302,117 | $ | 121,337 | $ | 1,288,454 | ||||||||
|
Gross contribution
|
564,527 | 121,885 | 55,884 | 742,296 | ||||||||||||
|
Corporate and other expenses
|
(593,031 | ) | ||||||||||||||
|
|
||||||||||||||||
|
Operating income
|
$ | 149,265 | ||||||||||||||
|
|
||||||||||||||||
| Research | Consulting | Events | Consolidated | |||||||||||||
|
2009
|
||||||||||||||||
|
Revenues
|
$ | 752,505 | $ | 286,847 | $ | 100,448 | $ | 1,139,800 | ||||||||
|
Gross contribution
|
489,862 | 112,099 | 40,945 | 642,906 | ||||||||||||
|
Corporate and other expenses
|
(508,429 | ) | ||||||||||||||
|
|
||||||||||||||||
|
Operating income
|
$ | 134,477 | ||||||||||||||
|
|
||||||||||||||||
| Research | Consulting | Events | Consolidated | |||||||||||||
|
2008
|
||||||||||||||||
|
Revenues
|
$ | 781,581 | $ | 347,404 | $ | 150,080 | $ | 1,279,065 | ||||||||
|
Gross contribution
|
495,440 | 141,395 | 64,954 | 701,789 | ||||||||||||
|
Corporate and other expenses
|
(537,421 | ) | ||||||||||||||
|
|
||||||||||||||||
|
Operating income
|
$ | 164,368 | ||||||||||||||
|
|
||||||||||||||||
The Company’s revenues are generated primarily through direct sales to clients by domestic and
international sales forces and a network of independent international sales agents. Most of the
Company’s products and services are provided on an integrated worldwide basis, and because of this
integrated delivery, it is not practical to separate precisely our revenues by geographic location.
Accordingly, the separation set forth in the table below is based upon internal allocations, which
involve certain management estimates and judgments. Revenues in the table are reported based on
where the sale is fulfilled; “Other International” revenues are those attributable to all areas
located outside of the United States, Canada, and Europe, Middle East, Africa.
64
Table of Contents
Summarized information by geographic location as of and for the years ended December 31 follows (in
thousands):
| 2010 | 2009 | 2008 | ||||||||||
|
Revenues:
|
||||||||||||
|
United States and Canada
|
$ | 765,793 | $ | 663,832 | $ | 723,247 | ||||||
|
Europe, Middle East and Africa
|
380,771 | 360,791 | 430,401 | |||||||||
|
Other International
|
141,890 | 115,177 | 125,417 | |||||||||
|
|
||||||||||||
|
Total revenues
|
$ | 1,288,454 | $ | 1,139,800 | $ | 1,279,065 | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
Long-lived assets (1):
|
||||||||||||
|
United States and Canada
|
$ | 69,163 | $ | 65,896 | $ | 67,753 | ||||||
|
Europe, Middle East and Africa
|
21,856 | 21,924 | 19,324 | |||||||||
|
Other International
|
6,175 | 2,404 | 4,325 | |||||||||
|
|
||||||||||||
|
Total long-lived assets
|
$ | 97,194 | $ | 90,224 | $ | 91,402 | ||||||
|
|
||||||||||||
| (1) | Excludes goodwill and other intangible assets. |
16 — VALUATION AND QUALIFYING ACCOUNTS
The following table summarizes activity in the Company’s allowance for doubtful accounts and
returns and allowances (in thousands):
| Additions | Additions | |||||||||||||||||||
| Balance at | Charged to | Charged | Deductions | Balance | ||||||||||||||||
| Beginning | Costs and | Against Other | from | at End | ||||||||||||||||
|
|
of Year | Expenses | Accounts (1) | Reserve | of Year | |||||||||||||||
|
|
||||||||||||||||||||
|
2008:
|
||||||||||||||||||||
|
Allowance for doubtful accounts and returns and allowances
|
$ | 8,450 | $ | 1,650 | $ | 5,000 | $ | (7,300 | ) | $ | 7,800 | |||||||||
|
|
||||||||||||||||||||
|
2009:
|
||||||||||||||||||||
|
Allowance for doubtful accounts and returns and allowances
|
$ | 7,800 | $ | 2,100 | $ | 6,000 | $ | (7,800 | ) | $ | 8,100 | |||||||||
|
|
||||||||||||||||||||
|
2010:
|
||||||||||||||||||||
|
Allowance for doubtful accounts and returns and allowances
|
$ | 8,100 | $ | 800 | $ | 2,000 | $ | (3,700 | ) | $ | 7,200 | |||||||||
|
|
||||||||||||||||||||
| (1) | Amounts charged against revenues. |
17 — SUBSEQUENT EVENT
On February 15, 2011, the Company announced that ValueAct Capital Master Fund L.P
(“ValueAct Capital”) will sell approximately 8,000,000 shares of the Company’s Common Stock
in a registered public offering underwritten by Credit Suisse Securities (USA) LLC and
Goldman, Sachs & Co. The underwriters will also have an option to purchase up to an
additional 1,200,000 shares of the Company’s Common Stock from
ValueAct Capital to cover
over-allotments, if any. The Company will not receive any proceeds from the sale of the
shares of its Common Stock in the offering.
The
Company also announced it has entered into an agreement with ValueAct Capital pursuant to
which the Company will purchase an aggregate of 500,000 shares of its Common Stock
from ValueAct Capital at the net price per share to be received by
ValueAct Capital in the offering, so
long as the public offering is completed.
65
Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has caused this
Report on Form 10-K to be signed on its behalf by the undersigned, duly authorized, in Stamford,
Connecticut, on February 15, 2011.
| Gartner, Inc. | ||||||
|
|
||||||
|
Date: February 15, 2011
|
By: |
/s/ Eugene A. Hall
|
||||
| Eugene A. Hall | ||||||
| Chief Executive Officer | ||||||
POWER OF ATTORNEY
Each person whose signature appears below appoints Eugene A. Hall and Christopher J. Lafond and
each of them, acting individually, as his or her attorney-in-fact, each with full power of
substitution, for him or her in all capacities, to sign all amendments to this Report on Form 10-K,
and to file the same, with appropriate exhibits and other related documents, with the Securities
and Exchange Commission. Each of the undersigned, ratifies and confirms his or her signatures as
they may be signed by his or her attorney-in-fact to any amendments to this Report. Pursuant to the
requirements of the Securities Exchange Act of 1934, this Report has been signed by the following
persons on behalf of the Registrant and in the capacities and on the dates indicated:
| Name | Title | Date | ||
|
/s/ Eugene A. Hall
|
Director and Chief Executive Officer
(Principal Executive Officer) |
February 15, 2011 | ||
|
|
||||
|
/s/ Christopher J. Lafond
|
Executive Vice President and Chief
Financial Officer
(Principal Financial and Accounting Officer) |
February 15, 2011 | ||
|
|
||||
|
/s/ Michael J. Bingle
|
Director | February 15, 2011 | ||
|
|
||||
|
/s/ Richard J. Bressler
|
Director | February 15, 2011 | ||
|
|
||||
|
/s/ Karen E. Dykstra
|
Director | February 15, 2011 | ||
|
|
||||
|
/s/ Russell P. Fradin
|
Director | February 15, 2011 | ||
|
|
||||
|
/s/ Anne Sutherland Fuchs
|
Director | February 15, 2011 | ||
|
|
||||
|
/s/ William O. Grabe
|
Director | February 15, 2011 | ||
|
|
||||
|
/s/ Stephen G. Pagliuca
|
Director | February 15, 2011 | ||
|
|
||||
|
/s/ James C. Smith
|
Director | February 15, 2011 | ||
|
|
||||
|
/s/ Jeffrey W. Ubben
|
Director | February 15, 2011 |
66
TABLE OF CONTENTS
Part IItem 1. BusinessItem 1A. Risk FactorsItem 1B. Unresolved Staff CommentsItem 2. PropertiesItem 3. Legal ProceedingsPart IIItem 5. Market For Registrant S Common Equity, Related Stockholder Matters and Issuer Purchases Of Equity SecuritiesItem 6. Selected Financial DataItem 7. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 7A. Quantitative and Qualitative Disclosures About Market RiskItem 8. Financial Statements and Supplementary DataItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9A. Controls and ProceduresItem 9B. Other InformationPart IIIItem 10. Directors, Executive Officers and Corporate GovernanceItem 11. Executive CompensationItem 12. Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder MattersItem 13. Certain Relationships and Related Transactions and Director IndependenceItem 14. Principal Accountant Fees and ServicesPart IVItem 15. Exhibits and Financial Statement Schedules