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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended December 31,
2009
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Commission file number:
1-14443
GARTNER, INC.
(Exact name of registrant as
specified in its charter)
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Delaware
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04-3099750
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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P.O. Box 10212
56 Top Gallant Road
Stamford, CT
(Address of principal executive offices)
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06902-7700
(Zip Code)
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(203) 316-1111
(Registrants telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act:
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Name of each exchange
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Title of each class
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on which registered
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Common Stock, $.0005 par value per share
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New York Stock Exchange
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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 o 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 registrants 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):
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Large accelerated
filer þ
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller reporting
company o
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(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, 2009, the aggregate market value of the
registrants common stock held by non-affiliates of the
registrant was $935,105,805 based on the closing sale price as
reported on the New York Stock Exchange.
The number of shares outstanding of the registrants common
stock was 95,924,910 as of January 31, 2010.
DOCUMENTS
INCORPORATED BY REFERENCE
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Document
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Parts Into Which Incorporated
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Proxy Statement for the Annual Meeting of Stockholders
to be held June 3, 2010 (Proxy Statement)
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Part III
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GARTNER, INC.
2009 ANNUAL REPORT ON
FORM 10-K
TABLE OF CONTENTS
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PART I
GENERAL
Gartner, Inc. (NYSE: IT) is the worlds leading information
technology research and advisory company. Since its founding in
1979, Gartner has established a leading brand in the IT research
marketplace. The cornerstones of our 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
operational effectiveness.
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, to supply
chain leaders, and to the front-line professionals in the
technology organization, we are the indispensable partner to
60,000 clients in 10,000 distinct organizations in over 80
countries. We work with every client to research, analyze and
interpret the business of IT within the context of their
individual role.
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:
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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.
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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.
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Events consists of various symposia, conferences
and exhibitions focused on the IT industry.
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Gartner is headquartered in Stamford, Connecticut, U.S.A. We
have 4,305 associates, including almost 1,200 research analysts
and consultants. 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
Today, 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 continues 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, todays 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 are increasingly turning 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.
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.
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With a base of 720 research analysts, we create timely and
relevant technology-related research. In addition, we have 450
experienced consultants who combine our objective, independent
research with a practical, business perspective focused on the
IT industry. Our events are among the worlds 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 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:
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RESEARCH. The Gartner core 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 clients desktop via
our website
and/or
product-specific portals.
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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. The research contracts are renewed on an
ongoing basis; despite difficult economic conditions, in 2009 we
experienced strong research client retention, with 78% of user
organizations renewing their contracts, as well as 87% wallet
retention, a measure of the dollar amount of contract value we
have retained with clients over the prior year.
Our strategy is to align our service and product offerings
around individual roles within targeted key client groups. For
example, Gartner Executive Programs (EXP) comprises exclusive
membership programs designed to help CIOs, senior IT executives
and other business executives become more effective in their
enterprises. An EXP membership leverages the knowledge and
expertise of Gartner in ways that are specific to the CIOs
needs and offers role-based offerings and member-only
communities for peer-based collaboration. Our 3,700 EXP members
also receive advice and counsel from an executive partner who
understands their goals and can ensure the most effective level
of support from Gartner.
Other programs focus on the needs of the IT end-user market and
IT vendors with a variety of product offerings. 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 clients 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 Enterprise IT Leaders 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. Gartner
for Business Leaders provides a series of role-based offerings
to help sales, marketing, product management and professional
services leaders successfully manage their organizations and
better interact with Gartner analysts.
Our Industry Advisory Services address technology issues and
topics with a focus on their impacts on specific vertical
industries.
Our Best Practices Councils provide peer networks to senior IT
leaders in large organizations, currently in six practice areas,
including IT architecture and strategic planning, information
security, emerging technology management, infrastructure
management, enterprise applications for SAP and IT sourcing
management.
Gartner for Technology Investors provides premium research
focused on the strategies and behaviors of technology end users
and providers to support the activities of institutional
investors who invest in technology companies.
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CONSULTING. Gartner 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
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IT organization and operations to ensure high-value services to
the clients lines of business and to enable the client to
adapt to business changes.
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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
clients 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 CIOs 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.
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EVENTS. Gartner symposia and conferences are
gatherings of technologys 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
one-on-one
meetings, workshops and keynotes by technologys 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
worlds leading technology companies. In 2009, we held 54
Gartner events throughout the United States, Europe, Latin
America and the Asia/Pacific region that attracted 30,610
attendees.
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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. At the present time 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.
BUSINESS
DEVELOPMENTS
In December 2009, we acquired AMR Research, Inc. (AMR
Research), which provides information technology research,
consulting and events for organizations with supply chain
management issues, thereby expanding the breadth and depth of
our IT research coverage. Additionally, in the same month, we
acquired Burton Group, Inc. (Burton Group), which
provides a complementary portfolio of research, consulting and
events specifically designed to meet the unique needs of
front-line technology professionals within IT teams. The
acquisition of Burton Group will enable us to meet the demand of
our clients and offer a complete solution to every level and
functional expert within the IT organization. We believe these
companies will greatly enhance Gartners product and
services offerings.
See Note 2 Acquisitions in the Notes to the
Consolidated Financial Statements for additional information
regarding these acquisitions.
COMPETITION
We believe that the principal factors that differentiate us from
our competitors are:
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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.
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Our Leading Brand Name For over 30 years we
have been providing critical, trusted insight under the Gartner
name.
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Our Global Footprint and Established Customer Base
We have a global presence with clients in over 80 countries on
six continents. Approximately 45% and 47% of our revenues for
2009 and 2008, respectively, were derived from sales outside of
the U.S.
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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.
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Experienced Management Team Our management team is
composed of IT research veterans and experienced industry
executives.
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Vast Network of Analysts and Consultants We have
almost 1,200 analysts and consultants located around the world.
Our analysts alone speak 47 languages and are located in
numerous countries, enabling us to cover all aspects of IT on a
global basis.
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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 Gartners intellectual
property, and we also enter into agreements with our employees
as appropriate that protect our intellectual property.
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.
EMPLOYEES
As of December 31, 2009, we had 4,305 employees, of
which 691 were located at our headquarters in Stamford,
Connecticut; 1,945 were located elsewhere in the United States;
and 1,669 were located outside of the United States. These
amounts include the addition of 290 new employees as a result of
the AMR Research and Burton Group acquisitions.
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
Business Conduct, which applies to all Gartner officers,
directors and employees, (iii) Principles of Ethical
Conduct which applies to all Gartner employees, (iv) Board
Principles and Practices, the corporate governance principles
that have been adopted by our Board and (v) charters for
each of the Boards standing committees: Audit,
Compensation and Governance/Nominating.
FACTORS THAT MAY
AFFECT FUTURE PERFORMANCE.
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. The following
section discusses many, but not all, of these risks and
uncertainties, but is not intended to be all-inclusive.
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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
global credit crisis and economic downturn that began in 2008
and continued throughout 2009 could negatively and materially
affect demand for our products and services. This downturn could
materially and adversely affect our business, including the
ability to maintain client retention, wallet retention and
consulting utilization rates, achieve contract value and
consulting backlog growth, and attract attendees and exhibitors
to our events. 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.
While we believe the breadth and depth of our research assets
position us well versus our competition, 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 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 66% and 60% of
our revenues for 2009 and 2008, 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:
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delivering high-quality and timely analysis and advice to our
clients;
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understanding and anticipating market trends and the changing
needs of our clients; and
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delivering products and services of the quality and timeliness
necessary to withstand competition.
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Additionally, as we implement our strategy to realign our
business to client needs, we may shift the type and pricing of
our products which may impact client renewal rates. While
research client retention rate was 78% at December 31, 2009
and 82% at December 31, 2008, 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
25% of our total revenues for 2009 and 27% for 2008. These
consulting engagements typically are project-based and
non-recurring. Our ability to replace consulting engagements is
subject to numerous factors, including the following:
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delivering consistent, high-quality consulting services to our
clients;
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tailoring our consulting services to the changing needs of our
clients; and
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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.
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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 global credit crisis and
economic downturn that began in 2008 and continued throughout
2009 severely impacted travel budgets of all organizations,
which may continue to negatively impact our business. 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, 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.
Our sales to governments are subject to appropriations and
may be terminated. We derive revenues from contracts
with the U.S. government, state and local governments, and
their respective agencies, as well as foreign governments and
their agencies. At December 31, 2009 and 2008,
approximately $182.0 million and $192.0 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, 2009 will be filled in 2010. 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 mechanisms. In general, most if not all of these
contracts may be terminated at any time without cause
(termination for convenience). 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 revenue.
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 over 80
countries and a significant part of our revenue comes from
international sales. 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
6
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 changes in foreign
currency exchange rates. Approximately 45% and 47% of
our revenues for 2009 and 2008, respectively, were derived from
sales outside of the U.S. 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 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.
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. At
December 31, 2009, we had $329.0 million outstanding
under our Credit Agreement, which provides for two amortizing
term loans with quarterly payments and a $300.0 million
revolving credit facility. The revolving credit facility may be
increased up to an additional $100.0 million at our
lenders discretion (the expansion feature),
for a total revolving credit facility of $400.0 million.
However, the $100.0 million expansion feature may or may
not be available to us depending upon prevailing credit market
conditions.
The affirmative, negative and financial covenants of the 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 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 remaining borrowing capacity we have under our revolving
credit facility will be sufficient for our expected short-term
and foreseeable long-term operating needs.
We may, however, 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
7
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 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.
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 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.
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 volatile, 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, variations in operating results, 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. Such volatility 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. As of
December 31, 2009, the aggregate number of shares of our
Common Stock issuable pursuant to outstanding grants and awards
under these plans was approximately 11.5 million shares
(approximately 5.8 million of which have vested). In
addition, approximately 7.4 million shares may be issued in
connection with future
8
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.
Interests of certain of our significant stockholders may
conflict with yours. As of December 31, 2009,
ValueAct Capital and affiliates (ValueAct) owned
approximately 21.7% of our Common Stock. To our knowledge, as of
the date of this report, four other institutional investors each
presently hold over 5% of our Common Stock. Additionally, a
representative of ValueAct 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 the Company. 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 the Company 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:
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the ability of our Board of Directors to issue and determine the
terms of preferred stock;
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advance notice requirements for inclusion of stockholder
proposals at stockholder meetings; and
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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.
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ITEM 1B.
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UNRESOLVED
STAFF COMMENTS.
|
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.
Our corporate headquarters is located in approximately
213,000 square feet of leased office space in three
buildings located in Stamford, Connecticut. Our Stamford
facility accommodates research and analysis, marketing, sales,
client support, production, corporate services, executive
offices, and administration. The lease for the Stamford facility
expires in October 2010. We have completed negotiations of an
amendment and 15 year extension of this lease with the
landlord, and expect to execute the amended lease agreement in
the first quarter of 2010.
We also have a significant presence in Ft. Myers, Florida
and Egham, the United Kingdom. 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. 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. We
lease an additional 16 domestic and 40 international locations
that support our research and analysis, domestic and
international sales efforts, and other functions. The Company
does not currently own any properties.
We continue to constantly assess our space needs as our business
changes, but we believe that our existing facilities are
adequate for our current needs and that additional space will be
available as needed.
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ITEM 3.
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LEGAL
PROCEEDINGS.
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We are involved in legal proceedings and litigation arising in
the ordinary course of business. We believe that the potential
liability, if any, in excess of amounts already accrued from all
proceedings, claims and litigation will not have a material
effect on our financial position or results of operations when
resolved in a future period.
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ITEM 4.
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SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS.
|
We did not submit any matter to a vote of our stockholders
during the fourth quarter of the year covered by this Annual
Report.
Our 2010 Annual Meeting of Stockholders will be held on
June 3, 2010 at the Companys offices in Stamford,
Connecticut.
9
PART II
ITEM 5. MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES.
As of January 29, 2010, there were 2,585 holders of record
of our Common Stock, which is listed on the New York Stock
Exchange under the symbol IT. 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:
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2009
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2008
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High
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Low
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High
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Low
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Quarter ended March 31
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$
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18.55
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$
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8.33
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$
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21.29
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$
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13.75
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Quarter ended June 30
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16.54
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10.55
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24.80
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19.50
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Quarter ended September 30
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18.50
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14.14
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28.39
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19.20
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Quarter ended December 31
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20.27
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16.85
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22.80
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13.07
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DIVIDEND
POLICY
We currently do not pay cash dividends on our Common Stock. Our
Credit Agreement, dated as of January 31, 2007, as amended,
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 $250.0 million authorized stock
repurchase program that was authorized by the Board of Directors
in February 2008. At the present time, as indicated in the table
below, approximately $78.6 million remains available for
share repurchases under this program.
Repurchases are primarily made from
time-to-time
through open market purchases and are subject to the
availability of stock, prevailing market conditions, the trading
price of the stock, the Companys financial performance and
cash needs, and other conditions. Repurchases may also be made
from
time-to-time
in connection with the settlement of shared-based compensation
awards. Repurchases may be funded from cash flow from operations
and borrowings under the Companys Credit Agreement. All
repurchased shares are added to treasury stock. The open market
purchases were made by brokers pursuant to purchase programs
that complied with
Rules 10b5-1
and 10b-18
under the Exchange Act.
The following table provides detail related to repurchases of
our Common Stock in the three months ended December 31,
2009:
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Maximum
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Total Number
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Approximate
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of Shares
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Dollar Value
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Purchased
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of Shares that
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as Part of
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May Yet
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Total
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Publicly
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Be Purchased
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Number of
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Average
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Announced
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Under the
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Shares
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Price Paid
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Plans or
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Plans or
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Purchased
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Per Share
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Programs
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Programs
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Period
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(#)
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($)
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(#)
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($000s)
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October
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321
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$
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19.67
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321
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November
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December
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229
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18.43
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229
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Total (1)
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550
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$
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19.15
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550
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$
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78,636
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(1) |
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For the year ended December 31, 2009, the Company
repurchased 306,032 shares at an average price of $12.24
per share for a total cost of approximately $3.7 million.
All of these shares were acquired in connection with the
settlement of share-based compensation awards. |
10
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ITEM 6.
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SELECTED
CONSOLIDATED FINANCIAL DATA
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The fiscal years presented below are for the respective
twelve-month period from January 1 through December 31.
Data for all years was derived or compiled from our audited
consolidated financial statements included herein or from
submissions of our
Form 10-K
in prior years. The selected consolidated financial data should
be read in conjunction with our consolidated financial
statements and related notes contained in this Annual Report on
Form 10-K.
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(In thousands, except per share data)
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2009
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2008
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2007
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2006
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2005
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STATEMENT OF OPERATIONS DATA:
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Revenues:
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Research
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$
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752,505
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$
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781,581
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$
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683,380
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$
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585,656
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$
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536,591
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Consulting
|
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286,847
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347,404
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325,030
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|
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305,231
|
|
|
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301,074
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Events
|
|
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|
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100,448
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|
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150,080
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|
|
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160,065
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146,412
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|
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126,475
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Total revenues
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|
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1,139,800
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|
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1,279,065
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1,168,475
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1,037,299
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964,140
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Operating income
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|
134,477
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|
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164,368
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129,458
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98,039
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20,474
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Income (loss) from continuing operations
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|
|
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82,964
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|
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97,148
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70,666
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54,258
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(6,200
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)
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Income from discontinued operations
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|
|
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|
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|
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6,723
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|
|
|
2,887
|
|
|
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3,934
|
|
|
|
3,763
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|
|
|
|
|
|
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Net income (loss)
|
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|
|
$
|
82,964
|
|
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$
|
103,871
|
|
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$
|
73,553
|
|
|
$
|
58,192
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|
|
$
|
(2,437
|
)
|
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PER SHARE DATA:
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Basic:
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Income (loss) from continuing operations
|
|
|
|
$
|
.88
|
|
|
$
|
1.02
|
|
|
$
|
0.68
|
|
|
$
|
0.48
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|
|
$
|
(0.05
|
)
|
Income from discontinued operations
|
|
|
|
|
|
|
|
|
0.07
|
|
|
|
0.03
|
|
|
|
0.03
|
|
|
|
0.03
|
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|
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Income (loss) per share
|
|
|
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$
|
.88
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|
|
$
|
1.09
|
|
|
$
|
0.71
|
|
|
$
|
0.51
|
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
|
$
|
.85
|
|
|
$
|
0.98
|
|
|
$
|
0.65
|
|
|
$
|
0.47
|
|
|
$
|
(0.05
|
)
|
Income from discontinued operations
|
|
|
|
|
|
|
|
|
0.07
|
|
|
|
0.03
|
|
|
|
0.03
|
|
|
|
0.03
|
|
|
|
|
|
|
|
Income (loss) per share
|
|
|
|
$
|
.85
|
|
|
$
|
1.05
|
|
|
$
|
0.68
|
|
|
$
|
0.50
|
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
94,658
|
|
|
|
95,246
|
|
|
|
103,613
|
|
|
|
113,071
|
|
|
|
112,253
|
|
Diluted
|
|
|
|
|
97,549
|
|
|
|
99,028
|
|
|
|
108,328
|
|
|
|
116,203
|
|
|
|
112,253
|
|
|
|
OTHER DATA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
$
|
116,574
|
|
|
$
|
140,929
|
|
|
$
|
109,945
|
|
|
$
|
67,801
|
|
|
$
|
70,282
|
|
Total assets
|
|
|
|
|
1,215,279
|
|
|
|
1,093,065
|
|
|
|
1,133,210
|
|
|
|
1,039,793
|
|
|
|
1,026,617
|
|
Long-term debt
|
|
|
|
|
124,000
|
|
|
|
238,500
|
|
|
|
157,500
|
|
|
|
150,000
|
|
|
|
180,000
|
|
Stockholders equity (deficit)
|
|
|
|
|
112,535
|
|
|
|
(21,316
|
)
|
|
|
17,498
|
|
|
|
26,318
|
|
|
|
146,588
|
|
|
|
The following items impact the comparability and presentation of
our consolidated data:
|
|
|
In December 2009 we acquired AMR Research and Burton Group. The
results of these businesses are included beginning on the
respective dates of acquisition (see Note 2
Acquisitions in the Notes to the Consolidated Financial
Statements). For 2009 we recorded approximately
$2.9 million in pre-tax acquisition and integration charges
related to these acquisitions.
|
|
|
Effective January 1, 2009, the Company eliminated its
previously reported Other revenue line. The
Other revenue line primarily consisted of fees
earned from Research reprints and other miscellaneous products.
These revenues are now included with Research revenues (see Note
1 Business and Significant Accounting Policies in
the Notes to the Consolidated Financial Statements).
|
|
|
We sold our Vision Events business, which had been part of our
Events segment, in early 2008 and have reported the results of
operations of this business as a discontinued operation (see
Note 3 Discontinued Operations in the Notes to
the Consolidated Financial Statements). The statement of
operations and per share data for 2005 2007 have
been restated to present the results of the Vision Events
business as a discontinued operation.
|
|
|
We acquired META Group, Inc. on April 1, 2005, and the
results of that business are included beginning on that date.
For 2006 and 2005 we recorded $1.5 million and
$15.0 million, respectively, in pre-tax integration charges
related to this acquisition.
|
|
|
We repurchased 0.3 million, 9.7 million,
8.4 million, 14.9 million, and 0.8 million of our
common shares in 2009, 2008, 2007, 2006 and 2005, respectively.
|
|
|
We recorded Other charges, which includes costs for severance,
excess facilities, litigation, and other items, on a pre-tax
basis, of $9.1 million in 2007 and $29.2 million in
2005.
|
|
|
We recorded pre-tax charges for loss on investments, net of
$5.8 million in 2005.
|
11
ITEM 7. MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
The purpose of the following Managements 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, and on
December 30, 2009 we acquired Burton Group. The financial
results of these businesses, which were not material to our 2009
results, have been included in our results beginning on their
respective dates of acquisition (see Note 2
Acquisitions in the Notes to the Consolidated Financial
Statements). The operating metrics of these acquired businesses
have been excluded from our Business Measurements presentations
and discussions below for comparability purposes.
Effective January 1, 2009, the Company reclassified certain
amounts presented in the Consolidated Statements of Operations.
The Company eliminated its previously reported Other
revenue line. The Other revenue line primarily
consisted of fees earned from Research reprints and other
miscellaneous products, and these revenues and related expenses
are now included in the Research segment. In addition, certain
expenses that were formerly classified in Selling,
general & administrative are now included in Cost of
services and product development and are included in Research
segment expense. Prior periods have been reclassified in order
to be consistent with the current period presentation. (see
Note 1 Business Significant Accounting Policies
and Note 16 Segment Information in the Notes to
the Consolidated Financial Statements).
In early 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 managements 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 worlds 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 approximately
10,000 client organizations, including approximately 400 of the
Fortune 500 companies, in over 80 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 organizations IT investment through
assessments of cost, performance, efficiency and quality.
|
12
|
|
|
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.
|
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
We purchased AMR Research and Burton Group in December 2009. We
believe each of these companies is recognized as
best-in-class
for what they do, and will expand our research market
opportunity and accelerate our growth rate over time.
We had total revenues of $1,139.8 million in 2009, a
decline of 11% from the prior year. Revenues decreased in all 3
of our business segments and all of our geographic regions.
Excluding the impact of foreign currency translation, total
revenues were down about 8% in 2009. We attribute the decline in
revenue to the global economic downturn that began in 2008.
We had income from continuing operations of $83.0 million
in 2009, or $0.85 per diluted share, compared to income from
continuing operations of $97.1 million, or $0.98 per diluted
share, for 2008. The decline primarily reflects lower
profitability in our Consulting and Events segments.
Research revenues were down 4%
year-over-year,
to $752.5 million in 2009 from $781.6 million in the
prior year. Excluding the impact of foreign currency, Research
revenues were down 1%
year-over-year.
Despite the
year-over-year
decline in Research revenues, gross contribution margin
increased by 2 points, primarily due to the tight cost controls
we have implemented and to a lesser extent, our ability to
implement price increases for our products.
As of December 31, 2009, research contract value was
$784.4 million, client retention was 78%, and wallet
retention was 87%. Research contract value at December 31,
2009 was down 6% compared to the prior year end, but adjusted
for the impact of foreign currency, was down 1%
year-over-year.
While down
year-over-year,
the $784.4 million of contract value at December 31,
2009 increased 6% from September 30, 2009, reflecting a
broad-based increase with all industries, geographies, and
client sizes showing improvement during the quarter.
Consulting revenues declined 17%
year-over-year,
to $286.8 million in 2009 from $347.4 million in 2008,
primarily due to a decline in core consulting. Excluding the
unfavorable impact of foreign currency translation, revenues
declined 15%. The Consulting segment contribution margin
declined 2 points, primarily due to lower revenue in our
contract optimization business and fewer SAS days filled, which
have a higher contribution margin than core consulting.
Utilization in core consulting was 68% for 2009. Backlog was
$90.9 million at December 31, 2009, a decline of 6%
from December 31, 2008.
Events revenues decreased 33% in 2009 compared to the prior year
due to discontinued events and a decline in revenue from our
on-going events. We discontinued a number of events in 2009 in
response to the economic downturn, travel restrictions, and
other
13
factors. We held 54 events in 2009 compared to 70 in 2008, with
a 12% decline in attendees at our 51 on-going events. The
segment contribution margin declined by 2 points
year-over-year,
to 41%.
For a more detailed discussion of our segment results, see
Segment Results below.
During 2009 we continued our focus on enhancing shareholder
value by reducing our outstanding debt. We repaid
$95.3 million of our term loans during 2009, which
represented approximately 32% of the amount outstanding. We also
used $104.5 million in cash to acquire AMR Research and
Burton Group.
We had $161.9 million of operating cash flow for the year
ended December 31, 2009. Our cash and cash equivalents
totaled $116.6 million as of December 31, 2009 and we
had approximately $170.0 million of available borrowing
capacity under our revolving credit facility. We believe that
our cash position and borrowing capacity is more than adequate
to meet our existing cash and liquidity requirements.
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 Companys 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 percentage of completion 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, 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.
For those government contracts that permit cancellation, we bill
the client the full amount billable under the contract but only
record a receivable equal to the earned portion of the contract.
In addition, we only record deferred revenue on these government
contracts when cash is received. Deferred revenues attributable
to government contracts were $65.3 million and
$61.6 million at December 31, 2009 and
December 31, 2008, respectively. In addition, at
December 31, 2009 and December 31, 2008, we had
14
not recognized uncollected receivables or deferred revenues
relating to government contracts that permit termination of
$8.3 million and $12.1 million, respectively.
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 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,
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Total fees receivable
|
|
|
|
$
|
325,698
|
|
|
$
|
326,311
|
|
Allowance for losses
|
|
|
|
|
(8,100
|
)
|
|
|
(7,800
|
)
|
|
|
|
|
|
|
Fees receivable, net
|
|
|
|
$
|
317,598
|
|
|
$
|
318,511
|
|
|
|
|
|
|
|
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 annual goodwill impairment testing in the
quarter ended September 30, 2009 and concluded that the
fair values of each of the Companys reporting units
substantially exceeded their respective carrying values.
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 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,
15
over the related service period, net of estimated forfeitures
(see Note 10 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
Companys 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 managements 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 Companys 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.
RESULTS OF
OPERATIONS
The following table summarizes the changes in selected line
items in our Consolidated Statements of Operation for the
periods indicated (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 vs. 2008
|
|
|
2008 vs. 2007
|
|
|
|
Twelve Months
|
|
|
Twelve Months
|
|
|
|
|
|
|
|
|
Twelve Months
|
|
|
Twelve Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Dollar
|
|
|
Percentage
|
|
|
Ended
|
|
|
Ended
|
|
|
Dollar
|
|
|
Percentage
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
Increase
|
|
|
Increase
|
|
|
December 31,
|
|
|
December 31,
|
|
|
Increase
|
|
|
Increase
|
|
|
|
2009 (a)
|
|
|
2008
|
|
|
(Decrease)
|
|
|
(Decrease)
|
|
|
2008
|
|
|
2007
|
|
|
(Decrease)
|
|
|
(Decrease)
|
|
|
|
|
Total revenues
|
|
$
|
1,139,800
|
|
|
$
|
1,279,065
|
|
|
$
|
(139,265
|
)
|
|
|
(11
|
)%
|
|
$
|
1,279,065
|
|
|
$
|
1,168,475
|
|
|
$
|
110,590
|
|
|
|
9
|
%
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services and product development
|
|
|
498,363
|
|
|
|
572,208
|
|
|
|
73,845
|
|
|
|
13
|
%
|
|
|
572,208
|
|
|
|
546,569
|
|
|
|
(25,639
|
)
|
|
|
(5
|
)%
|
Selling, general and administrative
|
|
|
477,003
|
|
|
|
514,994
|
|
|
|
37,991
|
|
|
|
7
|
%
|
|
|
514,994
|
|
|
|
456,975
|
|
|
|
(58,019
|
)
|
|
|
(13
|
)%
|
Depreciation
|
|
|
25,387
|
|
|
|
25,880
|
|
|
|
493
|
|
|
|
2
|
%
|
|
|
25,880
|
|
|
|
24,298
|
|
|
|
(1,582
|
)
|
|
|
(7
|
)%
|
Amortization of intangibles
|
|
|
1,636
|
|
|
|
1,615
|
|
|
|
(21
|
)
|
|
|
(1
|
)%
|
|
|
1,615
|
|
|
|
2,091
|
|
|
|
476
|
|
|
|
(23
|
)%
|
Acquisition and integration charges
|
|
|
2,934
|
|
|
|
|
|
|
|
(2,934
|
)
|
|
|
(100
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,084
|
|
|
|
9,084
|
|
|
|
100
|
%
|
|
|
|
|
|
|
Operating income
|
|
|
134,477
|
|
|
|
164,368
|
|
|
|
(29,891
|
)
|
|
|
(18
|
)%
|
|
|
164,368
|
|
|
|
129,458
|
|
|
|
34,910
|
|
|
|
27
|
%
|
Interest expense, net
|
|
|
(16,032
|
)
|
|
|
(19,269
|
)
|
|
|
3,237
|
|
|
|
17
|
%
|
|
|
(19,269
|
)
|
|
|
(22,154
|
)
|
|
|
2,885
|
|
|
|
13
|
%
|
Other (expense) income, net
|
|
|
(2,919
|
)
|
|
|
(358
|
)
|
|
|
(2,561
|
)
|
|
|
>(100
|
)%
|
|
|
(358
|
)
|
|
|
3,193
|
|
|
|
(3,551
|
)
|
|
|
>(100
|
)%
|
Provision for income taxes
|
|
|
32,562
|
|
|
|
47,593
|
|
|
|
15,031
|
|
|
|
32
|
%
|
|
|
47,593
|
|
|
|
39,831
|
|
|
|
(7,762
|
)
|
|
|
(19
|
)%
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
82,964
|
|
|
|
97,148
|
|
|
|
(14,184
|
)
|
|
|
(15
|
)%
|
|
|
97,148
|
|
|
|
70,666
|
|
|
|
26,482
|
|
|
|
37
|
%
|
Income from discontinued operations, net of taxes
|
|
|
|
|
|
|
6,723
|
|
|
|
(6,723
|
)
|
|
|
(100
|
)%
|
|
|
6,723
|
|
|
|
2,887
|
|
|
|
3,836
|
|
|
|
>100
|
%
|
|
|
|
|
|
|
Net income
|
|
$
|
82,964
|
|
|
$
|
103,871
|
|
|
$
|
(20,907
|
)
|
|
|
(20
|
)%
|
|
$
|
103,871
|
|
|
$
|
73,553
|
|
|
$
|
30,318
|
|
|
|
41
|
%
|
|
|
|
|
|
|
|
|
|
(a) |
|
In December 2009 we acquired AMR Research and Burton Group. The
operating results of these businesses are included in our
consolidated results beginning on the respective dates of
acquisition. The results of these businesses were not material
to our 2009 results. |
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
16
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.
|
|
|
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
Companys 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 7 Debt in the Notes to the
Consolidated Financial Statements). Excluding the
$1.1 million charge, Interest expense, net would have
17
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.
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 Companys 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 Companys 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.
2008 VERSUS 2007
TOTAL REVENUES for the twelve months ended December 31,
2008 increased $110.6 million, or 9%, compared to the
twelve months ended December 31, 2007. Revenues increased
across all of our geographic regions and in our Research and
Consulting segments. Excluding the favorable effect of foreign
currency translation, total revenues for 2008 would have
increased 8% over 2007.
An overview of our results by geographic region follows:
|
|
|
Revenues from sales to United States and Canadian clients
increased 9%, to $723.2 million in 2008 from
$661.2 million in 2007.
|
|
|
Revenues from sales to clients in EMEA increased to
$430.4 million in 2008 from $403.9 million in 2007, a
7% increase.
|
|
|
Revenues from sales to clients in our Other International region
increased 21%, to $125.4 million in 2008 from
$103.3 million in 2007.
|
An overview of our results by segment follows:
|
|
|
Research revenues increased 14% in 2008 to
$781.6 million, compared to $683.4 million in 2007,
and comprised approximately 61% and 58% of our total revenues in
2008 and 2007, respectively.
|
|
|
Consulting revenues increased 7% in 2008 to
$347.4 million, compared to $325.0 million in 2007,
and comprised approximately 27% and 28% of our total revenues in
2008 and 2007, respectively.
|
|
|
Events revenues were $150.1 million in 2008, a
decrease of 6% from $160.1 million in 2007, and comprised
approximately 12% and 14% of our total revenues in 2008 and
2007, 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 increased
$25.6 million
year-over-year,
or 5%. Excluding the unfavorable impact of foreign exchange,
Cost of service and product development would have increased by
about 4%.
The
year-over-year
increase was due to several factors. We had $17.0 million
of higher salary, commissions, and other benefit costs,
$5.7 million in additional severance and benefits charges
related to our fourth quarter reduction in force, and
$4.0 million in additional Events fulfillment costs. The
impact of foreign currency translation added about
$2.1 million of expense. Partially offsetting these higher
charges was a decrease of approximately $3.2 million in
lower headcount costs, primarily due to our exit from consulting
operations in Asia-Pacific in mid-2007.
18
As a percentage of sales, Cost of services and product
development was 45% and 47% in 2008 and 2007 respectively, a
decrease of 2 points, which is due to a number of factors. These
factors include higher revenues coupled with the inherent
operating leverage in our Research business, improved
productivity in core Consulting, substantially increased
revenues in our higher margin contract optimization business in
our Consulting segment, and a continued focus on expense
management.
SG&A expense increased by $58.0 million in 2008, or
13%, compared to 2007. The increase in 2008 expense was
primarily due to higher investment in our sales organization,
severance and benefits charges related to our fourth quarter
reduction in force, and increases in other payroll and benefits
costs. Growth in our sales organization resulted in
approximately $38.0 million of additional payroll and
benefits, commissions, and travel expense in 2008 when compared
to 2007. We had 928 quota-bearing sales associates as of
December 31, 2008, a 15% increase over December 31,
2007. We had $2.8 million in severance and benefits charges
related to our fourth quarter 2008 reduction in force, while
higher payroll and related benefits costs for our other staff
added about $13.0 million in costs. The remaining increase
was spread across a number of other cost categories, which was
offset to some extent by lower recruiting and stock-based
compensation charges.
DEPRECIATION expense increased 7% in 2008, to $25.9 million
compared to $24.3 million for the prior year. The increase
was primarily due to a change in the mix of investment in
capital expenditures.
AMORTIZATION OF INTANGIBLES was $1.6 million in 2008
compared to $2.1 million in 2007. The decrease was due to
certain intangibles becoming fully amortized in 2007.
OTHER CHARGES was zero in 2008 and $9.1 million in 2007.
The $9.1 million included charges of $8.7 million
related to the settlement of litigation and $2.7 million of
severance costs related to the Companys exit from
consulting operations in Asia. Offsetting these charges was a
credit of $2.3 million related to an excess facility which
the Company returned to service.
OPERATING INCOME was $164.4 million and $129.5 million
in 2008 and 2007, respectively, an increase of
$34.9 million, or 27%. Operating income as a percentage of
revenues was 13% in 2008 and 11% in 2007, a 2 point increase,
which is due to a number of factors, the most significant being
the impact from higher revenues in our Research and Consulting
businesses. The improved operating margin also reflects our
tight focus on expense management, and charges of
$9.1 million in 2007 related to the settlement of
litigation and other items.
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 $19.3 million and
$22.2 million in 2008 and 2007, respectively, a decrease of
$2.9 million. The decrease was primarily due to a decline
in the weighted-average interest rate on our outstanding debt.
The weighted-average interest rate on our debt, including the
impact of our interest rate swaps, was 4.8% in 2008 and 6.0% in
2007. The impact of the lower average rate was partially offset
by an increase in the weighted-average amount of debt
outstanding of approximately $50.0 million during 2008. In
2008 we also had about $0.2 million of additional interest
income, as well as a $0.2 million decrease in the
amortization of debt issuance costs, both of which are recorded
in Interest Expense, net.
OTHER (EXPENSE) INCOME, NET was $(0.4) million in 2008 and
$3.2 million in 2007. 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. The $3.2 million of Other income
in 2007 primarily consisted of a $1.8 million gain from the
settlement of a claim and net foreign currency exchange gains.
PROVISION FOR INCOME TAXES on continuing operations was
$47.6 million in 2008 as compared to $39.8 million
2007. The effective tax rate was 32.9% in 2008 and 36.0% in
2007. The lower effective tax rate in 2008 as compared to 2007
was attributable to several items. The most significant of these
items included the following: (a) the Company generated a
larger percentage of its income in low tax jurisdictions in 2008
as compared to 2007, and (b) differences relating to the
tax impact of repatriated funds in 2008 as compared to 2007.
INCOME FROM DISCONTINUED OPERATIONS, NET OF TAXES, which
includes the results of the Companys Vision Events
business, was $6.7 million and $2.9 million for 2008
and 2007, respectively. The Company sold the Vision Events
business, which had been part of the Companys Events
segment, in early 2008. The results for 2008 included a net gain
on the sale of approximately $7.1 million and a loss from
operations of $(0.4) million.
NET INCOME was $103.9 million and $73.6 million for
2008 and 2007, respectively, an increase of $30.3 million,
or 41%.
Basic earnings per share from continuing operations increased
$0.34 per share
year-over-year.
Diluted earnings per share from continuing operations increased
$0.33 per share
year-over-year.
19
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.
We acquired AMR Research on December 18, 2009 and Burton
Group on December 30, 2009. The financial results of these
businesses are included in the Financial Measurements beginning
on their respective dates of acquisition. The results of these
businesses were not material to our segment results. Business
Measurements exclude data applicable to these businesses.
The following sections present the results of our three segments:
Research
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 vs. 2008
|
|
|
2008 vs. 2007
|
|
|
|
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
|
|
|
|
2009
|
|
|
2008
|
|
|
(Decrease)
|
|
|
(Decrease)
|
|
|
2008
|
|
|
2007
|
|
|
(Decrease)
|
|
|
(Decrease)
|
|
|
|
|
Financial Measurements: (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues (2)
|
|
$
|
752,505
|
|
|
$
|
781,581
|
|
|
$
|
(29,076)
|
|
|
|
(4
|
)%
|
|
$
|
781,581
|
|
|
$
|
683,380
|
|
|
$
|
98,201
|
|
|
|
14
|
%
|
Gross contribution (2)
|
|
$
|
489,862
|
|
|
$
|
495,440
|
|
|
$
|
(5,578)
|
|
|
|
(1
|
)%
|
|
$
|
495,440
|
|
|
$
|
419,639
|
|
|
$
|
75,801
|
|
|
|
18
|
%
|
Gross contribution margin
|
|
|
65
|
%
|
|
|
63
|
%
|
|
|
2 points
|
|
|
|
|
|
|
|
63
|
%
|
|
|
61
|
%
|
|
|
2 points
|
|
|
|
|
|
Business Measurements: (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract value (2)
|
|
$
|
784,443
|
|
|
$
|
834,321
|
|
|
$
|
(49,878)
|
|
|
|
(6
|
)%
|
|
$
|
834,321
|
|
|
$
|
752,533
|
|
|
$
|
81,788
|
|
|
|
11
|
%
|
Client retention
|
|
|
78
|
%
|
|
|
82
|
%
|
|
|
(4) points
|
|
|
|
|
|
|
|
82
|
%
|
|
|
82
|
%
|
|
|
|
|
|
|
|
|
Wallet retention
|
|
|
87
|
%
|
|
|
95
|
%
|
|
|
(8) points
|
|
|
|
|
|
|
|
95
|
%
|
|
|
98
|
%
|
|
|
(3
|
) points
|
|
|
|
|
Exec. program members
|
|
|
3,651
|
|
|
|
3,733
|
|
|
|
(82)
|
|
|
|
(2
|
)%
|
|
|
3,733
|
|
|
|
3,753
|
|
|
|
(20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes the operating results of AMR Research and Burton Group,
which we purchased in December 2009. The results of these
businesses were not material to our 2009 segment results. |
|
(2) |
|
Dollars in thousands. |
|
(3) |
|
Excludes AMR Research and Burton Group. |
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 the tight cost
controls we have implemented, 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%, one of our highest ever quarterly
increases, 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.
2008 VERSUS 2007
Revenue in our Research business was up 14% in 2008, to
$781.6 million. We had growth across our entire product
portfolio in 2008. Foreign currency translation impact was not
significant.
Research gross contribution increased to $495.4 million in
2008 from $419.6 million in 2007, an 18% increase, while
the contribution margin increased 2 points, to 63% from 61%. The
year-over-year
contribution margin improved primarily due to our stronger
revenue performance coupled with the operating leverage inherent
in our Research business, along with tight expense management.
Contract value was $834.3 million as of December 31,
2008, up 11% from $752.5 million at December 31, 2007.
Adjusted for the favorable impact of foreign currency
translation, contract value was up approximately 8%.
20
Consulting
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 vs. 2008
|
|
|
2008 vs. 2007
|
|
|
|
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
|
|
|
|
2009
|
|
|
2008
|
|
|
(Decrease)
|
|
|
(Decrease)
|
|
|
2008
|
|
|
2007
|
|
|
(Decrease)
|
|
|
(Decrease)
|
|
|
|
|
Financial Measurements: (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues (2)
|
|
$
|
286,847
|
|
|
$
|
347,404
|
|
|
$
|
(60,557)
|
|
|
|
(17
|
)%
|
|
$
|
347,404
|
|
|
$
|
325,030
|
|
|
$
|
22,374
|
|
|
|
7
|
%
|
Gross contribution (2)
|
|
$
|
112,099
|
|
|
$
|
141,395
|
|
|
$
|
(29,296)
|
|
|
|
(21
|
)%
|
|
$
|
141,395
|
|
|
$
|
128,215
|
|
|
$
|
13,180
|
|
|
|
10
|
%
|
Gross contribution margin
|
|
|
39
|
%
|
|
|
41
|
%
|
|
|
(2) points
|
|
|
|
|
|
|
|
41
|
%
|
|
|
39
|
%
|
|
|
2 points
|
|
|
|
|
|
Business Measurements: (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Backlog (2)
|
|
$
|
90,891
|
|
|
$
|
97,169
|
|
|
$
|
(6,278)
|
|
|
|
(6
|
%
|
|
$
|
97,169
|
|
|
$
|
121,400
|
|
|
$
|
(24,231
|
)
|
|
|
(20
|
)%
|
Billable headcount
|
|
|
442
|
|
|
|
499
|
|
|
|
(57)
|
|
|
|
(11
|
%
|
|
|
499
|
|
|
|
472
|
|
|
|
27
|
|
|
|
6
|
%
|
Consultant utilization
|
|
|
68
|
%
|
|
|
72
|
%
|
|
|
(4) points
|
|
|
|
|
|
|
|
72
|
%
|
|
|
69
|
%
|
|
|
3 points
|
|
|
|
|
|
Average annualized revenue per billable headcount (2)
|
|
$
|
435
|
|
|
$
|
460
|
|
|
$
|
(25)
|
|
|
|
(5
|
)%
|
|
$
|
460
|
|
|
$
|
430
|
|
|
$
|
30
|
|
|
|
7
|
%
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes the operating results of AMR Research and Burton Group,
which we purchased in December 2009. The results of these
businesses were not material to our 2009 segment results. |
|
(2) |
|
Dollars in thousands. |
|
(3) |
|
Excludes AMR Research and Burton Group. |
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.
2008 VERSUS 2007
Consulting revenues increased
year-over-year
by $22.4 million, or 7%. Excluding the favorable impact of
foreign currency translation, revenues for 2008 were up about
6%. The revenue increase was due to strength in both the core
consulting and benchmarking businesses and exceptionally strong
results in our contract optimization business. Contributing to
the
year-over-year
revenue increase in our contract optimization business was the
completion of one large contract in the fourth quarter of 2008
which resulted in approximately $11.0 million of revenue.
Consulting gross contribution increased by $13.1 million
while the gross contribution margin improved by 2 points. These
improvements were driven by improved utilization on higher
headcount and higher billing rates, and higher revenues in our
contract optimization business, which has a higher margin than
our core consulting business.
Consulting backlog, which represents future revenues to be
recognized from in-process consulting, measurement and SAS, was
$97.2 million at December 31, 2008, compared to
$121.4 million at December 31, 2007, as bookings
slowed in the fourth quarter of 2008 due to the weaker economic
environment.
21
Events
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 vs. 2008
|
|
|
2008 vs. 2007
|
|
|
|
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
|
|
|
|
2009
|
|
|
2008
|
|
|
(Decrease)
|
|
|
(Decrease)
|
|
|
2008
|
|
|
2007
|
|
|
(Decrease)
|
|
|
(Decrease)
|
|
|
|
|
Financial Measurements: (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues(2)
|
|
$
|
100,448
|
|
|
$
|
150,080
|
|
|
$
|
(49,632)
|
|
|
|
(33
|
)%
|
|
$
|
150,080
|
|
|
$
|
160,065
|
|
|
$
|
(9,985
|
)
|
|
|
(6
|
)%
|
Gross contribution(2)
|
|
$
|
40,945
|
|
|
$
|
64,954
|
|
|
$
|
(24,009)
|
|
|
|
(37
|
)%
|
|
$
|
64,954
|
|
|
$
|
81,908
|
|
|
$
|
(16,954
|
)
|
|
|
(21
|
)%
|
Gross contribution margin
|
|
|
41
|
%
|
|
|
43
|
%
|
|
|
(2) points
|
|
|
|
|
|
|
|
43
|
%
|
|
|
51
|
%
|
|
|
(8
|
) points
|
|
|
|
|
Business Measurements: (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of events
|
|
|
54
|
|
|
|
70
|
|
|
|
(16)
|
|
|
|
(23
|
)%
|
|
|
70
|
|
|
|
62
|
|
|
|
(8
|
)
|
|
|
(13
|
)%
|
Number of attendees
|
|
|
30,610
|
|
|
|
41,352
|
|
|
|
(10,742)
|
|
|
|
(26
|
)%
|
|
|
41,352
|
|
|
|
44,216
|
|
|
|
(2,864
|
)
|
|
|
(6
|
)%
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes the operating results of AMR Research and Burton Group,
which we purchased in December 2009. The results of these
businesses were not material to our 2009 segment results. |
|
(2) |
|
Dollars in thousands. |
|
(3) |
|
Excludes AMR Research and Burton Group. |
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.
2008 VERSUS 2007
Events revenues decreased 6%
year-over-year,
or $10.0 million, reflecting lower revenues from both
attendees and exhibitors. Excluding the favorable impact of
foreign currency translation, events revenues were down
approximately 7%
year-over-year.
We held 70 events in 2008 compared to 62 events in 2007, with
overall attendance down about 6%, to 41,352 in 2008 from 44,216
in 2007.
The 70 events held in 2008 included 59 on-going events and 11
new events. During 2008, the number of exhibitors at our
on-going events declined by approximately 13%, while attendance
was 38,961 as compared to 42,554 attendees in 2007, an 8%
decrease. Average revenue at these on-going events declined
slightly for attendees but increased slightly for exhibitors.
Revenues from the 11 new events we held in 2008 was only
slightly higher than the events we discontinued. The majority of
the
year-over-year
revenue shortfall occurred in our fourth quarter, as travel
restrictions, cuts in marketing budgets, and other expense
controls at many companies took effect in response to the credit
crisis and weakening global economy.
Events gross contribution was $65.0 million in 2008
compared to $81.9 million for 2007, while the
year-over-year
gross contribution margin declined by 8 points, to 43% from 51%.
The decrease in the gross contribution margin was primarily due
to lower revenues, higher fulfillment costs, the impact of lower
margin new events, and severance charges related to our
reduction in force.
LIQUIDITY AND
CAPITAL RESOURCES
We finance our operations primarily through cash generated from
our on-going operating activities. As of December 31, 2009,
we had $116.5 million of cash and cash equivalents and
$170.0 million of available borrowing capacity under our
revolving credit facility (not including the $100.0 million
expansion feature). Our cash and cash equivalents are held in
numerous locations throughout the world, with approximately 60%
held outside the United States as of December 31, 2009.
22
We repaid $95.3 million of our term loans in 2009, thus
reducing the amount of term loans outstanding by about 32%. We
paid $104.5 million in cash in December 2009 and
$13.1 million in January 2010 for the acquisitions of AMR
Research and Burton Group.
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 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 Companys changes in
cash and cash equivalents for the three years ending
December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 vs. 2008
|
|
|
2008 vs. 2007
|
|
|
|
Twelve Months
|
|
|
Twelve Months
|
|
|
|
|
|
Twelve Months
|
|
|
Twelve Months
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Dollar
|
|
|
Ended
|
|
|
Ended
|
|
|
Dollar
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
Increase
|
|
|
December 31,
|
|
|
December 31,
|
|
|
Increase
|
|
|
|
2009
|
|
|
2008
|
|
|
(Decrease)
|
|
|
2008
|
|
|
2007
|
|
|
(Decrease)
|
|
|
|
|
Cash provided by operating activities
|
|
$
|
161,937
|
|
|
$
|
184,350
|
|
|
$
|
(22,413
|
)
|
|
$
|
184,350
|
|
|
$
|
148,335
|
|
|
$
|
36,015
|
|
Cash used by investing activities
|
|
|
(119,665
|
)
|
|
|
(16,455
|
)
|
|
|
(103,210
|
)
|
|
|
(16,455
|
)
|
|
|
(24,136
|
)
|
|
|
7,681
|
|
Cash used in financing activities
|
|
|
(73,780
|
)
|
|
|
(119,835
|
)
|
|
|
46,055
|
|
|
|
(119,835
|
)
|
|
|
(93,695
|
)
|
|
|
(26,140
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase
|
|
|
(31,508
|
)
|
|
|
48,060
|
|
|
|
(79,568
|
)
|
|
|
48,060
|
|
|
|
30,504
|
|
|
|
17,556
|
|
Effects of exchange rates
|
|
|
7,153
|
|
|
|
(17,076
|
)
|
|
|
24,229
|
|
|
|
(17,076
|
)
|
|
|
11,640
|
|
|
|
(28,716
|
)
|
Beginning cash and cash equivalents
|
|
|
140,929
|
|
|
|
109,945
|
|
|
|
30,984
|
|
|
|
109,945
|
|
|
|
67,801
|
|
|
|
42,144
|
|
|
|
|
|
|
|
Ending cash and cash equivalents
|
|
$
|
116,574
|
|
|
$
|
140,929
|
|
|
$
|
(24,355
|
)
|
|
$
|
140,929
|
|
|
$
|
109,945
|
|
|
$
|
30,984
|
|
|
|
|
|
|
|
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 Companys
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.
2008 VERSUS 2007
Operating
Cash provided by operating activities increased
$36.1 million, or 24%, in 2008 compared to 2007. The
increase in cash flow from operating activities was primarily
due to substantially increased cash from our core operations and
improvement in our working capital, which together added
approximately $45.0 million in higher operating cash flow.
Our working capital improved primarily due to improved
collection of receivables. Also contributing to the improved
cash flow was $12.0 million in lower cash payments related
to severance, excess facilities, and settlement of litigation,
and about $2.0 million less in interest paid on our debt as
interest rates declined. The improved operating cash flow in
2008 was somewhat offset by higher cash payments for taxes and
bonuses of approximately $23.0 million.
Investing
Cash used in investing activities was $16.5 million for the
year ended December 31, 2008, compared to cash used of
$24.1 million in 2007. We had capital expenditures of
$24.3 million in the year ended December 31, 2008,
which was offset by net cash proceeds from the sale of our
Vision Events business of approximately $7.8 million. We
had capital expenditures of $24.2 million in 2007.
23
Financing
Cash used in financing activities totaled $119.8 million in
2008 compared to cash used of $93.7 million in 2007, an
increase in cash used of $26.1 million. The increased use
of cash was primarily due to a significantly higher use of cash
for stock repurchases in 2008. We used an additional
$34.0 million of cash to repurchase our shares in 2008, to
$200.8 million in 2008 compared to $166.8 million in
2007. Partially offsetting the additional use of cash used for
stock repurchases was an increase of $10.2 million in cash
proceeds from stock issued for stock plans, which rose to
$44.7 million in 2008 compared to $34.5 million in
2007, driven by higher option exercises.
OBLIGATIONS AND
COMMITMENTS
At December 31, 2009, we had $329.0 million
outstanding under our Credit Agreement, which provides for two
amortizing term loans and a $300.0 million revolving credit
facility. The revolving credit facility may be increased up to
an additional $100.0 million at our lenders
discretion (the expansion feature), for a total
revolving credit facility of $400.0 million. However, the
$100.0 million expansion feature may or may not be
available to us depending upon prevailing credit market
conditions.
The term loans are being repaid in consecutive quarterly
installments plus a final payment due on January 31, 2012,
and may be prepaid at any time without penalty or premium at our
option. The revolving loan facility may be borrowed, repaid and
reborrowed until January 31, 2012, at which time all
amounts borrowed must be repaid. See Note 7
Debt in the accompanying notes to the consolidated financial
statements for additional information regarding the Credit
Agreement.
Commitments
The following table presents our contractual cash commitments
due after December 31, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than
|
|
|
1-3
|
|
|
4-5
|
|
|
More Than
|
|
Commitment Type:
|
|
Total
|
|
|
1 Year
|
|
|
Years
|
|
|
Years
|
|
|
5 Years
|
|
|
|
Operating leases (1)
|
|
$
|
137,158
|
|
|
$
|
33,946
|
|
|
$
|
39,309
|
|
|
$
|
19,821
|
|
|
$
|
44,082
|
|
Debt outstanding (2)
|
|
|
329,000
|
|
|
|
77,000
|
|
|
|
252,000
|
|
|
|
|
|
|
|
|
|
Acquisition payables (3)
|
|
|
13,059
|
|
|
|
13,059
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation arrangement (4)
|
|
|
22,996
|
|
|
|
1,878
|
|
|
|
3,722
|
|
|
|
2,518
|
|
|
|
14,878
|
|
Tax liabilities (5)
|
|
|
1,310
|
|
|
|
1,310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
503,523
|
|
|
$
|
127,193
|
|
|
$
|
295,031
|
|
|
$
|
22,339
|
|
|
$
|
58,960
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The Company leases various facilities, furniture, and computer
equipment expiring between 2010 and 2025. |
|
(2) |
|
Represent amounts due under the Credit Agreement. Amounts due
under the revolver are classified in the 1-3 Years category
since the amounts are not contractually due until
January 31, 2012. |
|
|
|
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 Companys debt is contained in
Note 7 Debt in the Notes to the Consolidated
Financial Statements. For the years ended December 31,
2009, 2008 and 2007, cash interest paid on our debt was
$13.9 million, $22.4 million, and $24.1 million,
respectively. |
|
(3) |
|
Includes amounts payable consisting primarily of a portion of
the purchase price related to our acquisition of Burton Group on
December 30, 2009. These amounts were paid in January 2010. |
|
(4) |
|
Represents a liability under the Companys 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. |
|
(5) |
|
Includes interest and penalties. In addition to the
$1.3 million liability, approximately $13.8 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 $1.5 million. |
QUARTERLY
FINANCIAL DATA
The following tables present our quarterly operating results for
the two year period ended December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
Revenues
|
|
$
|
290,099
|
|
|
$
|
343,939
|
|
|
$
|
297,706
|
|
|
$
|
347,321
|
|
Operating income
|
|
|
26,330
|
|
|
|
47,575
|
|
|
|
34,682
|
|
|
|
55,781
|
|
Net income
|
|
|
21,544
|
|
|
|
29,900
|
|
|
|
18,781
|
|
|
|
33,646
|
|
Net income per share (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From continuing operations
|
|
$
|
0.15
|
|
|
$
|
0.32
|
|
|
$
|
0.20
|
|
|
$
|
0.36
|
|
From discontinued operations (2)
|
|
|
0.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.22
|
|
|
$
|
0.32
|
|
|
$
|
0.20
|
|
|
$
|
0.36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From continuing operations
|
|
$
|
0.14
|
|
|
$
|
0.30
|
|
|
$
|
0.19
|
|
|
$
|
0.35
|
|
From discontinued operations (2)
|
|
|
0.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.21
|
|
|
$
|
0.30
|
|
|
$
|
0.19
|
|
|
$
|
0.35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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. |
|
(2) |
|
The first quarter of 2008 includes $0.07 per share from gain on
disposal of discontinued operations. |
NEW ACCOUNTING
STANDARDS
In January 2010, the FASB issued ASU
2010-6,
Improving Disclosures About Fair Value Measurements,
which requires reporting entities to make new disclosures about
recurring or nonrecurring fair-value measurements including
significant transfers into and out of Level 1 and
Level 2 fair-value measurements and information on
purchases, sales, issuances, and settlements on a gross basis in
the reconciliation of Level 3 fair-value measurements. ASU
2010-6 is
effective for annual reporting periods beginning after
December 15, 2009, except for Level 3 reconciliation
disclosures which are effective for annual periods beginning
after December 15, 2010. We do not expect the adoption of
ASU 2010-6
to have a material impact on our consolidated financial
statements.
|
|
ITEM 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
|
INTEREST RATE
RISK
We have exposure to changes in interest rates resulting from the
$201.0 million outstanding on our two term loans and
$128.0 million outstanding on our revolver as of
December 31, 2009. All of these borrowings are floating
rate, which may be either prime-based or LIBOR-based. Interest
rates under these borrowings include a base rate plus a margin
currently between 0.00% and 0.75% on prime borrowings and
between .625% and 1.75% on LIBOR-based borrowings.
As of December 31, 2009 the annualized interest rates on
the original term loan, the 2008 term loan, and the revolver
were 1.0%, 1.26%, and 1.0%, respectively. The rates on the
original and 2008 term loans consisted of a three-month LIBOR
base rate plus margins of 0.75% and 1.00%, respectively. The
rate on the revolver consisted of a one-month LIBOR base rate
plus a margin of 0.75%.
We have an interest rate swap contract which effectively
converts the floating base rate on the original term loan to a
fixed rate. As a result, our exposure to interest rate risk on
the original term loan is capped. Including the effect of the
interest rate swap, the annualized interest rate on the original
term loan was 5.81% as of December 31, 2009.
The Company does not hedge the interest rate risk on the 2008
term loan and the revolver. Accordingly, we are exposed to
interest rate risk on this debt. A 25 basis point increase
or decrease in interest rates would change pre-tax annual
interest expense on the $300.0 million revolver and the
$80.0 million outstanding on the 2008 term loan by
approximately $1.0 million.
25
FOREIGN CURRENCY
EXCHANGE RISK
We have clients in over 80 countries and 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 Consolidated Balance Sheets can be determined
through a sensitivity analysis of our cash and cash equivalents.
As of December 31, 2009, we had $116.6 million of cash
and cash equivalents, of which approximately $70.0 million
was denominated in foreign currencies. If foreign exchange rates
in comparison to the U.S dollar changed by 10%, the amount of
cash and cash equivalents we would have reported on
December 31, 2009 would have increased or decreased by
approximately $4.0 million.
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 local functional currencies in which the foreign
subsidiaries operate.
We typically enter into foreign currency forward exchange
contracts to offset the effects of this foreign currency
transaction risk. These contracts are normally short term in
duration. Unrealized and realized gains and losses are
recognized in earnings. At December 31, 2009, we had 19
foreign currency forward contracts outstanding with a total
notional amount of $117.3 million and a net unrealized gain
of approximately $0.7 million. All of these contracts
matured by the end of January 2010.
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 Companys cash equivalent investments and
its two interest rate swap contracts are with investment grade
commercial banks that are participants in the Companys
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.
|
|
ITEM 8.
|
CONSOLIDATED
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
|
Our consolidated financial statements for 2009, 2008, and 2007,
together with the reports of KPMG LLP, our independent
registered public accounting firm, are included herein in this
Annual Report on
Form 10-K.
ITEM 9. CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
|
|
ITEM 9A.
|
CONTROLS
AND PROCEDURES
|
DISCLOSURE
CONTROLS AND PROCEDURES
Management conducted an evaluation, as of December 31,
2009, 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.
26
MANAGEMENTS
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).
Gartners 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, 2009. 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).
Managements 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, 2009, Gartners internal control over
financial reporting was effective.
The effectiveness of managements internal control over
financial reporting as of December 31, 2009 has been
audited by KPMG LLP, an independent registered 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, 2009 that
have materially affected, or are reasonably likely to materially
affect, our internal controls over financial reporting.
|
|
ITEM 9B.
|
OTHER
INFORMATION
|
Not applicable.
27
PART III
|
|
ITEM 10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
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 Companys Proxy Statement to be filed with the SEC no
later than April 30, 2010. If the Proxy Statement is not
filed with the SEC by April 30, 2010, such information will
be included in an amendment to this Annual Report filed by
April 30, 2010. See also Item 1. Business
Available Information.
|
|
ITEM 11.
|
EXECUTIVE
COMPENSATION.
|
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
Companys Proxy Statement to be filed with the SEC no later
than April 30, 2010. If the Proxy Statement is not filed
with the SEC by April 30, 2010, such information will be
included in an amendment to this Annual Report filed by
April 30, 2010.
|
|
ITEM 12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.
|
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
Companys Proxy Statement to be filed with the SEC by
April 30, 2010. If the Proxy Statement is not filed with
the SEC by April 30, 2010, such information will be
included in an amendment to this Annual Report filed by
April 30, 2010.
|
|
ITEM 13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE.
|
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 Companys Proxy
Statement to be filed with the SEC by April 30, 2010. If
the Proxy Statement is not filed with the SEC by April 30,
2010, such information will be included in an amendment to this
Annual Report filed by April 30, 2010.
|
|
ITEM 14.
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES.
|
The information required to be furnished pursuant to this item
will be set forth under the caption Principal Accountant
Fees and Services in the Companys Proxy Statement to
be filed with the SEC no later than April 30, 2010. If the
Proxy Statement is not filed with the SEC by April 30,
2010, such information will be included in an amendment to this
Annual Report filed by April 30, 2010.
28
PART IV
|
|
ITEM 15.
|
EXHIBITS AND
FINANCIAL STATEMENT SCHEDULES.
|
(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.
|
3.1b(2)
|
|
Certificate of Designation, Preferences and Rights of
Series A Junior Participating Preferred Stock of the
Company, dated November 27, 2006.
|
3.2(3)
|
|
Bylaws as amended through May 1, 2007.
|
4.1(1)
|
|
Form of Certificate for Common Stock as of June 2, 2005.
|
4.2(4)
|
|
Credit Agreement, dated as of January 31, 2007, among the
Company, the several lenders from time to time parties thereto,
and JPMorgan Chase Bank, N.A. as administrative agent (the
Credit Agreement).
|
4.3(12)
|
|
First Amendment dated as of April 9, 2008 to the Credit
Agreement.
|
10.1*
|
|
Agreement of Merger among Gartner, Inc., Clover Acquisition
Corporation and AMR Research, Inc. dated as of November 29,
2009.
|
10.2(13)
|
|
Agreement of Merger among Gartner, Inc., Jasmine Acquisition
Corporation and Burton Group, Inc. dated as of December 30,
2009.
|
10.3(5)
|
|
Lease dated December 29, 1994 between Soundview Farms and
the Company for premises at 56 Top Gallant Road, 70 Gatehouse
Road, and 88 Gatehouse Road, Stamford, Connecticut.
|
10.4(6)
|
|
Lease dated May 16, 1997 between Soundview Farms and the
Company for premises at 56 Top Gallant Road, 70 Gatehouse Road,
88 Gatehouse Road and 10 Signal Road, Stamford, Connecticut
(amendment to lease dated December 29, 1994, see
exhibit 10.3).
|
10.5(7)+
|
|
1991 Stock Option Plan as amended and restated on
October 19, 1999.
|
10.6(8)+
|
|
2002 Employee Stock Purchase Plan, as amended and restated
effective June 1, 2008.
|
10.7(1)+
|
|
1994 Long Term Stock Option Plan, as amended and restated on
October 12, 1999.
|
10.8(9)+
|
|
1999 Stock Option Plan.
|
10.10(14)+
|
|
2003 Long-Term Incentive Plan, as amended and restated on
June 4, 2009.
|
10.11(15)+
|
|
2008-1
Amendment to 2003 Long-Term Incentive Plan dated
October 28, 2008.
|
10.12(15)+
|
|
2008-2
Amendment to 2003 Long-Term Incentive Plan dated
October 28, 2008.
|
10.13(15)+
|
|
Amended and Restated Employment Agreement between Eugene A. Hall
and the Company dated as of December 31, 2008.
|
10.14(10)+
|
|
Restricted Stock Agreement by and between Eugene A. Hall and the
Company dated November 9, 2005.
|
10.15(15)+
|
|
Company Deferred Compensation Plan, effective January 1,
2009.
|
10.17(11)+
|
|
Form of Stock Appreciation Right Agreement for executive
officers.
|
10.18(11)+
|
|
Form of Restricted 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. |
|
|
|
+ |
|
Management compensation plan or arrangement. |
|
|
|
(1) |
|
Incorporated by reference from the Companys Current Report
on
Form 8-K
dated June 29, 2005 as filed on July 6, 2005. |
|
(2) |
|
Incorporated by reference from the Companys Current Report
on
Form 8-K
dated November 27, 2006 as filed on November 30, 2006. |
|
(3) |
|
Incorporated by reference from the Companys Current Report
on
Form 8-K
dated May 3, 2007 as filed on May 3, 2007. |
|
(4) |
|
Incorporated by reference from the Companys Current Report
on
Form 8-K
dated January 31, 2007 as filed on February 6, 2007. |
|
(5) |
|
Incorporated by reference from the Companys Annual Report
on
Form 10-K
as filed on December 21, 1995. |
|
(6) |
|
Incorporated by reference from the Companys Annual Report
on
Form 10-K
as filed on December 12, 1997. |
|
(7) |
|
Incorporated by reference from the Companys Annual Report
on
Form 10-K
filed on December 22, 1999. |
|
(8) |
|
Incorporated by reference from the Companys Quarterly
Report on
Form 10-Q
as filed on May 8, 2008. |
|
(9) |
|
Incorporated by reference from the Companys
Form S-8
as filed on February 16, 2000. |
|
(10) |
|
Incorporated by reference from the Companys Quarterly
Report on
Form 10-Q
as filed on November 9, 2005. |
29
|
|
|
(11) |
|
Incorporated by reference from the Companys Current Report
on
Form 8-K
dated February 11, 2010 as filed on February 16, 2010. |
|
(12) |
|
Incorporated by reference from the Companys Current Report
on
Form 8-K
dated April 9, 2008 as filed on April 14, 2008. |
|
(13) |
|
Incorporated by reference from the Companys Current Report
on
Form 8-K
dated December 30, 2009 as filed on January 5, 2010. |
|
(14) |
|
Incorporated by reference from the Companys Proxy
Statement (Schedule 14A) as filed on April 21, 2009. |
|
(15) |
|
Incorporated by reference from the Companys Annual Report
on
Form 10-K
as filed on February 20, 2009. |
30
GARTNER, INC.
CONSOLIDATED FINANCIAL STATEMENTS
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.
31
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, 2009 and 2008, 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, 2009.
These consolidated financial statements are the responsibility
of the Companys 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, 2009 and 2008, and the results of their
operations and their cash flows for each of the years in the
three-year period ended December 31, 2009, 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
Companys internal control over financial reporting as of
December 31, 2009, based criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO), and our report dated February 19, 2010
expressed an unqualified opinion on the effectiveness of the
Companys internal control over financial reporting.
New York, New York
February 19, 2010
32
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, 2009, based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). The Companys 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 Managements Annual Report on Internal Control
Over Financial Reporting. Our responsibility is to express an
opinion on the Companys 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 companys 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 companys
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
companys 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, 2009, 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, 2009 and 2008, 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, 2009, and
our report dated February 19, 2010 expressed an unqualified
opinion on those consolidated financial statements.
New York, New York
February 19, 2010
33
GARTNER, INC.
(IN THOUSANDS, EXCEPT SHARE DATA)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
116,574
|
|
|
$
|
140,929
|
|
Fees receivable, net of allowances of $8,100 and $7,800
respectively
|
|
|
317,598
|
|
|
|
318,511
|
|
Deferred commissions
|
|
|
70,253
|
|
|
|
52,149
|
|
Prepaid expenses and other current assets
|
|
|
53,400
|
|
|
|
42,935
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
557,825
|
|
|
|
554,524
|
|
Property, equipment and leasehold improvements, net
|
|
|
52,466
|
|
|
|
61,869
|
|
Goodwill
|
|
|
513,612
|
|
|
|
398,737
|
|
Intangible assets, net
|
|
|
24,113
|
|
|
|
2,015
|
|
Other assets
|
|
|
67,263
|
|
|
|
75,920
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,215,279
|
|
|
$
|
1,093,065
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
255,966
|
|
|
$
|
219,381
|
|
Deferred revenues
|
|
|
437,207
|
|
|
|
395,278
|
|
Current portion of long-term debt
|
|
|
205,000
|
|
|
|
177,750
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
898,173
|
|
|
|
792,409
|
|
Long-term debt
|
|
|
124,000
|
|
|
|
238,500
|
|
Other liabilities
|
|
|
80,571
|
|
|
|
83,472
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,102,744
|
|
|
|
1,114,381
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Stockholders equity (deficit):
|
|
|
|
|
|
|
|
|
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; 156,234,416 shares issued for both periods
|
|
|
78
|
|
|
|
78
|
|
Additional paid-in capital
|
|
|
590,864
|
|
|
|
570,667
|
|
Accumulated other comprehensive income (loss), net
|
|
|
11,322
|
|
|
|
(1,741
|
)
|
Accumulated earnings
|
|
|
509,392
|
|
|
|
426,428
|
|
Treasury stock, at cost, 60,356,672 and 62,353,575 common
shares, respectively
|
|
|
(999,121
|
)
|
|
|
(1,016,748
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity (deficit)
|
|
|
112,535
|
|
|
|
(21,316
|
)
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity (deficit)
|
|
$
|
1,215,279
|
|
|
$
|
1,093,065
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
34
GARTNER, INC.
(IN THOUSANDS, EXCEPT PER SHARE DATA)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
|
|
$
|
752,505
|
|
|
$
|
781,581
|
|
|
$
|
683,380
|
|
Consulting
|
|
|
286,847
|
|
|
|
347,404
|
|
|
|
325,030
|
|
Events
|
|
|
100,448
|
|
|
|
150,080
|
|
|
|
160,065
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
1,139,800
|
|
|
|
1,279,065
|
|
|
|
1,168,475
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services and product development
|
|
|
498,363
|
|
|
|
572,208
|
|
|
|
546,569
|
|
Selling, general and administrative
|
|
|
477,003
|
|
|
|
514,994
|
|
|
|
456,975
|
|
Depreciation
|
|
|
25,387
|
|
|
|
25,880
|
|
|
|
24,298
|
|
Amortization of intangibles
|
|
|
1,636
|
|
|
|
1,615
|
|
|
|
2,091
|
|
Acquisition and integration charges
|
|
|
2,934
|
|
|
|
|
|
|
|
|
|
Other charges
|
|
|
|
|
|
|
|
|
|
|
9,084
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
1,005,323
|
|
|
|
1,114,697
|
|
|
|
1,039,017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
134,477
|
|
|
|
164,368
|
|
|
|
129,458
|
|
Interest income
|
|
|
830
|
|
|
|
3,121
|
|
|
|
2,912
|
|
Interest expense
|
|
|
(16,862
|
)
|
|
|
(22,390
|
)
|
|
|
(25,066
|
)
|
Other (expense) income, net
|
|
|
(2,919
|
)
|
|
|
(358
|
)
|
|
|
3,193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
115,526
|
|
|
|
144,741
|
|
|
|
110,497
|
|
Provision for income taxes
|
|
|
32,562
|
|
|
|
47,593
|
|
|
|
39,831
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
82,964
|
|
|
|
97,148
|
|
|
|
70,666
|
|
Income from discontinued operations, net of taxes
|
|
|
|
|
|
|
6,723
|
|
|
|
2,887
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
82,964
|
|
|
$
|
103,871
|
|
|
$
|
73,553
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
0.88
|
|
|
$
|
1.02
|
|
|
$
|
0.68
|
|
Income from discontinued operations
|
|
|
|
|
|
|
.07
|
|
|
|
.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.88
|
|
|
$
|
1.09
|
|
|
$
|
0.71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
0.85
|
|
|
$
|
0.98
|
|
|
$
|
0.65
|
|
Income from discontinued operations
|
|
|
|
|
|
|
.07
|
|
|
|
.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.85
|
|
|
$
|
1.05
|
|
|
$
|
0.68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
94,658
|
|
|
|
95,246
|
|
|
|
103,613
|
|
Diluted
|
|
|
97,549
|
|
|
|
99,028
|
|
|
|
108,328
|
|
See Notes to Consolidated Financial Statements.
35
GARTNER, INC.
(IN THOUSANDS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
Additional
|
|
|
Unearned
|
|
|
Comprehensive
|
|
|
|
|
|
|
|
|
Stockholders
|
|
|
|
Common
|
|
|
Paid-In
|
|
|
Compensation,
|
|
|
Income (Loss),
|
|
|
Accumulated
|
|
|
Treasury
|
|
|
Equity
|
|
|
|
Stock
|
|
|
Capital
|
|
|
Net
|
|
|
Net
|
|
|
Earnings
|
|
|
Stock
|
|
|
(Deficit)
|
|
|
|
|
Balance at December 31, 2006
|
|
$
|
78
|
|
|
$
|
544,686
|
|
|
$
|
(2,208
|
)
|
|
$
|
13,097
|
|
|
$
|
249,004
|
|
|
$
|
(778,339
|
)
|
|
$
|
26,318
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73,553
|
|
|
|
|
|
|
|
73,553
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,570
|
|
|
|
|
|
|
|
|
|
|
|
10,570
|
|
Interest rate swap, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,966
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,966
|
)
|
Pension unrecognized gain, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,940
|
|
|
|
|
|
|
|
|
|
|
|
2,940
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,544
|
|
|
|
|
|
|
|
|
|
|
|
10,544
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
84,097
|
|
Issuances under stock plans
|
|
|
|
|
|
|
(36,210
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73,357
|
|
|
|
37,147
|
|
Excess tax benefits from stock compensation
|
|
|
|
|
|
|
14,759
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,759
|
|
Purchase of shares for treasury stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(169,064
|
)
|
|
|
(169,064
|
)
|
Stock compensation expense (net of forfeitures)
|
|
|
|
|
|
|
22,419
|
|
|
|
1,822
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,241
|
|
|
|
Balance at December 31, 2007
|
|
$
|
78
|
|
|
$
|
545,654
|
|
|
$
|
(386
|
)
|
|
$
|
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 stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(198,576
|
)
|
|
|
(198,576
|
)
|
Stock compensation expense (net of forfeitures)
|
|
|
|
|
|
|
20,310
|
|
|
|
386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,744
|
)
|
|
|
(3,744
|
)
|
Stock compensation expense (net of forfeitures)
|
|
|
|
|
|
|
26,066
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,066
|
|
|
|
Balance at December 31, 2009
|
|
$
|
78
|
|
|
$
|
590,864
|
|
|
$
|
|
|
|
$
|
11,322
|
|
|
$
|
509,392
|
|
|
$
|
(999,121
|
)
|
|
$
|
112,535
|
|
|
|
See Notes to Consolidated Financial Statements.
36
GARTNER, INC.
(IN THOUSANDS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
82,964
|
|
|
$
|
103,871
|
|
|
$
|
73,553
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale of Vision Events business
|
|
|
|
|
|
|
(7,061
|
)
|
|
|
|
|
Depreciation and amortization of intangibles
|
|
|
27,023
|
|
|
|
27,495
|
|
|
|
26,389
|
|
Stock-based compensation expense
|
|
|
26,066
|
|
|
|
20,696
|
|
|
|
24,241
|
|
Excess tax benefits from stock-based compensation expense
|
|
|
(2,392
|
)
|
|
|
(14,831
|
)
|
|
|
(14,759
|
)
|
Deferred taxes
|
|
|
5,003
|
|
|
|
2,617
|
|
|
|
6,740
|
|
Amortization and write-off of debt issue costs
|
|
|
1,480
|
|
|
|
1,222
|
|
|
|
1,363
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees receivable, net
|
|
|
25,349
|
|
|
|
20,987
|
|
|
|
(10,880
|
)
|
Deferred commissions
|
|
|
(16,750
|
)
|
|
|
(1,403
|
)
|
|
|
(5,266
|
)
|
Prepaid expenses and other current assets
|
|
|
13,059
|
|
|
|
(21
|
)
|
|
|
(857
|
)
|
Other assets
|
|
|
532
|
|
|
|
2,907
|
|
|
|
(12,288
|
)
|
Deferred revenues
|
|
|
5,101
|
|
|
|
(308
|
)
|
|
|
26,858
|
|
Accounts payable, accrued, and other liabilities
|
|
|
(5,498
|
)
|
|
|
28,179
|
|
|
|
33,241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by operating activities
|
|
|
161,937
|
|
|
|
184,350
|
|
|
|
148,335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of Vision Events business
|
|
|
|
|
|
|
7,847
|
|
|
|
|
|
Additions to property, equipment and leasehold improvements
|
|
|
(15,142
|
)
|
|
|
(24,302
|
)
|
|
|
(24,136
|
)
|
Acquisitions (net of cash received)
|
|
|
(104,523
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash used in investing activities
|
|
|
(119,665
|
)
|
|
|
(16,455
|
)
|
|
|
(24,136
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from terminated interest rate swap
|
|
|
|
|
|
|
|
|
|
|
1,167
|
|
Proceeds from stock issued for stock plans
|
|
|
14,822
|
|
|
|
44,702
|
|
|
|
34,458
|
|
Proceeds from debt issuance
|
|
|
78,000
|
|
|
|
180,000
|
|
|
|
525,000
|
|
Payments for debt issuance costs
|
|
|
|
|
|
|
(801
|
)
|
|
|
(1,257
|
)
|
Payments on debt
|
|
|
(165,250
|
)
|
|
|
(157,750
|
)
|
|
|
(501,000
|
)
|
Purchases of treasury stock
|
|
|
(3,744
|
)
|
|
|
(200,817
|
)
|
|
|
(166,822
|
)
|
Excess tax benefits from stock-based compensation expense
|
|
|
2,392
|
|
|
|
14,831
|
|
|
|
14,759
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash used by financing activities
|
|
|
(73,780
|
)
|
|
|
(119,835
|
)
|
|
|
(93,695
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(31,508
|
)
|
|
|
48,060
|
|
|
|
30,504
|
|
Effects of exchange rates on cash and cash equivalents
|
|
|
7,153
|
|
|
|
(17,076
|
)
|
|
|
11,640
|
|
Cash and cash equivalents, beginning of period
|
|
|
140,929
|
|
|
|
109,945
|
|
|
|
67,801
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
116,574
|
|
|
$
|
140,929
|
|
|
$
|
109,945
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
13,942
|
|
|
$
|
22,380
|
|
|
$
|
24,100
|
|
Income taxes, net of refunds received
|
|
$
|
34,438
|
|
|
$
|
19,961
|
|
|
$
|
3,564
|
|
See Notes to Consolidated Financial Statements.
37
GARTNER, INC.
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 fiscal year of
Gartner, Inc. (the Company) represents the period
from January 1 through December 31. Certain prior year
amounts have been reclassified to conform to the current year
presentation. When used in these notes, the terms
Company, we, us, or
our mean Gartner, Inc. and its consolidated
subsidiaries.
On December 18, 2009, we acquired AMR Research, Inc., and
on December 30, 2009, we acquired Burton Group, Inc. (see
Note 2 Acquisitions). The results of these
businesses are included in our operating results beginning on
their respective dates of acquisition.
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 in conformity
with accounting principles generally accepted in the United
States of America 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 consolidated financial statements to
be reasonable.
Management evaluates its estimates on an ongoing basis 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 and as such these estimates may ultimately differ
from actual results.
The global credit crisis and economic downturn that began in
2008, volatile foreign currency rates, cuts in travel, marketing
and technology budgets, and other external factors have combined
to increase the risks and uncertainty inherent in such
estimates. These external factors may increase the risks the
Company faces in developing estimates in particular relating to
the collection of receivables, the achievement of the
performance targets on performance-based compensation elements,
and the valuation of goodwill. Changes in those estimates
resulting from continuing weakness in the economic environment
or other factors beyond our control could be material and would
be reflected in the Companys financial statements in
future periods.
Reclassifications. Effective January 1,
2009, the Company has reclassified certain amounts presented in
its Consolidated Statements of Operations, as follows:
Other revenues The Company
eliminated its previously reported Other revenue
line. The Other revenue line primarily consisted of
fees earned from Research reprints and other miscellaneous
products, and these revenues and related expenses are now
included in the Research segment. The Company made this change
because the Other revenue has declined in magnitude,
from approximately $10.0 million in 2007, slightly less
than 1.0% of total revenues in that year, to about
$8.3 million in 2008, about half a percent of total
revenues in that year, and this trend is continuing. The revenue
decline reflects the Companys decision to discontinue some
of these products.
Expense reclassifications Certain expenses that were
formerly classified as Selling, general &
administrative expense are now included in Cost of services and
product development. These reclassifications reflect changes in
the way we service and deliver value to our Research clients and
related changes in work responsibilities of certain departments
and associates.
Prior periods have been reclassified in order to be consistent
with the current period presentation. See
Note 16 Segment Information for additional
information.
Codification of accounting standards. On
September 30, 2009, the Company adopted
SFAS No. 168, The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting
Principles (the Codification). The Codification combines the
previous U.S. GAAP hierarchy which included four levels of
authoritative accounting literature distributed among a number
of different sources. The Codification does not by itself create
new accounting standards but instead reorganizes thousands of
pages of existing U.S. GAAP accounting rules into
approximately 90 accounting topics.
38
All existing accounting standard documents are superseded by the
Codification and all other accounting literature not included in
the Codification is now considered non-authoritative. The
Codification explicitly recognizes the rules and interpretive
releases of the Securities and Exchange Commission
(SEC) under federal securities laws as authoritative
GAAP for SEC registrants. The Codification is now the single
source of authoritative nongovernmental accounting standards in
the United States. As a result of the Codification, the
references to authoritative accounting pronouncements included
herein in this Annual Report on
Form 10-K
now refer to the Codification topic section rather than a
specific accounting rule as was past practice.
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.
Revenues. Revenues from research products 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. All 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. With the exception of certain
government contracts which permit termination and contracts with
special billing terms, it is Company policy to record the entire
amount of the contract that is billable as a fee receivable at
the time the contract is signed, which represents a legally
enforceable claim, and a corresponding amount as deferred
revenue. For those government contracts that permit termination,
the Company bills the client the full amount billable under the
contract but only records a receivable equal to the earned
portion of the contract. In addition, the Company only records
deferred revenue on these government contracts when cash is
received.
Deferred revenue attributable to government contracts was
$65.3 million and $61.6 million at December 31,
2009 and 2008, respectively. In addition, at December 31,
2009 and 2008, the Company had not recognized receivables or
deferred revenues relating to government contracts that permit
termination of $8.3 million and $12.1 million,
respectively, which had been billed but not yet collected.
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 for discrete projects. Revenues for such
projects are recognized as work is delivered
and/or
services are provided. Unbilled fees receivable associated with
consulting engagements were $30.0 million at
December 31, 2009 and $35.3 million at
December 31, 2008. 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.
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
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. Includes costs incurred in the
creation and delivery of 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 the
commission obligation related to research contracts upon the
signing of the contract and amortizes the corresponding deferred
commission expense over the contract period in which the related
revenues are earned. The Company records commission expense 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,
39
which is normally the same as the vesting period. The Company
records this expense in both Cost of services and product
development and SG&A in the Consolidated Statements of
Operations.
During 2009, 2008, and 2007, the Company recognized
$26.1 million, $20.7 million, and $24.2 million,
respectively, of stock-based compensation expense (see
Note 10 Stock-Based Compensation).
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.
Sales taxes. Sales tax collected from
customers remitted to governmental authorities is presented on a
net basis in the Consolidated Statements of Operations.
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 rent concessions, contractual rent increases, and
landlord incentives, are recognized ratably over the life of the
related lease agreement. Lease expense was $22.5 million in
both 2009 and 2008 and $23.8 million in 2007.
Equipment, leasehold improvements, and other fixed assets owned
by the Company are recorded at cost less accumulated
depreciation and amortization 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.
Property, equipment and leasehold improvements, less accumulated
depreciation and amortization consist of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
Useful Life
|
|
|
|
|
|
|
|
|
|
(Years)
|
|
|
2009
|
|
|
2008
|
|
|
|
Computer equipment and software
|
|
|
2 - 7
|
|
|
$
|
118,487
|
|
|
$
|
123,970
|
|
Furniture and equipment
|
|
|
3 - 8
|
|
|
|
32,183
|
|
|
|
34,220
|
|
Leasehold improvements
|
|
|
2 - 10
|
|
|
|
46,945
|
|
|
|
49,110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
197,615
|
|
|
|
207,300
|
|
Less accumulated depreciation and amortization
|
|
|
|
|
|
|
(145,149
|
)
|
|
|
(145,431
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
52,466
|
|
|
$
|
61,869
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company also capitalizes certain development costs incurred
to develop internal use software in accordance with FASB ASC
Topic 350. At December 31, 2009 and 2008, capitalized
development costs for internal use software were
$16.1 million and $19.6 million, respectively, net of
accumulated amortization of $20.4 million and
$18.9 million, respectively. Amortization of capitalized
internal software development costs, which is classified in
Depreciation in the Consolidated Statements of Operations,
totaled $8.3 million, $7.4 million, and
$6.5 million during 2009, 2008, and 2007, respectively.
The Company had total depreciation expense of
$25.4 million, $25.9 million, and $24.3 million
in 2009, 2008, and 2007, respectively.
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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer
|
|
|
Noncompete
|
|
|
|
|
December 31, 2009
|
|
Content
|
|
|
Trade 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer
|
|
|
Noncompete
|
|
|
|
|
December 31, 2008
|
|
Relationships
|
|
|
Agreements
|
|
|
Total
|
|
|
|
Gross cost
|
|
$
|
7,700
|
|
|
$
|
278
|
|
|
$
|
7,978
|
|
Accumulated amortization
|
|
|
(5,775
|
)
|
|
|
(188
|
)
|
|
|
(5,963
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
$
|
1,925
|
|
|
$
|
90
|
|
|
$
|
2,015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40
|
|
|
(1) |
|
Includes $23.6 million of purchased intangibles related to
the acquisitions of AMR, Research, Inc. and Burton Group, Inc.
in December 2009. See Note 2 Acquisitions for
additional information. |
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 related to intangible assets was
$1.6 million, $1.6 million, and $2.1 million for 2009,
2008, and 2007, respectively.
The estimated future amortization expense by year from purchased
intangibles is as follows (in thousands):
|
|
|
|
|
2010
|
|
$
|
10,541
|
|
2011
|
|
|
6,530
|
|
2012
|
|
|
2,958
|
|
2014
|
|
|
2,958
|
|
2015 and thereafter
|
|
|
1,126
|
|
|
|
|
|
|
|
|
$
|
24,113
|
|
|
|
|
|
|
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 units carrying amount exceeds its estimated fair
value, goodwill impairment is recognized to the extent that the
reporting units 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, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
|
|
|
Consulting
|
|
|
Events
|
|
|
Total
|
|
Balance, January 1, 2008 (1)
|
|
$
|
291,281
|
|
|
$
|
88,425
|
|
|
$
|
36,475
|
|
|
$
|
416,181
|
|
Purchase accounting adjustments (2)
|
|
|
(520
|
)
|
|
|
|
|
|
|
|
|
|
|
(520
|
)
|
Foreign currency translation adjustments
|
|
|
(10,600
|
)
|
|
|
(4,377
|
)
|
|
|
(107
|
)
|
|
|
(15,084
|
)
|
Divestitures (3)
|
|
|
|
|
|
|
|
|
|
|
(1,840
|
)
|
|
|
(1,840
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008
|
|
$
|
280,161
|
|
|
$
|
84,048
|
|
|
$
|
34,528
|
|
|
$
|
398,737
|
|
Foreign currency translation adjustments
|
|
|
4,386
|
|
|
|
1,434
|
|
|
|
73
|
|
|
|
5,893
|
|
Additions due to acquisitions (4)
|
|
|
86,083
|
|
|
|
15,262
|
|
|
|
7,637
|
|
|
|
108,982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009
|
|
$
|
370,630
|
|
|
$
|
100,744
|
|
|
$
|
42,238
|
|
|
$
|
513,612
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The Company has not recorded charges for goodwill impairment
since the adoption of the current goodwill impairment rules on
January 1, 2002. Accordingly, the Company considers the
goodwill amount as of January 1, 2008 to be the gross
amount of goodwill. |
|
(2) |
|
The Company reduced Research goodwill by $0.5 million due
to a tax purchase accounting adjustment related to the
acquisition of META Group, Inc. in 2005. The adjustment related
to the utilization or anticipated utilization of net operating
losses for which a valuation was recorded at the acquisition
date. |
|
(3) |
|
The Company reduced Events segment goodwill by $1.8 million
related to the sale of its Visions Events business in February
2008 (see Note 3 Discontinued Operations). |
|
(4) |
|
The Company recorded $109.0 million of goodwill related to
the acquisitions of AMR Research, Inc. and Burton Group, Inc. in
December 2009 (see Note 2 Acquisitions). |
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 not be recoverable. Such
evaluation may be based on a number of factors including current
and projected operating results and cash flows, changes in
managements strategic direction as well as other economic
and market variables. The Companys 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
Companys average cost of funds and the carrying value of
the asset.
41
Pension obligations. The Company has
defined-benefit pension plans in several of its international
locations (see Note 15 Employee Benefits).
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 Topic 715. The Company determines the
pension obligations and related benefit expense for these plans
through actuarial assumptions and valuations. The Company
recognized $2.2 million, $2.2 million, and
$2.7 million of expense for these plans in 2009, 2008, and
2007, 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 within Other
income (expense), net within the Consolidated Statements of
Operations. Net currency transaction (losses) gains were
$(3.6) million, $(0.9) million, and $4.1 million
in 2009, 2008, and 2007, respectively.
We may 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 $0.7 million,
$(0.6) million, and $(3.0) million for 2009, 2008, and
2007, respectively.
Fair value disclosures. The Companys
fair value disclosures are included in Note 14
Fair Value Disclosures.
Concentrations of credit risk. Items that
potentially subject the Company to concentration of credit risk
at December 31, 2009 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 Companys cash
equivalent investments and its two interest rate swap contracts
are with investment grade commercial banks that are participants
in the Companys 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 Companys pension
reinsurance asset is maintained with a large international
insurance company that was rated investment grade as of
December 31, 2009.
Stock repurchase programs. The Company records
the cost to repurchase its own shares to treasury stock. During
2009, 2008 and 2007, the Company recorded $3.7 million,
$198.6 million, and $169.1 million, respectively, of
stock repurchases (see
Note 9-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
2010-6,
Improving Disclosures About Fair Value Measurements,
which requires reporting entities to make new disclosures about
recurring or nonrecurring fair-value measurements including
significant transfers into and out of Level 1 and
Level 2 fair-value measurements and information on
purchases, sales, issuances, and settlements on a gross basis in
the reconciliation of Level 3 fair-value measurements. ASU
2010-6 is
effective for annual reporting periods beginning after
December 15, 2009, except for Level 3 reconciliation
disclosures which are effective for annual periods beginning
after December 15, 2010.
2ACQUISITIONS
The Company acquired two businesses in December 2009:
AMR Research, Inc.
On December 18, 2009, the Company acquired all of the
outstanding shares of AMR Research, Inc. (AMR
Research), a privately-owned, Boston-based firm with
170 employees, for approximately $63.0 million in
cash. AMR is a leading authority on global supply chain and
supporting technologies. AMR offers operations and technology
executives of manufacturing and retail companies an integrated
set of services, including written research, access to research
analysts, peer networking through its forum advisory services,
consulting and participation at its executive conferences.
Gartners strategic objective in acquiring AMR is to
leverage Gartners scale and worldwide distribution
capability and sell AMRs suite of research, consulting,
and events offerings to Gartners much larger client base
with supply chain technology concerns, as well as introduce
AMRs supply chain clients to Gartners suite of
products. The combination is also expected to drive operational
efficiencies and cost savings.
Burton Group, Inc.
On December 30, 2009, the Company acquired all of the
outstanding shares of Burton Group, Inc. (Burton
Group), a privately-owned Utah-based firm with
120 employees, for approximately $55.0 million in
cash. Burton Group is a leading research and advisory services
firm that focuses on providing practical, technically in-depth
advice to front-line IT professionals. Gartners strategic
objective in acquiring Burton Group is to expand Gartners
product and service offerings and to leverage Gartners
scale
42
and worldwide distribution capability to sell Burton
Groups suite of research, consulting, and events offerings
to Gartners much larger client base. The combination is
also expected to drive operational efficiencies and cost savings.
Operating Results
The Companys consolidated financial statements include the
operating results of these acquisitions beginning with their
respective dates of acquisition, which was not material to the
Companys 2009 results. The Company recorded
$2.9 million of pre-tax acquisition and integration charges
related to these businesses for the year ended December 31,
2009, which is classified in Acquisition and integration expense
in the Consolidated Statements of Operations. 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 Companys acquisitions of AMR Research and Burton Group
were not considered material individually or in the aggregate,
and as a result pro forma financial statements are not
presented. However, on a pro forma basis, had the acquisitions
of these businesses occurred on January 1, 2007, the
Company would have recorded approximately $72.0 million,
$79.0 million, and $67.0 million of additional
revenues in 2007, 2008, and 2009, respectfully, while the impact
to the Companys consolidated operating income and net
income for those years would not have been material.
Purchase Price Allocation
Gartner utilized its existing cash on hand and availability
under its revolving credit facility to fund the acquisitions.
The final acquisition costs are subject to certain post-closing
and other adjustments. The acquisitions are being accounted for
under the acquisition method in accordance with FASB ASC Topic
805, Business Combination, which requires the
consideration paid to be allocated to the net assets and
liabilities acquired based on their estimated fair values as of
the acquisition date. Any excess of the purchase price over the
estimated fair value of the net assets acquired, including
identifiable intangible assets, was allocated to goodwill.
The Company considers its allocation of the respective purchase
prices to be preliminary, particularly with respect to the
valuation of intangibles and certain tax related items. In
accordance with existing accounting rules, a final determination
of the purchase price allocation must be made within one year of
the acquisition dates. The following table represents the
aggregate preliminary purchase price allocation to the assets
acquired and liabilities assumed for the two acquisitions
(dollars in thousands):
|
|
|
|
|
Assets:
|
|
|
|
|
Fees receivable, net
|
|
$
|
16,919
|
|
Prepaid expenses and other current assets
|
|
|
19,015
|
|
Property, equipment, and leasehold improvements, net
|
|
|
2,666
|
|
Intangible assets:
|
|
|
|
|
Trade name
|
|
|
5,758
|
|
Content
|
|
|
10,634
|
|
Customer relationships
|
|
|
7,210
|
|
|
|
|
|
|
Total intangible assets
|
|
|
23,602
|
|
Goodwill
|
|
|
108,983
|
|
Other assets
|
|
|
1,014
|
|
|
|
|
|
|
Total assets
|
|
$
|
172,199
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
27,175
|
|
Deferred revenues
|
|
|
26,402
|
|
Other liabilities
|
|
|
1,045
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
54,622
|
|
|
|
|
|
|
Of the total $109.0 million recorded in goodwill,
$86.1 million, $15.3 million, and $7.6 million
has been allocated to the Research, Consulting, and Events
segments, respectively. The Company believes the recorded
goodwill is supported by the anticipated revenues and synergies
in general and administrative costs. The preliminary purchase
price allocation includes an estimate of the fair value of the
cost to fulfill the deferred revenue obligations which was
determined by estimating the costs to provide the services plus
a normal profit margin, and did not include any costs associated
with selling efforts. The preliminary amount that is expected to
be deductible for tax purposes is approximately
$55.4 million.
In connection with the acquisitions, the Company has received
contractual indemnifications from the selling shareholders for
certain pre-acquisition liabilities of the acquired companies.
The Company estimates these liabilities at approximately
$6.1 million. In accordance with FASB ASC Topic 805, the
Company has recorded a $6.1 million receivable in Prepaid
expenses and other current assets and a $6.1 million
liability in Accrued liabilities, which are included in the
purchase price allocation table above. The Company believes the
indemnification assets are fully collectible since a portion of
the sale proceeds have been escrowed pending resolution of the
liabilities.
43
3DISCONTINUED
OPERATIONS
In early 2008 the Company sold its Vision Events business, which
had been part of the Companys Events segment, for
$11.4 million in cash. In accordance with FASB ASC Topic
205, the operating results of the Vision Events business have
been reported separately as a discontinued operation for 2008
and 2007. The Vision Events business generated revenues of zero
and $20.7 million in 2008 and 2007, respectively, and had
an operating (loss) income of $(0.3) million and
$2.9 million in 2008 and 2007, respectively.
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 Events segment goodwill,
and related tax charges. The gain is recorded in Income from
discontinued operations in the Consolidated Statements of
Operations.
The goodwill charge was recorded in accordance with FASB ASC
Topic 350, which requires an allocated portion of goodwill to be
included in the gain or loss on disposal of a portion of a
reporting unit. The assets and liabilities of the Vision Events
business that were included in the sale were not material to the
Companys Consolidated Balance Sheet or Consolidated
Statements of Cash Flows.
4OTHER
CHARGES
The Company recorded Other charges of $0 in both 2009 and 2008
and $9.1 million in 2007.
Other charges of $9.1 million recorded in 2007 included
charges of $8.7 million related to a litigation settlement
and $2.7 million related to our decision to exit consulting
operations in Asia. Offsetting these charges was a credit of
$2.3 million related to an excess facility that was
returned to service.
The following table summarizes the activity related to
restructuring costs recorded as Other Charges in the
Consolidated Statements of Operations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Workforce
|
|
|
Excess
|
|
|
Asset
|
|
|
|
|
|
|
Reduction
|
|
|
Facilities
|
|
|
Impairments
|
|
|
|
|
|
|
Costs
|
|
|
Costs
|
|
|
and Other
|
|
|
Total
|
|
|
|
Accrued liability at December 31, 2006
|
|
$
|
681
|
|
|
$
|
15,030
|
|
|
$
|
|
|
|
$
|
15,711
|
|
Charges during 2007
|
|
|
2,682
|
|
|
|
|
|
|
|
8,681
|
|
|
|
11,363
|
|
Adjustment for excess facility
|
|
|
|
|
|
|
(2,280
|
)
|
|
|
|
|
|
|
(2,280
|
)
|
Currency translation and reclassifications
|
|
|
(156
|
)
|
|
|
164
|
|
|
|
|
|
|
|
8
|
|
Payments
|
|
|
(2,871
|
)
|
|
|
(5,138
|
)
|
|
|
(8,681
|
)
|
|
|
(16,690
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued liability at December 31, 2007
|
|
$
|
336
|
|
|
$
|
7,776
|
|
|
$
|
|
|
|
$
|
8,112
|
|
Charges during 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation and reclassifications
|
|
|
(114
|
)
|
|
|
|
|
|
|
|
|
|
|
(114
|
)
|
Payments
|
|
|
(222
|
)
|
|
|
(4,117
|
)
|
|
|
|
|
|
|
(4,339
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued liability at December 31, 2008
|
|
$
|
|
|
|
$
|
3,659
|
|
|
$
|
|
|
|
$
|
3,659
|
|
Charges during 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation and reclassifications
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments
|
|
|
|
|
|
|
(2,856
|
)
|
|
|
|
|
|
|
(2,856
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued liability at December 31, 2009(1),(2)
|
|
$
|
|
|
|
$
|
803
|
|
|
$
|
|
|
|
$
|
803
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The $0.8 million liability for excess facilities represents
the present value of the estimated remaining lease payments less
projected sublease income. Accretion expense related to the
obligations is charged against earnings. |
|
(2) |
|
Costs for excess facilities will be paid as the leases expire
through 2011. The Company intends to fund these payments from
existing cash. |
5OTHER
ASSETS
Other assets consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Security deposits
|
|
$
|
3,545
|
|
|
$
|
2,796
|
|
Debt issuance costs
|
|
|
1,384
|
|
|
|
2,376
|
|
Benefit plan related assets
|
|
|
30,903
|
|
|
|
23,095
|
|
Non-current deferred tax assets
|
|
|
29,527
|
|
|
|
46,378
|
|
Other
|
|
|
1,904
|
|
|
|
1,275
|
|
|
|
|
|
|
|
|
|
|
Total other assets
|
|
$
|
67,263
|
|
|
$
|
75,920
|
|
|
|
|
|
|
|
|
|
|
44
6ACCOUNTS
PAYABLE, ACCRUED, AND OTHER LIABILITIES
Accounts payable and accrued liabilities consist of the
following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Accounts payable
|
|
$
|
14,312
|
|
|
$
|
12,130
|
|
Payroll, employee benefits, severance
|
|
|
63,600
|
|
|
|
58,840
|
|
Bonus payable
|
|
|
53,264
|
|
|
|
45,040
|
|
Commissions payable
|
|
|
39,705
|
|
|
|
33,797
|
|
Taxes payable
|
|
|
17,693
|
|
|
|
29,508
|
|
Acquisition payables (1)
|
|
|
13,059
|
|
|
|
|
|
Rent and other facilities costs
|
|
|
9,666
|
|
|
|
6,575
|
|
Professional and consulting fees
|
|
|
4,112
|
|
|
|
4,007
|
|
Other accrued liabilities
|
|
|
40,555
|
|
|
|
29,484
|
|
|
|
|
|
|
|
|
|
|
Total accounts payable and accrued liabilities
|
|
$
|
255,966
|
|
|
$
|
219,381
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes amounts payable consisting primarily of a portion of
the purchase price related to our acquisition of Burton Group on
December 30, 2009. These amounts were paid in January 2010. |
Other liabilities consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Non-current deferred revenue
|
|
$
|
3,912
|
|
|
$
|
1,913
|
|
Long-term taxes payable
|
|
|
15,064
|
|
|
|
15,386
|
|
Benefit plan-related liabilities
|
|
|
37,977
|
|
|
|
30,098
|
|
Other
|
|
|
23,618
|
|
|
|
36,075
|
|
|
|
|
|
|
|
|
|
|
Total other liabilities
|
|
$
|
80,571
|
|
|
$
|
83,472
|
|
|
|
|
|
|
|
|
|
|
7DEBT
Credit Agreement
The Company has a Credit Agreement dated as of January 31,
2007 that provides for a $300.0 million revolving credit
facility and a five-year, $180.0 million term loan (the
original term loan). On April 9, 2008, the
Company entered into a First Amendment (the First
Amendment) with the lenders to the Credit Agreement, which
provided for a new $150.0 million term loan (the 2008
term loan). The revolving credit facility may be increased
up to an additional $100.0 million at the discretion of the
Companys lenders (the expansion feature), for
a total revolving credit facility of $400.0 million.
However, the $100.0 million expansion feature may or may
not be available to the Company depending upon prevailing credit
market conditions. To date the Company has not sought to borrow
under the expansion feature.
The following table provides information regarding amounts
outstanding under the Companys Credit Agreement:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
Amount
|
|
|
Annualized
|
|
|
|
Outstanding
|
|
|
Outstanding
|
|
|
Effective
|
|
|
|
December 31, 2008
|
|
|
December 31, 2009
|
|
|
Interest Rate
|
|
|
|
(In thousands)
|
|
|
(In thousands)
|
|
|
December 31, 2009(2)
|
|
|
|
|
Description:
|
|
|
|
|
|
|
|
|
|
|
|
|
Original Term Loan (1)
|
|
$
|
157,500
|
|
|
$
|
126,000
|
|
|
|
5.81
|
%
|
2008 Term Loan (1)
|
|
|
138,750
|
|
|
|
75,000
|
|
|
|
1.26
|
%
|
Revolver (3)
|
|
|
120,000
|
|
|
|
128,000
|
|
|
|
1.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
416,250
|
|
|
$
|
329,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
During 2009 the Company repaid $31.5 million of the
original term loan and $23.8 million of the 2008 term loan
pursuant to the loan amortization schedules. In addition, the
Company prepaid $40.0 million of the 2008 term loan on
September 30, 2009. |
|
(2) |
|
The rate on the original term loan consisted of the interest
rate swap rate (see below) plus a margin of 0.75%. The rate on
the 2008 term loan consisted of a three-month LIBOR base rate
plus a margin of 1.00%, while the revolver consisted of a
one-month LIBOR base rate plus a margin of 0.75%. |
|
(3) |
|
The Company had approximately $170.0 million of available
borrowing capacity on the revolver (not including the expansion
feature) as of December 31, 2009. |
Borrowings under the Credit Agreement carry interest rates that
are either prime-based or Libor-based. Interest rates under
these borrowings include a base rate plus a margin between 0.00%
and 0.75% on Prime-based borrowings and between 0.625% and 1.75%
on Libor-based borrowings. Generally, the Companys
borrowings are Libor-based. The revolving loans may be borrowed,
repaid and reborrowed until January 31, 2012, at which time
all amounts borrowed must be repaid. The revolver borrowing
capacity is reduced for both amounts outstanding under the
revolver and for letters of credit.
45
The original term loan will be repaid in 18 consecutive
quarterly installments which commenced on September 30,
2007, with the final payment due on January 31, 2012, and
may be prepaid at any time without penalty or premium at the
option of the Company. The 2008 term loan is co-terminus with
the original 2007 term loan under the Credit Agreement and will
be repaid in 16 consecutive quarterly installments which
commenced June 30, 2008, plus a final payment due on
January 31, 2012, and may be prepaid at any time without
penalty or premium at the option of Gartner.
The Credit Agreement contains certain customary restrictive loan
covenants, including, among others, financial covenants
requiring a maximum leverage ratio, a minimum fixed charge
coverage ratio, and a minimum annualized contract value ratio
and covenants limiting Gartners ability to incur
indebtedness, grant liens, make acquisitions, be acquired,
dispose of assets, pay dividends, repurchase stock, make capital
expenditures, and make investments. The Company was in full
compliance with its financial covenants as of December 31,
2009, after giving effect to the acquisitions. A failure to
comply with these covenants in the future 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.
Interest Rate Swap Contracts
The Company has two interest rate swap contracts:
Swap designated as a hedge
The Company has an interest rate swap contract that hedges the
base interest rate risk on its original term loan. The effect of
the swap is to convert the floating base rate on the term loan
to a fixed rate. Under the swap terms, the Company pays a fixed
rate of 5.06% on the original term loan and in return receives a
three-month LIBOR rate. The three-month LIBOR rate received on
the swap matches the base rate paid on the term loan since the
Company optionally selects a three-month LIBOR rate on the term
loan. The notional amount of the interest rate swap declines
over time and constantly matches the outstanding amount of the
term loan. Other critical terms of the swap and the term loan
also match.
The Company accounts for the interest rate swap on its original
term loan as a cash flow hedge in accordance with FASB ASC Topic
815. Since the swap is hedging the forecasted interest payments
on the term loan and qualifies as a cash flow hedge, changes in
the fair value of the swap are recorded in Other comprehensive
income as long as the swap continues to be a highly effective
hedge of the base interest rate risk on the term loan. Any
ineffective portion of change in the fair value of the hedge is
recorded in earnings. At December 31, 2009, there was no
ineffective portion of the hedge. The interest rate swap had a
negative fair value of approximately $6.6 million at
December 31, 2009, which is recorded in Other comprehensive
income, net of tax effect.
Swap not designated as a hedge
On September 30, 2009, the Company discontinued hedge
accounting on an interest rate swap contract that previously
hedged the 2008 term loan. In addition, on the same date the
Company prepaid $40.0 million of the outstanding amount of
the 2008 term loan.
The interest rate swap had a negative fair value of
$3.3 million as of September 30, 2009. In accordance
with the hedge accounting rules in FASB ASC Topic 815, the
$3.3 million was recorded in Other comprehensive income,
net of tax effect, as a deferred loss. However, because of the
$40.0 million loan prepayment, the Company reclassified
$1.1 million of the deferred loss from Other comprehensive
income to Interest expense, net. The remaining $2.2 million
deferred loss in Other comprehensive income as of
September 30, 2009, will be amortized to interest expense
through maturity of the 2008 term loan. The 2008 term loan
matures in January 2012. For the three months ended
December 31, 2009, the Company reclassified approximately
$0.4 million of the deferred loss in Other comprehensive
income to interest expense.
Letters of Credit
The Company issues letters of credit and related guarantees in
the ordinary course of business. At December 31, 2009, the
Company had outstanding letters of credit and guarantees of
approximately $2.5 million.
8COMMITMENTS
AND CONTINGENCIES
The Company leases various facilities, furniture, and computer
equipment under operating lease arrangements expiring between
2010 and 2026. The future minimum annual cash payments under
non-cancelable operating lease agreements at December 31,
2009, are as follows (in thousands):
|
|
|
|
|
Year ended December 31,
|
|
|
|
|
|
|
2010
|
|
$
|
33,946
|
|
2011
|
|
|
23,344
|
|
2012
|
|
|
15,965
|
|
2013
|
|
|
11,554
|
|
2014
|
|
|
8,267
|
|
Thereafter
|
|
|
44,082
|
|
|
|
|
|
|
Total minimum lease payments (1)
|
|
$
|
137,158
|
|
|
|
|
|
|
46
|
|
|
(1) |
|
Excludes approximately $5.5 million of contractual sublease
rental income. |
We are involved in legal proceedings and litigation arising in
the ordinary course of business. We believe that the potential
liability, if any, in excess of amounts already accrued from all
proceedings, claims and litigation will not have a material
effect on our financial position or results of operations when
resolved in a future period.
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
Companys 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,
2009, 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.
9EQUITY
Capital stock. Holders of Gartners
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, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury
|
|
|
|
Issued
|
|
|
Stock
|
|
|
|
hares
|
|
|
Shares
|
|
|
|
|
Balance at December 31, 2006
|
|
|
156,234,416
|
|
|
|
52,169,591
|
|
Issuances under stock plans
|
|
|
|
|
|
|
(3,353,421
|
)
|
Purchases for treasury
|
|
|
|
|
|
|
8,386,490
|
|
|
|
Balance at December 31, 2007
|
|
|
156,234,416
|
|
|
|
57,202,660
|
|
Issuances under stock plans
|
|
|
|
|
|
|
(4,568,658
|
)
|
Purchases for treasury
|
|
|
|
|
|
|
9,719,573
|
|
|
|
Balance at December 31, 2008
|
|
|
156,234,416
|
|
|
|
62,353,575
|
|
Issuances under stock plans
|
|
|
|
|
|
|
(2,302,935
|
)
|
Purchases for treasury
|
|
|
|
|
|
|
306,032
|
|
|
|
Balance at December 31, 2009
|
|
|
156,234,416
|
|
|
|
60,356,672
|
|
|
|
Share repurchase programs. The Company has a
$250.0 million authorized stock repurchase program, of
which $78.6 million remained available as of
December 31, 2009. Repurchases are made from
time-to-time
through open market purchases and are subject to the
availability of stock, prevailing market conditions, the trading
price of the stock, the Companys financial performance and
other conditions. Repurchases are also made from
time-to-time
in connection with the settlement of shared-based compensation
awards. Repurchases may be funded from cash flow from operations
and borrowings under the Companys Credit Agreement.
During 2009, 2008, and 2007, the Company recorded
$3.7 million, $198.6 million, and $169.1 million,
respectively, of Common Stock repurchases. Included in the 2008
total was $26.9 million for shares repurchased directly
from Silver Lake Partners and affiliates (collectively,
Silver Lake).
Secondary Offering. On December 14, 2009,
Silver Lake sold 7,960,641 shares of Common Stock in a
secondary offering, which represented its entire remaining
holdings in the Common Stock. The Company did not receive any of
the proceeds from the sale of these shares. Additionally, in
conjunction with the sale, the Amended and Restated
Securityholders Agreement, dated as of July 12, 2002,
between the Company and Silver Lake, pursuant to which Silver
Lake was entitled to designate two board members and to certain
consent rights, was terminated with the exception of certain
indemnification rights.
10STOCK-BASED
COMPENSATION
The Company grants stock-based compensation awards as an
incentive for employees and directors to contribute to the
Companys long-term success. The Companys stock
compensation awards include stock-settled stock appreciation
rights, restricted stock, service- and performance-based
restricted stock units, common stock equivalents, and stock
options. At December 31, 2009, the Company had
approximately 7.4 million shares of Common Stock available
for awards of stock-based compensation under its 2003 Long-Term
Incentive Plan, which includes 4.0 million additional
shares approved by stockholders at the Companys 2009
Annual Meeting of Stockholders.
47
The Company accounts for stock-based compensation in accordance
with FASB ASC Topics 505 and 718, as interpreted by
SAB No. 107 and 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.
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
Companys 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 managements 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 Companys 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 years ended
December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
Award type:
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Restricted stock
|
|
$
|
|
|
|
$
|
0.4
|
|
|
$
|
1.8
|
|
Restricted stock units (RSUs)
|
|
|
21.3
|
|
|
|
14.8
|
|
|
|
13.7
|
|
Common stock equivalents (CSEs)
|
|
|
0.4
|
|
|
|
0.4
|
|
|
|
0.5
|
|
Stock appreciation rights (SARs)
|
|
|
4.4
|
|
|
|
3.2
|
|
|
|
2.4
|
|
Options
|
|
|
|
|
|
|
1.9
|
|
|
|
5.8
|
|
|
|
|
|
|
|
Total (1)
|
|
$
|
26.1
|
|
|
$
|
20.7
|
|
|
$
|
24.2
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes $1.9 million, $1.3 million, and
$0.9 million in 2009, 2008, and 2007, respectively, for
charges related to retirement-eligible employees. |
Stock-based compensation (in millions) was recognized in the
Consolidated Statements of Operations for the years ended
December 31 as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount recorded in:
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Costs of services and product development
|
|
$
|
12.6
|
|
|
$
|
9.6
|
|
|
$
|
10.8
|
|
Selling, general, and administrative
|
|
|
13.5
|
|
|
|
11.1
|
|
|
|
13.4
|
|
|
|
|
|
|
|
Total stock-based compensation expense
|
|
$
|
26.1
|
|
|
$
|
20.7
|
|
|
$
|
24.2
|
|
|
|
|
|
|
|
As of December 31, 2009, the Company had $41.5 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 2 years. Currently, the Company issues
treasury shares upon the exercise, release or settlement of
stock-based compensation awards.
Stock-Based Compensation Awards
The following disclosures provide information regarding the
Companys stock-based compensation awards, all of which are
classified as equity awards:
Stock
Appreciation Rights
Stock-settled stock appreciation rights (SARs) are
settled in common shares and are similar to options as they
permit the holder to participate in the appreciation of the
Common Stock. SARs may be settled in Common Stock by the
employee once the applicable vesting criteria have been met.
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
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 Common Stock on the exercise
date. The Company will withhold a portion of the 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. At the present time, SARs are
awarded only to the Companys executive officers.
The Company determines the fair value of SARs on the date of
grant using the Black-Scholes-Merton valuation model. The SARs
vest ratably over a four-year service period and expire seven
years from the grant date. Total compensation expense for SARs
was $4.4 million, $3.2 million, and $2.4 million
in 2009, 2008, and 2007, respectively.
48
A summary of the changes in SARs outstanding for the year ended
December 31, 2009, follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
Remaining
|
|
|
|
SARs in
|
|
|
Average
|
|
|
Grant Date
|
|
|
Contractual
|
|
|
|
millions
|
|
|
Exercise Price
|
|
|
Fair Value
|
|
|
Term
|
|
|
|
|
Outstanding at December 31, 2008
|
|
|
2.1
|
|
|
$
|
17.42
|
|
|
$
|
6.61
|
|
|
|
5.12 years
|
|
Granted
|
|
|
1.0
|
|
|
|
11.15
|
|
|
|
4.97
|
|
|
|
6.11 years
|
|
Forfeited
|
|
|
(0.2
|
)
|
|
|
15.08
|
|
|
|
6.11
|
|
|
|
na
|
|
Exercised (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2009 (2)
|
|
|
2.9
|
|
|
$
|
15.43
|
|
|
$
|
6.09
|
|
|
|
4.67 years
|
|
|
|
|
|
|
|
Vested and exercisable at December 31,2009(2)
|
|
|
1.1
|
|
|
$
|
16.65
|
|
|
$
|
6.51
|
|
|
|
3.67 years
|
|
|
|
|
|
|
|
na=not applicable
|
|
|
(1) |
|
SARs exercised in 2009 were immaterial. |
|
(2) |
|
At December 31, 2009, SARs outstanding had an intrinsic
value of $9.4 million. SARs vested and exercisable had an
intrinsic value of $2.4 million. |
The fair value of the Companys SARs was determined on the
date of grant using the Black-Scholes-Merton valuation model
with the following weighted-average assumptions for the years
ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Expected dividend yield (1)
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected stock price volatility (2)
|
|
|
50
|
%
|
|
|
36
|
%
|
|
|
33
|
%
|
Risk-free interest rate(3)
|
|
|
2.3
|
%
|
|
|
2.8
|
%
|
|
|
4.7
|
%
|
Expected life in years(4)
|
|
|
4.80
|
|
|
|
4.75
|
|
|
|
4.74
|
|
|
|
|
(1) |
|
The dividend yield assumption is based on the history and
expectation of the Companys 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 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.
Certain members of our Board of Directors receive
directors fees payable in CSEs unless they opt for cash
payment. Generally, the CSEs are converted when service as a
director terminates unless the director has elected 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) outstanding 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.
49
A summary of the changes in restricted stock, RSUs, and CSEs
during the year ended December 31, 2009 is presented in the
table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2008
|
|
|
200,000
|
|
|
$
|
7.30
|
|
|
|
2,614,847
|
|
|
$
|
18.40
|
|
|
|
158,511
|
|
|
|
na
|
|
Granted (1),(2)
|
|
|
|
|
|
|
|
|
|
|
2,251,020
|
|
|
|
11.38
|
|
|
|
26,531
|
|
|
$
|
15.03
|
|
Vested or released (2)
|
|
|
|
|
|
|
|
|
|
|
(884,761
|
)
|
|
|
17.93
|
|
|
|
(49,818
|
)
|
|
|
na
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
(217,301
|
)
|
|
|
15.20
|
|
|
|
|
|
|
|
na
|
|
|
|
|
|
|
|
Outstanding at December 31, 2009(3),(4)
|
|
|
200,000
|
|
|
$
|
7.30
|
|
|
|
3,763,805
|
|
|
$
|
14.57
|
|
|
|
135,224
|
|
|
|
na
|
|
|
|
|
|
|
|
na=not available
|
|
|
(1) |
|
The 2.3 million RSUs granted during 2009 consisted of
1.1 million performance-based RSUs awarded to executives
and 1.2 million service-based RSUs awarded to non-executive
employees. The number of performance-based RSUs granted was
subject to the achievement of a performance condition tied to
the annual increase in the Companys subscription-based
contract value for 2009, which ranged from 0% and 200% of the
target number depending on the performance level achieved. The
aggregate performance-based RSU target for 2009 was
1.0 million. The actual performance target achieved was
119.4%, resulting in the granting of 1.1 million
performance-based RSUs in 2009. |
|
(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) |
|
Vesting on the 200,000 shares of restricted stock held by
our CEO is subject to a market condition as follows:
(i) 100,000 shares will vest when the Common Stock
trades at an average price of $25 or more each trading day for
sixty consecutive trading days; and
(ii) 100,000 shares will vest when the Common Stock
trades at an average price of $30 or more each trading day for
sixty consecutive trading days. There is no remaining
unamortized cost on these shares. |
|
(4) |
|
The weighted-average remaining contractual term of the RSUs is
1.28 years. The restricted stock awards and the CSEs have
no defined contractual term. |
Stock
Options
Historically the Company granted stock options to employees that
allowed them to purchase shares of Common Stock at a certain
price. The Company has not made significant stock option grants
since 2005. All outstanding options are fully vested and there
is no remaining unamortized cost. The Company received
approximately $12.2 million in cash from option exercises
in the year ended December 31, 2009.
A summary of the changes in stock options outstanding for the
year ended December 31, 2009, follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Weighted
|
|
|
Remaining
|
|
|
|
Options in
|
|
|
Average
|
|
|
Contractual
|
|
|
|
millions
|
|
|
Exercise Price
|
|
|
Term
|
|
|
|
|
Outstanding at December 31, 2008
|
|
|
6.1
|
|
|
$
|
10.78
|
|
|
|
3.56 years
|
|
Expired
|
|
|
(0.2
|
)
|
|
|
17.66
|
|
|
|
na
|
|
Exercised (1)
|
|
|
(1.2
|
)
|
|
|
10.42
|
|
|
|
na
|
|
Outstanding at December 31, 2009 (2)
|
|
|
4.7
|
|
|
$
|
10.65
|
|
|
|
3.07 years
|
|
|
|
|
|
|
|
na=not applicable
|
|
|
(1) |
|
Options exercised during 2009 had an aggregate intrinsic value
of $7.7 million. |
|
(2) |
|
At December 31, 2009, options outstanding had an aggregate
intrinsic value of $34.8 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 employees compensation (or $23,750 in any
calendar year), at a price equal to 95% of the Common Stock
price as reported by the New York Stock Exchange at the end of
each offering period.
At December 31, 2009, the Company had 1.6 million
shares of Common Stock available for purchase under the ESPP
Plan. The ESPP Plan is considered non-compensatory and as a
result the Company does not record compensation expense related
to employee share purchases. The Company received
$2.7 million in cash from share purchases under the ESPP
Plan in the year ended December 31, 2009.
50
11COMPUTATION
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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income used for calculating basic and diluted earnings per
common share
|
|
$
|
82,964
|
|
|
$
|
103,871
|
|
|
$
|
73,553
|
|
|
|
|
|
|
|
Denominator: (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares used in the calculation
of basic earnings per share
|
|
|
94,658
|
|
|
|
95,246
|
|
|
|
103,613
|
|
Common share equivalents associated with stock-based
compensation plans
|
|
|
2,891
|
|
|
|
3,782
|
|
|
|
4,715
|
|
|
|
|
|
|
|
Shares used in the calculation of diluted earnings per share
|
|
|
97,549
|
|
|
|
99,028
|
|
|
|
108,328
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (2)
|
|
$
|
0.88
|
|
|
$
|
1.09
|
|
|
$
|
0.71
|
|
|
|
|
|
|
|
Diluted (2)
|
|
$
|
0.85
|
|
|
$
|
1.05
|
|
|
$
|
0.68
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
During 2009, 2008 and 2007, the Company repurchased
0.3 million, 9.7 million, and 8.4 million shares
of its Common Stock, respectively. |
|
(2) |
|
Basic and diluted earnings per share include income from
discontinued operations of $0.07 per share and $0.03 per share
for 2008 and 2007, respectively. |
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Antidilutive common share equivalents as of December 31 (in
millions):
|
|
|
1.7
|
|
|
|
1.3
|
|
|
|
0.6
|
|
Average market price per share of Common Stock during the year
|
|
$
|
15.52
|
|
|
$
|
20.17
|
|
|
$
|
23.00
|
|
12INCOME
TAXES
Following is a summary of the components of income before income
taxes for the years ended December 31 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
U.S.
|
|
$
|
54,793
|
|
|
$
|
79,393
|
|
|
$
|
59,884
|
|
Non-U.S.
|
|
|
60,733
|
|
|
|
65,348
|
|
|
|
50,613
|
|
|
|
|
|
|
|
Income before income taxes
|
|
$
|
115,526
|
|
|
$
|
144,741
|
|
|
$
|
110,497
|
|
|
|
|
|
|
|
The expense for income taxes on the above income consists of the
following components (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Current tax expense (benefit):
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal
|
|
$
|
8,749
|
|
|
$
|
10,564
|
|
|
$
|
3,321
|
|
State and local
|
|
|
3,107
|
|
|
|
3,341
|
|
|
|
(2,935
|
)
|
Foreign
|
|
|
14,340
|
|
|
|
15,614
|
|
|
|
14,286
|
|
|
|
|
|
|
|
Total current
|
|
|
26,196
|
|
|
|
29,519
|
|
|
|
14,672
|
|
Deferred tax (benefit) expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal
|
|
|
7,477
|
|
|
|
(547
|
)
|
|
|
2,695
|
|
State and local
|
|
|
3,168
|
|
|
|
1,848
|
|
|
|
5,487
|
|
Foreign
|
|
|
1,281
|
|
|
|
(2,798
|
)
|
|
|
(381
|
)
|
|
|
|
|
|
|
Total deferred
|
|
|
11,926
|
|
|
|
(1,497
|
)
|
|
|
7,801
|
|
|
|
|
|
|
|
Total current and deferred
|
|
|
38,122
|
|
|
|
28,022
|
|
|
|
22,473
|
|
Benefit (expense) relating to interest rate swap used to
increase (decrease) equity
|
|
|
(2,530
|
)
|
|
|
3,776
|
|
|
|
2,449
|
|
Benefit from stock transactions with employees used to increase
equity
|
|
|
621
|
|
|
|
15,876
|
|
|
|
15,237
|
|
Benefit (expense) relating to defined-benefit pension
adjustments used to increase (decrease) equity
|
|
|
(296
|
)
|
|
|
(594
|
)
|
|
|
(1,688
|
)
|
Benefit (expense) of acquired tax assets (liabilities) used to
decrease (increase) goodwill
|
|
|
(3,355
|
)
|
|
|
513
|
|
|
|
1,360
|
|
|
|
|
|
|
|
Tax expense on continuing operations
|
|
|
32,562
|
|
|
|
47,593
|
|
|
|
39,831
|
|
Tax expense on discontinued operations
|
|
|
|
|
|
|
622
|
|
|
|
777
|
|
|
|
|
|
|
|
Total tax expense
|
|
$
|
32,562
|
|
|
$
|
48,215
|
|
|
$
|
40,608
|
|
|
|
|
|
|
|
51