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):

 

 

As of June 30, 2013,2014, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $5,152,997,503$6,067,265,349 based on the closing sale price as reported on the New York Stock Exchange.

 

The number of shares outstanding of the registrant’s common stock was 91,968,86987,522,468 as of January 31, 2014.2015.

 

 

 

 

Gartner, Inc. (“Gartner”) (NYSE: IT) is the world’s leading information technology research and advisory company. We deliver the technology-related insight necessary for our clients to make the right decisions, every day. From CIOs and senior IT leaders in corporations and government agencies, to business leaders in high-tech and telecom enterprises and professional services firms, to supply chain professionals, digital marketing professionals and technology investors, we are the valuable partner to clients in 14,0999,958 distinct organizations.enterprises. We work with clients to research, analyze and interpret the business of IT within the context of their individual roles. Founded in 1979, Gartner is headquartered in Stamford, Connecticut, U.S.A., and as of December 31, 2013,2014, had 5,9976,758 associates, including 1,4751,556 research analysts and consultants, and clients in 85over 90 countries.

 

The foundation for all Gartner products and services is our independent research on IT and supply chain issues. The findings from this research are delivered through our three business segments – Research, Consulting and Events: 

For more information regarding Gartner and our products and services, visit gartner.com.

References to “the Company,” “we,” “our,” and “us” are to Gartner, Inc. and its consolidated subsidiaries. 

 

Technological innovations are changing how businesses and organizations work and what they do at an increasingly rapid pace. Today, everyone is living and working in the midst of a technological revolution. Major technologicalThe nexus of four powerful forces – including social, media, mobile, cloud and information, coupled with the "Internet of things" – are drivingblurring the line between the physical and digital worlds, creating unprecedented change on a scale not seen before infacing every organization around the world, from business enterprises and units within enterprises of every size, to governments and government agencies, as well as other organizations. This change falls into three categories: optimizing the use of technology to improve performance across every function in the organization; managing disruptive technology-based innovation; and protecting the organization from security threats. This technology revolution is likely towill remain vibrant for decades to come.

Information technology (IT) is critical to supporting increased productivity, service and performance improvement, and revenue growth. IT and the supply chain are viewed today as strategic components of growth and operating performance.cyber-security. As the costs of IT solutions continue to rise, IT executives and professionals have realized the importance of making well-informed decisions and increasingly seek to maximize their returns on IT capital investments. As a result, every IT investment decision in an enterprise is subject to increased financial scrutiny, especially in the current challenging economic climate. In addition, today’s IT marketplace is dynamic and complex. Technology providers continually introduce new products with a wide variety of standards and features that are prone to shorter life cycles. Users of technology – a group that encompasses nearly all organizations – must keep abreast of new developments in technology to ensure that their IT systems are reliable, efficient, secure, and meet both their current and future needs.

 

Given the strategic and critical nature of technology decision-making and spending, business enterprises, governments and their agencies, and other organizations turn to Gartner for guidance in order to make the right decisions to maximize the value of their IT investments.

 

 

We provide IT decision makers with the insight they need to understand where – and how – to successfully use IT and the supply chainharness technology to achieve their objectives.mission critical priorities. We employ a diversified business model that utilizes and leverages the breadth and depth of our

 

We have 9661,021 analysts located around the world who create timely, high-quality,compelling, relevant, independent and objective research and fact-based analysis on every major IT initiative and all aspects of the IT industry.industry, including supply chain and digital marketing. Through our robust product portfolio, our global research team provides thought leadership and technology insights that CIOs, supply chain professionals, digital marketing professionals, executives and other technology practitioners need to make the right decisions, every day. In addition to our analysts, we have 509535 experienced consultants who combine our objective, independent research with a practical business perspective focused on the IT industry. Finally, our events are the largest of their kind, gathering highly qualified audiences of CIOs, other senior business executives and IT professionals, supply chain leaders, and purchasers and providers of technology and supply chain products and services.

 

 

Our diversified business model provides multiple entry points and synergies that facilitate increased client spending on our research, consulting services and events. A critical part of our long-term strategy is to increase business volume with our most valuable clients, identifying relationships with the greatest sales potential and expanding those relationships by offering strategically relevant research and advice. We also seek to extend the Gartner brand name to develop new client relationships, 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:

 

 

We believe that the principal factors that differentiate us from our competitors are the following:

 

Notwithstanding these differentiating factors, we face competition from a significant number of independent providers of information products and services. We compete indirectly with 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. In addition, 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. While we believe the breadth and depth of our research assets position us well versus our competition, increased competition could result in loss of market share, diminished value in our products and services, reduced pricing, and increased sales and marketing expenditures.

 

 

Our success has resulted in part from proprietary methodologies, software, reusable knowledge capital and other intellectual property rights. We rely on a combination of patent, copyright, trademark, trade secret, confidentiality, non-compete and other contractual provisions to protect our intellectual property rights. We have policies related to confidentiality, ownership, and the use and protection of Gartner’s intellectual property. We also enter into agreements with our employees as appropriate that protect our intellectual property, and we enforce these agreements if necessary. We recognize the value of our intellectual property in the marketplace and vigorously identify, create and protect it. Additionally, we actively monitor and enforce contract compliance by our end users.

 

 

We had 5,9976,758 employees as of December 31, 2013,2014, an increase of 10%13% compared to the prior year end as we continued to invest for future growth. We have 1,0541,291 employees located at our headquarters in Stamford, Connecticut and a nearby office in Trumbull, Connecticut; 2,3832,605 employees located elsewhere in the United States;States in 30 offices; and 2,5602,862 employees located outside of the United States.States in 65 offices. Our employees may be subject to collective bargaining agreements at a company or industry level, or works councils, 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.

 

 

 

 

 

We operate in a highly 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 sections discuss many, but not all, of the risks and uncertainties that may affect our future performance, but is not intended to be all-inclusive. Any of the risks described below could have a material adverse impact on our business, prospects, results of operations, financial condition, and cash flows, and could therefore have a negative effect on the trading price of our common stock. Additionally risks not currently known to us or that we now deem immaterial may also harm us and negatively affect your investment.

 

 

Our operating results could be negatively impacted by global economic conditions. Our business is impacted by general economic conditions and trends, in the U.S and abroad. EconomicU.S. economic data continues to be mixed, but the overall economy continues to grow and unemployment continues to fall. However, economic growth continues to be both weakuneven globally, with continuing weakness across Europe and uneven in many parts ofemerging markets, as recent geopolitical events add to the world. In addition, problems continue with government deficit spending in the U.S. and other countries, ongoing uncertainty in global trade, and high levels of sovereign debt.uncertainty. These conditions could negatively and materially affect future demand for our products and services. Such difficulties could include the ability to maintain client retention, wallet retention and consulting utilization rates, achieve contract value and consulting backlog growth, attract attendees and exhibitors to our events or obtain new clients. Such developments could negatively impact our financial condition, results of operations, and cash flows.

 

We face significant competition and our failure to compete successfully could materially and adversely affect our results of operations, financial condition, and cash flows. 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, limitedlow 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. Additionally, technological advances may provide increased competition from a variety of sources.

 

There can be no assurance that we will be able to successfully compete against current and future competitors and our failure to do so could result in loss of market share, diminished value in our products and services, reduced pricing and increased marketing expenditures. Furthermore, we may not be successful if we cannot compete effectively on quality of research and analysis, timely

delivery of information, customer service, and the ability to offer products to meet changing market needs for information and analysis, or price.

 

 

We may not be able to 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

 

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 71%72% and 70%71% of our total revenues for 20132014 and 2012,2013, respectively. Generating new sales of our subscription-based products and services, both to new and existing clients, is a challenging, costly, and 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.

OurThe majority of our research subscription agreements are generally for twelve months, althoughmonths. However, we do enter into multi-year agreements, which have been increasing in certain circumstances.frequency. Our ability to maintain contract renewals is subject to numerous factors, including the following:

 

Additionally, as we continue to adjust our products and service offerings to meet our clients’ continuing needs, we may shift the type and pricing of our products which may impact client renewal rates. While our researchResearch enterprise client retention rate was 82%85% at December 31, 20132014 and 83% at December 31, 2012,2013, 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 18%17% of our total revenues in 20132014 and 19%18% in 2012.2013. Consulting engagements typically are project-based and non-recurring. Our ability to replace consulting engagements is subject to numerous factors, including the following:

 

Any material decline in our ability to replace consulting arrangements could have an adverse impact on our revenues and our financial condition. In addition, revenue in our contract optimization business can fluctuate from period to period.

 

The profitability and success of our conferences, symposia and events could be adversely affected by external factors beyond our control. The market for desirable dates and locations for conferences, symposia and events is highly competitive. If we cannot secure desirable dates and locationssuitable venues 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, reductions in government spending, geo-political crises, terrorist attacks, weather, natural disasters, communicable diseases, and other occurrences impacting the global, regional, or national economy,economies, the occurrence of any of which could negatively impact the success of the event. Additionally,We also face the challenge of procuring venues that are sizeable enough at a significant recovery in the global economy could makereasonable cost to accommodate some of our ability to procure space for our events and efforts to keep associated costs down more challenging.major events.

 

 

We may not be able to attract and retain qualified personnel which could jeopardize our future growth plans, as well as 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. SomeRecent improvements in the U.S economy have heightened this competition. Additionally, some of the personnel that we attempt to hire are subject to non-compete agreements that could impede our short-term recruitment efforts. Any failureinability to retain key personnel, or to hire and train additional qualified personnel as required to support the evolving needs of clients or the projected growth in our business, could adversely affect the quality of our products and services, as well as future business and operating results.

 

 

Our international operations expose us to a variety of operational risks which could negatively impact our future revenue and growth. We have clients in 85over 90 countries and a substantial amount of our revenues is earned outside of the U.S. Our operating results are subject to the risks inherent in international business activities, including general political and economic conditions in each country, changes in market demand as a result of tariffs and other trade barriers, challenges in staffing and managing foreign operations, changes in regulatory requirements, compliance with numerous foreign laws and regulations, differences between U.S. and foreign tax rates and laws, and the difficulty of enforcing client agreements, collecting accounts receivable and protecting intellectual property rights in international jurisdictions. Furthermore, we rely on local distributors or sales agents in some international locations. If any of these arrangements are terminated by our agent or us, we may not be able to replace the arrangement on beneficial terms or on a timely basis, or clients of the local distributor or sales agent may not want to continue to do business with us or our new agent.

 

Our international operations expose usWe are exposed to volatility in foreign currency exchange rates.rates from our international operations. Revenues earned outside the U.S. are typically transacted in local currencies, which may fluctuate significantly against the U.S. 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. Additionally, our effective tax rate is increased as the U.S dollar strengthens against foreign currencies, which could impact our operating results.

 

 

We take steps generally acknowledged as standard for the industry to secure our management information systems, including our computer systems, intranet, proprietary websites, email and other telecommunications and data networks, and we carefully scrutinize the security of outsourced website and service providers prior to retaining their services. However, the security measures implemented by us or by our outside service providers may not be effective and our systems (and those of our outside service providers) may be vulnerable to theft, loss, damage and interruption from a number of potential sources and events, including unauthorized access or security breaches, cyber-attacks, computer viruses, power loss, or other disruptive events. Our reputation, brand, financial condition and operating results could be adversely affected if, as a result of a significant cyber event or other technology-related catastrophe, our operations are disrupted or shutdown; our confidential, proprietary information is stolen or disclosed; we incur costs or are required to pay fines in connection with stolen customer, employee, or other confidential information; we are required to dedicate significant resources to system repairs or increase cyber security protection; or we otherwise incur significant litigation or other costs as a result of these occurrences.

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.websites, and to deliver our products and services through emerging channels, such as mobile applications. 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, potentially harming our financial condition and operating results.

 

The affirmative, negative and financial covenants of the 20132014 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 arrangement, 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 arrangement. The associated debt service costs of this credit arrangement could impair our future operating results. The outstanding debt may limit the amount of cash or additional credit available to us, which could restrain our ability to expand or enhance products and services, respond to competitive pressures or pursue future business opportunities requiring substantial investments of additional capital.

 

We may require additional cash resources which may not be available on favorable terms or at all. We believe that our existing cash balances, projected cash flow from operations, and the borrowing capacity we have under our revolving credit facility will be sufficient to fund our plans for the next 12 months and the foreseeable future.

 

However, we may require additional cash resources due to changed business conditions, implementation of our strategy and stock repurchase program, to repay indebtedness or to pursue future business opportunities requiring substantial investments of additional capital.capital, including acquisitions. If our existing financial resources are insufficient to satisfy our requirements, we may seek additional borrowings.borrowings or issue debt. Prevailing credit and debt 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, patent, confidentiality, non-compete and other contractual provisions to protect our intellectual property rights. Despite our efforts to protect our intellectual property rights, unauthorized third parties may obtain and use technology or other information that we regard as proprietary. Our intellectual property rights may not survive a legal challenge to their validity or provide significant protection for us. The laws of certain countries, particularly in emerging markets, do not protect our proprietary rights to the same extent as the laws of the United States. Accordingly, we may not be able to protect our intellectual property against unauthorized third-party copying or use, which could adversely affect our competitive position. Additionally, there can be no assurance that another party will not assert that we have infringed its intellectual property rights.

Our employees are subject to non-compete agreements.agreements to the extent permitted under applicable law. When the non-competition period expires, former employees may compete against us. If a former employee chooses to compete against us prior to the expiration of the non-competition period, we seek to enforce these non-compete provisions but there is no assurance that we will be successful in our efforts. Additionally, there can be no assurance that another party will not assert that we have infringed its intellectual property rights.

 

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.services or otherwise support our growth objectives. 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 orshould we issue stock in the acquisition, decreased working capital, increased indebtedness, the assumption of undisclosed liabilities and unknown and unforeseen risks, the ability to retain key personnel of the acquired company, the inability to integrate the business of the acquired company, the time to train the sales force to market and sell the products of the acquired business, the potential disruption of our ongoing business and the distraction of management from our day to day business. The realization of any of these risks could adversely affect our business. Additionally, we face competition in identifying acquisition targets and consummating acquisitions.

 

At the present time, the United States and other countries where we do business have either changed or are actively considering changes in their tax, accounting and other related laws. In the United States, proposed tax law changes, particularly those directed at taxing jurisdictionsunremitted and less is earnedfuture foreign earnings, could increase our effective tax rate. In addition, Ireland recently modified its tax residency rules. While, at the present time, these changes are not effective until 2020 for many companies with Irish resident operations, including Gartner, the new rules could increase our effective tax rate at that future date. Likewise, certain international organizations such as the Organization for Economic Development and Cooperation, are actively considering proposals, certain of which, if enacted by foreign governments, could significantly increase our tax obligations in lower taxing jurisdictions.many countries where we do business. These actual, potential, and other changes, both individually and collectively, could materially increase our effective tax rate and negatively impact our financial position, results of operations, and cash flows.

In addition, our tax filings for various years are subject to examination by domestic and international taxing authorities and, during the ordinary course of business, we are under audit by one or more tax authorities. Although we believe that our tax filings and related accruals are reasonable, the final resolution of tax audits may be materially different from what is reflected in our historical tax provisions and accruals and could have a material adverse effect on our effective tax rate, financial position, and results of operations.operations, and cash flows, particularly in major taxing jurisdictions including, but not limited to: the United States, Ireland, India, Canada, United Kingdom, Japan, France, and Italy.

 

 

Our operating results may fluctuate from period to period and may not meet the expectations of securities analystsinvestors or investors orthe financial 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 analystsinvestors or investors in the future orfinancial guidance we have given.previously provided. If this occurs, the price of our stock would likelyCommon Stock could decline.

 

Our stock price may be impacted by factors outside of our control and you may not be able to resell shares of our Common Stock at or above the price you paid. The trading price of our Common Stock could beis subject to significant fluctuations in response to, among other factors, developments in the industries in which we do business, general economic conditions, general market conditions, geo-

political events, changes in the nature and composition of our stockholder base, changes in securities analysts’ recommendations

 

Future sales of our Common Stock in the public market could lower our stock price. Sales of a substantial number of shares of Common Stock in the public market by our current stockholders, or the threat that substantial sales may occur, could cause the market price of our Common Stock to decrease significantly or make it difficult for us to raise additional capital by selling stock. Furthermore, we have various equity incentive plans that provide for awards in the form of stock options, stock appreciation rights, restricted stock, restricted stock units and other stock-based awards which have the effect of adding shares of Common Stock into the public market. At the present time, we are executing against a board-approved share repurchase program to reduce the number of outstanding shares of our Common Stock. At December 31, 2014, $413.3 million remained available for share purchases under this program. No assurance can be given that we will continue these activities in the future when the program is completed, or in the event that the price of our Common Stock reaches levels at which repurchases are not accretive.

 

As of December 31, 2013,2014, the aggregate number of shares of our Common Stock issuable pursuant to outstanding grants and awards under these plans was approximately 3.62.9 million shares (approximately 0.80.6 million of which have vested). In addition, at the present time, approximately 6.48.0 million shares may be issued in connection with future awards under our equity incentive plans. Shares of Common Stock issued under these plans are freely transferable without further registrationand have been registered 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). which are subject to certain limitations. 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.

 

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:  

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.

 

The Company has no unresolved written comments that were received from the SEC staff 180 days or more before the end of our fiscal year relating to our periodic or current reports under the Exchange Act.

 

 

We currently lease 2732 domestic and 5165 international offices and we have a significant presence in Stamford, Connecticut; Ft. Myers, Florida; and Egham, the United Kingdom. The Company does not own any properties.

 

Our corporate headquarters is located in approximately 213,000 square feet of leased office space in three buildings located in Stamford. This facility also accommodates research and analysis, marketing, sales, client support, production, corporate services, and administration. The Company's lease on the Stamford facility expires in 2028 and we have three options to renew the lease at fair market value for five years each.

Our Ft. Myers operations are currently located in 120,000 square feet of leased office space in one building for which the lease will expire in 2026. We have also leased an additional 132,000 square feet of space in Ft. Myers in an adjoining building, which is under construction. We currently anticipate this facility will open in mid-2015, and the lease will expire in 2030. Our Egham location has approximately 72,000 square feet of leased office space located in two buildings for whichseparate buildings. However, we recently exercised our rights to early termination of one of the Egham leases, expireand we have entered into agreements with the landlord to occupy under lease a new 120,000 square foot building in 2020 and 2025, respectively.the location of one of the existing buildings. Our other domestic and international locations support our research, consulting, domestic and international sales efforts, and other functions.

 

Our existing facilitiesand planned facility expansions are adequate for our currentcurrently anticipated needs. However, over the past several years we have investedexpect to continue to invest in our business by adding headcount, and we anticipate that trend to continue.headcount. As a result, we may need additional office space in various locations. Should additional space be necessary, we believe that it will be available and at reasonable terms.  

We are involved in various legal and administrative proceedings and litigation arising in the ordinary course of business. The outcome of these individual matters is not predictable at this time. However, we believe that the ultimate resolution of these matters, after considering amounts already accrued and insurance coverage, will not have a material adverse effect on our financial position, results of operations, or cash flows in future periods.

 

Not applicable.

Our Common Stock is listed on the New York Stock Exchange under the symbol IT. As of January 31, 2014,2015, there were 1,7991,493 holders of record of our Common Stock. Our 20142015 Annual Meeting of Stockholders will be held on May 29, 201428, 2015 at the Company’s corporate headquarters in Stamford, Connecticut. We did not submit any matter to a vote of our stockholders during the fourth quarter of 2013.2014.

 

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:  

We currently do not pay cash dividends on our Common Stock. In addition, our 20132014 Credit Agreement contains a negative covenant which may limit our ability to pay dividends.

 

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.

 

On February 4, 2014, the Company’s Board of Directors authorizedThe Company has an $800.0 million to repurchase the Company's common stock. This authorization succeeds the Company’s prior $500.0 million share repurchase authorization,program, of which was substantially utilized.$413.3 million remained available for repurchases as of December 31, 2014. The Company may repurchase its common stock from time to timetime-to-time in amounts and at prices the Company deems appropriate, subject to the availability of stock, prevailing market conditions, the trading price of the stock, the Company’s financial performance and other conditions. Repurchases may be made through open market purchases, private transactions, or other transactions and will be funded from cash on hand and borrowings under the Company’s credit agreement. Repurchases may also be made from time-to-time in connection with the settlement of the Company's share-based compensation awards.

The following table summarizes the repurchases of our Common Stock in the three months ended December 31, 20132014 pursuant to our prior $500.0$800.0 million share repurchase authorization and pursuant to the settlement of share-based compensation awards:  

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.

 

 

The following items impact the comparability and presentation of our consolidated data:

 

The purpose of the following Management’s Discussion and Analysis (“MD&A”) is to help facilitate the understanding of significant factors influencing the operating results, financial condition and cash flows of Gartner, Inc. Additionally, the MD&A also conveys our expectations of the potential impact of known trends, events or uncertainties that may impact future results. You should read this discussion in conjunction with our consolidated financial statements and related notes included in this report. Historical results and percentage relationships are not necessarily indicative of operating results for future periods. References to “the Company,” “we,” “our,” and “us” are to Gartner, Inc. and its consolidated subsidiaries.

 

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 in Part 1, Item 1A, Risk Factors. Readers should not place undue reliance on these forward-looking statements, which reflect management’s opinion only as of the date on which they were made. Except as required by law, we disclaim any obligation to review or update these forward-looking statements to reflect events or circumstances as they occur. Readers should review carefully any risk factors described in other reports we filed with the SEC.

 

Gartner, Inc. is the world’s leading information technology research and advisory company that helps executives use technology to build, guide and grow their enterprises. We offer independent and objective research and analysis on the information technology, computer hardware, software, communications and related technology industries. We provide comprehensive coverage of the IT industry to thousands of client organizations across the globe. 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.

 

We believe the following business measurements are important performance indicators for our business segments:

We have executed a consistent growth strategy since 2005 to drive double-digit annual revenue and earnings growth. The fundamentals of our strategy include a focus on creating extraordinary research content, delivering innovative and highly differentiated product offerings, building a strong sales capability, providing world class client service with a focus on client engagement and retention, and continuously improving our operational effectiveness.

 

We had total revenues of $1,784.2 million$2.021 billion in 2013,2014, an increase of 10%13% over 2012 while diluted2013 on a reported basis and 14% adjusted for foreign exchange impact. Diluted earnings per share increased by $.20$.10 per share, or 5%, to $1.93. Excluding the impact of foreign currency, 2013 total revenues increased 11% over 2012.$2.03 per share in 2014.

 

Research revenues rose 12%14% year-over-year, to $1,271.0 million$1.445 billion in 2013,2014, and the contribution margin increased 1 point, towas 69%., the same as 2013. At December 31, 2013,2014, Research contract value was $1,423.2 million,$1.603 billion, an increase of 13% over December 31, 20122013 on a reported basis and 12%14% adjusted for the impact of foreign exchange. ClientEnterprise client retention was 82%85% and enterprise wallet retention was 98%106% at December 31, 2013.2014.

 

Consulting revenues in 20132014 increased 3%11% when compared to 2012,2013, while the gross contribution margin was 34%., the same as 2013. Consultant utilization was 64%68% for 20132014 compared to 67%64% in 2012,2013, and we had 509535 billable consultants at December 31, 20132014 compared to 503509 at year-end 2012.2013. Backlog increaseddecreased 3% year-over-year, to $106.1$102.6 million at December 31, 2013.2014.

 

Events revenues increased 14% year-over-year, to $198.9$227.7 million, while theand 16% adjusted for foreign currency impact. The segment contribution margin was 46%.49% in 2014, a 3 point increase over 2013. We held 6461 events in 20132014 compared to 6264 in 2012, with a slight decline in2013, while the number of attendees.attendees increased 9% year-over-year, to over 49,000.

For a more detailed discussion of our results, see the Segment Results section below.

 

Cash flow from our operating activities increased 13%was $346.8 million in 20132014, an increase of 10% compared to 2012, to $315.7 million.2013. We continuedcontinue to focus on maximizing shareholder value, and in 2013, and2014 we repurchased 3.45.9 million of our outstanding common shares during the year.shares. We ended 20132014 with almost $424.0$365.3 million in cash and cash equivalents, which is a record year-end cash balance.equivalents. We refinanced our debt in 2013existing credit facility during the fourth quarter of 2014 to take advantage of favorable market conditions, provide for additional liquidity, and asextend the maturity of year-end 2013 we had over $541.0 million ofour debt. Our total borrowing capacity on ourunder the new arrangement is $1.5 billion, which consists of a $400.0 million term loan and a $1.1 billion revolving credit facility.arrangement. The new facility has a five year maturity. At December 31, 2014, approximately $1.1 billion was available for borrowing under the revolver. We believe that we have adequate liquidity to meet our currently anticipated needs.

 

Our quarterly and annual revenue, operating income, and cash flow fluctuate as a result of many factors, including: the timing of our Symposium/ITxpo series, which are normally held during the fourth calendar quarter, as well as other events; the timing and amount of new business generated; the mix between 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 our new products and services; competition in the industry; general economic conditions; and other factors which are beyond our control. 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 and cash flows.

 

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 described below.

 

The preparation of our financial statements also requires us to make estimates and assumptions about future events. We develop our estimates using both current and historical experience, as well as other factors, including the general economic environment and actions we may take in the future. We adjust such estimates when facts and circumstances dictate. However, our estimates may involve significant uncertainties and judgments and cannot be determined with precision. In addition, these estimates are based on our best judgment at a point in time and as such these estimates may ultimately differ from actual results. On-going changes in our estimates could be material and would be reflected in the Company’s financial statements in future periods.

 

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

 

 

The following table provides our total fees receivable and the related allowance for losses (in thousands):

 

The annual assessment of the recoverability of recorded goodwill can be based on either a qualitativequantitative or qualitative assessment or a combination of the two. Both methods require the use of estimates which in turn contain judgments and assumptions regarding future trends and events. As a result, both the precision and reliability of the resulting estimates are subject to uncertainty. In 2013,2014, we completed the required annual goodwill impairment test utilizing a qualitative approach. Based on this assessment, the Company believes the fair values of the Company’s reporting units continue to substantially exceed their respective carrying amounts. See Note 1 — Business and Significant Accounting Policies in the Notes to the Consolidated Financial Statements for additional discussion.

 

 

Determining the appropriate fair value model and calculating the fair value of stock compensation awards requires the input of certain complex and subjective assumptions, including the expected life of the stock compensation award and the Company’s Common Stock price volatility. In addition, determining the appropriate amount of associated periodic expense requires management to estimate the rate of employee forfeitures and the likelihood of achievement of certain performance targets. The assumptions used in calculating the fair value of stock compensation awards and the associated periodic expense represent management’s best estimates, but these estimates involve inherent uncertainties and the application of judgment. As a result, if factors change and the Company deems it necessary in the future to modify the assumptions it made or to use different assumptions, or if the quantity and nature of the Company’s stock-based compensation awards changes, then the amount of expense may need to be adjusted and future stock compensation expense could be materially different from what has been recorded in the current period.

 

 

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.

 

 

The following table presents the changes in selected line items in our Consolidated Statements of Operations for the two years ended December 31, 2013 (dollars in(in thousands):  

 

TOTAL REVENUES for the twelve months ended December 31, 2013 increased $168.4 million, or 10%, compared to the twelve months ended December 31, 2012. Total revenues increased 11% excluding the unfavorable impact of foreign currency. Revenues increased in all three of our business segments and across all of our geographic regions.

The following table presents total revenues by geographic region for the twelve months ended:ended (in thousands):  

The following table presents our revenues by segment for the twelve months ended:ended (in thousands):

Please refer to the section of this MD&A below entitled “Segment Results” for a further discussion of revenues and results by segment.

 

COST OF SERVICES AND PRODUCT DEVELOPMENT (“COS”) expense increased 8% in 2013 compared to 2012, or $54.4 million, to $713.5 million compared to $659.1 million in 2012. The increase was primarily due to higher payroll and related benefits costs from additional headcount as we continued to invest to support the growth in our business, and to a lesser extent, merit salary increases. We also had higher conference costs due to an increase in the number of events, a double-digit increase in the number of exhibitors at our events, and the upgrading of facilities in several locations to support anticipated growth in the

events business. These additional costs were partially offset by the favorable impact of foreign currency. COS as a percentage of revenues was 40% in the 2013 period compared to 41% in the 2012 period.

 

SELLING, GENERAL AND ADMINISTRATIVE (“SG&A”) expense increased by $81.6 million in 2013, or 12%, to $760.5 million compared to $678.8 million in 2012. The increase was primarily due to higher payroll and related benefits costs, which was partially offset by favorable foreign currency impact. The higher payroll and benefit cost was primarily driven by our investment in additional headcount, and to a lesser extent, higher sales commissions and merit salary increases. The increased headcount includes additional quota-bearing sales associates, which increased to 1,643 at December 31, 2013, a 16% increase over year-end 2012.

 

DEPRECIATION expense increased 14% in 2013 compared to 2012, primarily due to additional depreciation on leasehold improvements from two renovated buildings on our Stamford headquarters campus being placed into service during 2013.

 

AMORTIZATION OF INTANGIBLES increased 24% year-over-year due to a full year of amortization in 2013 of the intangible assets recorded from the Ideas International acquisition in mid-2012.

 

ACQUISITION AND INTEGRATION CHARGES was $0.3 million in 2013 compared to $2.4 million in 2012. These charges relatedare directly-related to the acquisition of Ideas International in mid-2012our acquisitions and primarily include legal, consulting, severance, and otherseverance costs.

 

OPERATING INCOME increased $29.8 million year-over-year, or 12%, to $275.5 million in 2013 from $245.7 million in 2012. The increased operating income was primarily attributable to a substantially higher segment contribution from our Research segment. Operating income as a percentage of revenues was 15% for both periods.

 

INTEREST EXPENSE, NET was flat year-over-year.

 

OTHER EXPENSE, NET was $0.2 million in 2013 and $1.3 million in 2012. These expenses primarily consisted of net foreign currency exchange gains and losses.

 

PROVISION FOR INCOME TAXES was $83.6 million in 2013 compared to $69.7 million in 2012 and the effective tax rate was 31.4% for 2013 compared to 29.6% for 2012. The higher effective tax rate in 2013 was primarily attributable to a change in the annual mix of pre-tax income by jurisdiction as well as the impact of certain state tax credits recognized in 2012.

DuringIn 2013 the Company closed the Internal Revenue Service (“IRS”) audit of its 2008 and 2009 federal income tax returns. The resolution of the audit did not have a material adverse effect on the consolidated financial position, cash flows, or results of operations of the Company.

The American Taxpayer Relief Act of 2012 (the “2012 Tax Act”) was enacted in January of 2013 and contained beneficial tax provisions for the Company which applied retroactively to 2012. However, since the 2012 Tax Act was passed in 2013, approximately $1.5 million of tax benefits relating to its retroactive application were recorded by the Company in early 2013.

 

NET INCOME was $182.8 million in 2013 and $165.9 million in 2012, an increase of $16.9 million, or 10%, primarily due to the higher operating income, which was partially offset by higher income tax charges. Diluted earnings per share increased 12% year-over-year due to the higher net income and to a lesser extent a lower number of weighted-average shares outstanding.

 

 

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, SG&A, Depreciation, Acquisition and integration charges, and Amortization of intangibles. Gross contribution margin is defined as gross contribution as a percentage of revenues.

Research segment revenues in 2013 increased 12% compared to 2012. The impact of foreign exchange translation was not significant. The segment gross contribution margin increased by 1 point, to 69%, driven by the operating leverage in this business. Contribution margin improved in spite of an 8% increase in segment headcount as we continue to invest for future growth.

The following table presents the financial results and business measurements of our Consulting segment as of and for the twelve months ended December 31:

2013 VERSUS 2012

 

Consulting revenues increased 3% year-over-year and 4% when adjusted for the impact of foreign exchange. The increase was due to higher contract optimization revenue, which can fluctuate from period to period and are generally about 10% of total Consulting segment revenues.revenue. The increased contract optimization revenues were partially offset by slightly lower core consulting and strategic advisory (“SAS”) revenues. The gross contribution margin declined by 2 points due to higher payroll and benefit costs from additional headcount and merit salary increases, and to a lesser extent, lower utilization in core consulting. Backlog increased $3.4 million, or 3%, year-over-year, to $106.1 million at December 31, 2013.

  

Events revenues increased $25.2 million when comparing 2013 to 2012, or 14%, but excluding the impact of foreign currency translation, revenues increased 15% year-over-year. We held 64 events in 2013, consisting of 58 ongoing events and 6 new events, compared to 62 events in 2012. The year-over-year revenue increase was primarily attributable to higher exhibitor revenue at our ongoing events. The overall number of attendees declined slightly while the number of exhibitors increased 11%. Average revenue per attendee rose 15% and average revenue per exhibitor increased 6%. The gross contribution margin was flat year-over-year at 46%.

We finance our operations primarily through cash generated from our operating activities. For 2013,2014, we had operating cash flow of $315.7$346.8 million, which was the highest in the Company’s history and represented an increase of 13%10% over 2012.2013. Our operating cash flow has been continuously enhanced by the leverage characteristics of our subscription-based business model as well as our focus on operational efficiencies. Revenues in our Research segment, which increased 12%14% in 20132014 compared to 2012,2013, constituted 71%72% and 70%71% of our total revenues in 2014 and 2013, and 2012, respectively. Our ResearchThe majority of our research contracts generally renew annually and typically are paid in advance, and combined with a strong customer retention rate and high incremental margins, has generally resulted in strong growth in operating cash flow each year. Our cash flow generation has also benefited from our continuing efforts to improve the operating efficiencies of our businesses as well as a focus on the optimal management of our working capital as we increase our sales volume.

 

In addition to the strong increase in our operating cash flows, we alsoWe had almost $424.0over $365.0 million of cash and cash equivalents at year-end 2013, which was the highest cash balance in the Company’s history.2014. We refinanced our debt in 20132014 to take advantage of favorable market conditions and we had $541.1 millionapproximately $1.1 billion of available borrowing capacity under our revolving credit facility at year-end 2013.2014. We believe that our consistently strong operating cash flow, as well as our existing cash balances and our available borrowing capacity, provide us with adequate liquidity to meet our currently anticipated needs.

  

Our cash and cash equivalents are held in numerous locations throughout the world. At December 31, 2013, $247.02014, $305.0 million of our cash and cash equivalents was held outside the U.S. Approximately half61% of the cash and cash equivalents held overseas represents unremitted earnings of our non-U.S subsidiaries. Under U.S. accounting rules, no provision for income taxes that may result from the remittance of such earnings is required if the Company intends to reinvest such funds overseas. Our current plans do not demonstrate a need to repatriate these undistributed earnings to fund our U.S. operations or otherwise satisfy the liquidity needs of our U.S operations. We intend to reinvest these earnings in our non-U.S. operations, except in instances in which the repatriation of these earnings would result in minimal additional tax. As a result, the Company has not recognized additional income tax expense that may result from the remittance of these earnings. However, should our liquidity needs change or we decide to repatriate some or all of these unremitted earnings, we may be required to accrue additional taxes which could have a material effect on our consolidated financial position, cash flows, and resultresults of operations.

The following disclosure summarizes and explains the changes in our cash and cash equivalents for the three years endingended December 31, 20132014 (in thousands):

Operating cash flow increased by $35.8 million, or 13%, when comparing 2013 to 2012. The increase was primarily due to higher net income in the 2013 period, as well as additional receivable collections and other positive working capital changes. These increases were partially offset by additional cash payments in the 2013 period for bonus, commissions, and income taxes, and we also had lower cash reimbursements in the 2013 period related to the completion of the renovation of our Stamford headquarters facility.

Cash used in our investing activities declined by $18.2 million in 2013 compared to 2012. The decrease was primarily due to $10.3 million of cash used in 2012 for the acquisition of Ideas International and to a lesser extent, higher capital expenditures in 2012.

 

Capital expenditures were $36.5 million in 2013 compared to $44.3 million in 2012, which included $7.7 million and $17.0 million, respectively, that were paid for the renovation of our Stamford headquarters facility. The Company's total expenditures on the renovation were approximately $34.2 million. The Company received a total of $25.0 million of reimbursements from the facility landlord for the renovation, of which $3.0 million was received in 2013, $13.0 million in 2012, and $9.0 million in 2011, which were recorded in operating cash flows.

 

We used $153.9$154.0 million of cash in our financing activities in 2013 compared to $72.6$73.0 million in 2012, an increase in cash used of $81.3$81.0 million, primarily due to share repurchases. We used $181.7$182.0 million of cash in 2013 for share repurchases compared to $111.3$111.0 million in 2012. We also had lower cash proceeds from employee share-based activity in the 2013 period, and we also paid $3.6$4.0 million of fees related to our debt refinancing in the 2013 period.

The Company has a five-year credit arrangement that it entered into in March 2013December 2014 that provides for a $150.0$400.0 million term loan and a $600.0 million$1.1 billion revolving credit facility (the “2013“2014 Credit Agreement”). Under the revolving credit facility, amounts may be borrowed, repaid, and re-borrowed through the maturity date of the agreement in March 2018.December 2019. The credit arrangement contains an expansion feature by which the term loan and revolving credit facilityfacilities may be increased, at the Company’sCompany's option, and under certain conditions, by up to an additional $250.0$500.0 million in the aggregate. The Company had a total of $200.0 million outstanding under the 2013 Credit Agreement asAs of December 31, 2013, which consisted of $144.42014, the Company had $400.0 million outstanding under the term loanfacility and $55.6 million outstandingzero under the revolver. As of December 31, 2013, we had $541.1 million of borrowing availability under the revolver.

Through December 31, 2013,2014, we have not entered into any off-balance sheet arrangements or transactions with unconsolidated entities or other persons.

The Company has certain contractual commitments that require future payment.cash payments. The following table summarizes the Company’sthese contractual cash commitments due after December 31, 20132014 (in thousands):