UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
|
| |
þ☑ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| | For the fiscal year ended December 31, 20172019 |
OR
|
| |
o☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number: 1-14443
GARTNER, INC.
(Exact name of registrant as specified in its charter)
|
| |
| Delaware | 04-3099750 |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| P.O. Box 10212 | |
| 56 Top Gallant Road | |
Stamford, CT |
|
| Connecticut | 06902-7700 |
| (Address of principal executive offices) | (Zip Code) |
| |
(203) 316-1111 | |
(Registrant’s telephone number, including area code) | |
Registrant’s telephone number, including area code: (203) 316-1111
Securities registered pursuant to Section 12(b) of the Act:
|
| | |
| Title of each class | Trading Symbol | Name of each exchange on which registered |
Common Stock, $.0005$0.0005 par value per share | IT | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ☑ No o☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes o☐ No þ☑
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ☑ No o☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ☑ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company, as defined” and “emerging growth company” in Rule 12b-2 of the Exchange Act: Act.
|
| | | | | | | |
Large accelerated filerþ | ☑ | | Accelerated filero | ☐ | | Non-accelerated filero | ☐ |
| Smaller reporting company | ☐ | | Emerging growth company | ☐ | | | |
Smaller reporting company o
| EmergingIf an emerging growth company, oindicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
| |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
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, 2017,2019, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $10,832,607,830,approximately $14.1 billion, based on the closing sale price as reported on the New York Stock Exchange.
The numberAs of January 31, 2020, there were 89,101,606 shares outstanding of the registrant’s common stock was 90,833,817 as of January 31, 2018.outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
|
| | |
Document | | Parts Into Which Incorporated |
Proxy Statement for the Annual Meeting of Stockholders to
be held (Proxy Statement)
| | Part III |
The definitive Proxy Statement for the Annual Meeting of Stockholders to be held on June 8, 2020 is incorporated by reference into Part III to the extent described therein.
GARTNER, INC.
20172019 ANNUAL REPORT ON FORM 10-K
PART I
ITEM 1. BUSINESS.
GENERAL
Gartner, Inc. (NYSE: IT) is the world’s leading research and advisory company and a member of the S&P 500. We equip business leaders with indispensable insights, advice and tools to achieve their goalsmission-critical priorities today and build the successful organizations of tomorrow. We believe we have anour unmatched combination of expert-led, practitioner-sourced and data-driven research that steers clients toward the right decisions on the issues that matter most. We’reWe are a trusted asadvisor and an objective resource and critical partner byfor more than 12,000 organizations15,000 enterprises in more than 100 countries — across all major functions, in every industry and enterprise size.
Gartner delivers its products and services globally through fourthree business segments:segments – Research, Conferences and Consulting, Events, and Talent Assessment & Other:as described below.
Research provides trusted, objective insights and advice on the mission-critical priorities of leaders across all functional areas of thean enterprise through research and other reports, briefings, proprietary tools, access to our analysts,research experts, peer networking services and membership programs that enable our clients to make better decisions. Gartner's traditional strengths in IT, marketing and supply chain research were enhanced in 2017 with Gartner's acquisition of CEB, Inc. ("CEB"), which added CEB's best practice and talent management research insights across a range of business functions, to include human resources, sales, legal and finance.
drive organizational performance.
Consulting provides customized solutions to unique client needs through on-site, day-to-day support, as well as proprietary tools for measuring and improving IT performance with a focus on cost, performance, efficiency and quality.
EventsConferences provides business professionals across thean organization the opportunity to learn, share and network. From our flagship CIO event Gartner Symposium/ITxpo,Xpo series, to industry-leading conferences focused on specific business roles and topics, to member-drivenpeer-driven sessions, our eventsofferings enable attendees to experience the best of Gartner insight and advice live.
Talent Assessment & Other helps organizations assess, engage, manageConsulting combines the power of Gartner market-leading research with custom analysis and improve talent. Thison-the-ground support to help chief information officers and other senior executives driving technology-related strategic initiatives move confidently from insight to action.
The fiscal year of Gartner is accomplishedthe twelve-month period from January 1 through knowledgeDecember 31. All references to 2019, 2018 and skills assessments, training programs, workshops, and survey and questionnaire services.
For more information regarding Gartner and our products and services, visit gartner.com. References2017 herein refer to “the Company,the fiscal year unless otherwise indicated. When used in this Annual Report on Form 10-K, the terms “Gartner,” the “Company,” “we,” “our,” and “us” areor “our” refer to Gartner, Inc. and its consolidated subsidiaries. References to "heritage Gartner" operating results and business measurements refer to Gartner excluding CEB.
MARKET OVERVIEW
We are livingEnterprise leaders face enormous pressure to stay ahead and working in the midst of a revolution. Technology increasingly drives organizational strategies rather than just supporting them, and three megaforces - technology-driven industry disruption, the growing pervasiveness of technology across every part of the enterprise, and sustained macroeconomic and political volatility (such as commodity price swings, exchange rate flux, Brexit) - are rapidly changing how businesses and other organizations plan and operate.
To remain viable and competitive,grow profitably amidst constant change. Whether it is an impending transition to digital business or large-scale regulatory changes, business leaders must deal with this unprecedented level of disruption and change.today are facing more disruptive change than ever before. No enterprise can be operationally effective unless it incorporates the right strategy, management and technology decisions into every part of its business. This means considering technology from many angles - how itrequirement affects all business levels, functions and roles. Chief Financial Officers, Headsfinancial officers, heads of Human Resources, Chief Marketing Officershuman resources, chief marketing officers, chief information officers, and other executives and leaders across the enterprise are more reliant on technology than ever. Given this critical need, businessall enterprises governments and their agencies, and other organizations turn to Gartner for decision-making guidance and execution support to ensure they maximizeachieve their technology investments and meet their current and future needs.mission-critical priorities.
Our legacy of expertise in IT has given way to a new position: Strategic research and advisory services operating across the entire organization. We believe our best-in-class Gartner content combined with CEB expertise in functional areas has strengthened our value proposition and increased our market opportunity to an all-time high.
OUR SOLUTION
We believe our unmatched combination of expert-led, practitioner-sourced and data-driven research steers clients toward the right decisions and actions on the issues that matter most. 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, interactive tools, facilitated peer networking, briefings, consulting and advisory services, and our events,conferences, including the Gartner Symposium/ITxpoXpo series.
We had over 1,900 research analysts as of December 31, 2017 located around the world who create compelling, relevant, independent and objective research and fact-based analysis on virtually every function across the enterprise. Through our robust product portfolio, our global research team provides thought leadership and insights that CIOs and other technology practitioners, HR, sales, legal, and finance executives, and supply chain and marketing professionals need to make the right decisions, every day.
In addition to our research analysts, as of December 31, 2017 we had 669 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 together highly qualified audiences that include CIOs and other IT and C-suite executives, frontline IT architects and professionals, purchasers and providers of technology and supply chain products and services, business professionals, and other leaders across marketing, finance, legal, sales and HR.
PRODUCTS AND SERVICES
Our diversified business model provides multiple entry points and sources of value for our clients that facilitate increased client spending on our research and advisory services, conferences and consulting services and events.services. A critical part of our long-term strategy is to increase business volume and penetration 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 through our fourthree business segments:segments, as described below.
| |
| • | RESEARCH. Gartner delivers independent, objective advice to leaders across an enterprise through subscription services that include on-demand access to published research content, data and benchmarks, and direct access to a network of approximately 2,300 research experts located around the globe. Gartner research is the fundamental building block for all Gartner products and services. We combine our proprietary research methodologies with extensive industry and academic relationships to create Gartner products and services that address each role across an enterprise. Within the Research segment, Global Technology Sales ("GTS") sells products and services to users and providers of technology, while Global Business Sales ("GBS") sells products and services to all other functional leaders, such as supply chain, marketing, HR, finance, legal and sales. |
RESEARCH. Gartner delivers independent, objective advice to leaders across the enterprise, primarily through a subscription-based digital media service. Gartner research is the fundamental building block for all Gartner services. We combine our proprietary research methodologies with extensive industry and academic relationships to create Gartner solutions that address each role.
Our research agenda is defined by clients’ needs, focusing on the critical issues, opportunities and challenges they face every day. We are in steady contact with over 12,00015,000 distinct organizationsclient enterprises worldwide. We publish tens of thousands of pages of original research annually, and our analysts answer over 380,000research experts have more than 400,000 direct client inquiriesinteractions every year. Our size and scale allowenable us to commit vast resources toward broader and deeper analystresearch coverage and to deliver insight to our clients based on what they need and where they are. The ongoing interaction betweenof our research analysts andexperts with our clients enables us to identify the most pertinent topics to them and develop relevant product and service enhancements to meet the evolving needs of users of our research. Our proprietary research content, presented in the form of reports, briefings, updates and related tools, is delivered directly to the client’s desktop via our website and/or product-specific portals.
Clients normally sign subscription contracts that provide access to our research content and advisory services for individual users over a defined period of time.period. We typically have a minimum contract period of 12twelve months for our research and advisory subscription contracts and, as ofat December 31, 2017, more than half2019, a significant portion of our contracts arewere multi-year.
| |
| • | CONFERENCES. Gartner attracts more than 85,000 business and technology professionals to its 70+ destination conferences worldwide each year. Attendees experience sessions led by Gartner research experts, cutting-edge technology solutions, peer exchange workshops, one-on-one analyst and advisor meetings, consulting diagnostic workshops, keynotes and more. Our conferences also provide attendees with an opportunity to interact with business executives from the world’s leading technology companies. In addition to role-specific summits and workshop-style seminars, Gartner hosts the Gartner Symposium/Xpo series, including its unique, flagship IT Symposium/Xpo®, which is held at nine locations worldwide annually. We also host 700+ more intimate live meetings each year for peer collaboration, and 240+ exclusive C-level meetings through the Evanta brand. |
| |
| • | CONSULTING. Through its experienced consultants, Gartner Consulting serves chief information officers and other senior executives who are driving technology-related strategic initiatives to optimize technology investments and drive business impact. Gartner Consulting combines the power of Gartner’s market-leading research with custom analysis and on-the-ground support to help clients to turn insights and advice into action and impact. |
CONSULTING. Gartner Consulting deepens relationships with our largest research clients by extending the reach of our research through custom consulting engagements. Gartner Consulting brings together our unique research insight, benchmarking data, problem-solving methodologies and hands-on experience to improve the return on a client’s IT investment. Our consultants provide fact-based consulting services to help clients use and manage IT to optimize business performance.
Consulting solutions capitalize on Gartner assets that are invaluable to IT decision making,information technology ("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 to CIOs and other IT executives, and to those professionals responsible for IT applications, enterprise architecture, go-to-market strategies, infrastructure and operations, program and portfolio management, and sourcing and vendor relationships. Consulting also provides targeted consulting services to professionals in specific industries. Finally,Additionally, we provide actionable solutions for a range of IT-related priorities, including IT cost optimization, technology modernization and IT sourcing optimization initiatives.optimization.
EVENTS. Gartner attracts more than 75,000 technology and business professionals and 1,100 industry-leading technology providers to its 75+ conferences worldwide each year. Attendees experience sessions led by Gartner analysts, cutting-edge technology solutions, peer exchange workshops, one-on-one analyst meetings, consulting diagnostic workshops, keynotes and more. They also provide attendees with an opportunity to interact with business executives from the world’s leading technology companies. In addition to role-specific summits and workshop-style seminars, Gartner holds its unique, flagship Symposium/ITxpo in eight locations worldwide annually. Since the addition of CEB, we’ve expanded to host 700+ more intimate live events each year plus 220+ exclusive CxO gatherings through the Evanta brand.
TALENT ASSESSMENT & OTHER. Our offerings help organizations plan, recruit, assess, develop, engage and drive performance of their organizational talent against corporate objectives. Our talent assessment and development solutions help companies manage human capital investments. These offerings include cognitive ability assessments, skills and/or knowledge assessments, personality questionnaires, and job/role simulations and are generally implemented as pre-hire or post-hire applications. We also evaluate training programs and develop and offer workshops and technical training that enhance the potential of emerging leaders and their teams. Our proprietary workshops and technical training provide an executive education curriculum supported by e-learning resources for members seeking to enhance skill development for their staff. These tools and services use science and data to develop talent strategies for clients that are linked to business results.
On February 6, 2018, we announced that we had reached a definitive agreement to sell our CEB Talent Assessment business, which is a significant portion of the Talent Assessment & Other segment. Note 2 — Acquisitions and Divestiture and Note 16 — Subsequent Events in the Notes to the Consolidated Financial Statements provide additional information.
COMPETITION
We believe that the principal factors that differentiate us from our competitors are:are as follows:
Superior research content - We believe that we create the broadest, highest-quality and most relevant research coverage across all major functional roles in thean enterprise. Our independent operating model and research analysis generates unbiased insight that we believe is timely, thought-provoking and comprehensive, and that is known for its high quality, independence and objectivity.
Our leading brand name - We have provided critical, trusted insight under the Gartner name for over 35more than 40 years.
Our global footprint and established customer base - We have a global presence with clients in more than 100 countries on six continents. A substantial portion of our revenue is derived from sales outside of the United States.
Experienced management team - Our management team is composedcomprised of research veterans and experienced industry executives with long tenure at Gartner.
Substantial operating leverage in our business model - We have the ability tocan distribute our intellectual property and expertise across multiple platforms, including research publications,and advisory subscription and membership programs, conferences and consulting engagements, conferences and executive programs, to derive incremental revenue and profitability.
Vast network of analystsresearch experts and consultants - As of December 31, 2017,2019, we had over 1,900approximately 2,300 research analystsexperts and 669780+ experienced consultants located around the world. Our analysts collectively speak 59 languages andresearch experts are located in 26more than 30 countries, enabling us to cover allvast aspects of technologybusiness and businesstechnology on a global basis.
Notwithstanding these differentiating factors, we face competition from a significant number of independent providers of information products and services. We compete indirectly with consulting firms and other data and 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.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 positions 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.
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 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 and third parties 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.
EMPLOYEES
We had a total of 15,13116,724 employees as of December 31, 2017, a significant increase compared to 8,813 at December 31, 2016.2019, an increase of 10% when compared to 15,173 employees at December 31, 2018. The increase consists of an 18%overall growth in heritage Gartner headcount as we continuedthe number of employees was due, in part, to invest for future growth andan increase in the additional employees resulting from our acquisitions.total number of quota-bearing sales associates during 2019.
We had 8,4869,468 employees, basedor 57% of our total employees, located in the U.S.United States at December 31, 2017: 1,3352019 in approximately 45 offices. At such date, we had 1,314 employees were located at our headquarters facility in Stamford, Connecticut and nearby; 1,5842,040 employees were located at our Ft.Fort Myers, Florida offices; 1,657 were1,457 employees located in Arlington, Virginia; 847 employees located in Irving, Texas; and 3,9103,810 employees were located elsewhere in the United States in 56 other offices. States.
We had 6,6457,256 employees, or 43% of our total employees, located outside of the United States in 106 offices at December 31, 2017: 1,0462019 in approximately 75 offices. At such date, 1,616 employees were located in Gurgaon, India; 1,180 employees were located in Egham, the United Kingdom; 883and 4,460 employees were located elsewhere in Gurgaon, India; and the remaining 4,716 employees were located in 104 other offices.world.
Our employees may be subject to collective bargaining agreements at a company or industry level, or works councils, in those foreign countries where this issuch arrangements are part of the local labor law or practice. We have experienced no work stoppages and consider our relations with our employees to be favorable.
GOVERNMENT CONTRACTS
Our U.S. government contracts are subject to the approval of appropriations by the U.S. Congress to fund the agencies contracting for our products and services. Additionally, our contracts at the state and local levels, as well as foreign government contracts, are subject to various governmental authorizations and funding approvals and mechanisms. Certain of these contracts may be terminated at any time by the government entity without cause or penalty.
FINANCIAL INFORMATION
The Company's financial information by business segment and geographic area for the three-year period ended December 31, 20172019 is provided in Note 1416 — Segment Information in the Notes to Consolidated Financial Statements. Additional information regarding revenues by business segment is provided in Note 9 — Revenue and Related Matters in the Notes to Consolidated Financial Statements.
AVAILABLE INFORMATION
Our Internetinternet address is www.gartner.comgartner.com and the Investor Relations section of our website is located at www.investor.gartner.cominvestor.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”). Unless expressly noted, the information on our website or any other website is not incorporated by reference in this Form 10-K and should not be considered part of this Form 10-K or any other filing we make with the SEC.
Also available at www.investor.gartner.cominvestor.gartner.com, under the “Corporate Governance”“Governance” link, are printable and current copies of ourour: (i) CEO &and CFO Code of Ethics, which applies to our Chief Executive Officer, Chief Financial Officer, Controller and other financial managers,managers; (ii) Global Code of Conduct, which applies to all Gartner officers, directors and employees, wherever located,located; (iii) Board Principles and Practices of the Board of Directors of Gartner, Inc., the corporate governance principles that have been adopted by our BoardBoard; and (iv) charters for each of the Board’s standing committees: Audit, Compensation and Governance/Nominating.
ITEM 1A. RISK FACTORSFACTORS.
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 and trends. The following sections discuss many, but not all, of the risksaddress significant factors, events and uncertainties that may affectmake an investment in our future performance, but is not intendedsecurities risky. We urge you to be all-inclusive. Any ofconsider carefully the factors described below and the risks that they present for our operations, as well as the risks addressed in other reports and materials that we file with the SEC and the other information, included or incorporated by reference in this Form 10-K. When the factors, events and contingencies described below or elsewhere in this Form 10-K materialize there could havebe a material adverse impact on ourbusiness, prospects, results of operations, financial condition, and cash flows, and couldtherefore have a negative effect on the trading price of our common stock. Additional risks not currently known to us or that we now deem immaterial mayalso harm us and negatively affect your investment.
Risks related to our business
On April 5, 2017, Gartner acquired CEB Inc. ("CEB"). References to "heritage Gartner" operating results and business measurements refer to Gartner excluding CEB. References to CEB refer to the operating results and business measurements of CEB subsequent to the acquisition.
Our operating results could be negatively impacted by global economicconditions. Our business is impacted by general economic conditions and trends in the United States and abroad. In its recent report, Global Economics Prospects, January 2018 Global Economic Prospects report,2020: Slow Growth, Policy Challenges, the World Bank
reported that global trade and investment are expected to recover modestly this year, but advanced economies are expected to slow. The report also indicated that even if growth in emerging and developing economies occurs as anticipated, the per capita growth is still expected to be less than long-term averages. Among the concerns cited were increasing and accelerated global debt accumulation, slowdown in productivity, price controls in emerging markets and developing economies, risk of re-escalating trade tensions and downturns in major economies. In the United States, the World Bank notes that global growth has decelerated in part due to lessening investment and exports, and it is expected to continue while substantial downside risks are present, to include financial stress, protectionism, and geopolitical change. We also believe that terrorist attacks around the world have added additionalgeneral uncertainty and risks to the economic environment.diminishing impact of 2017 tax cuts will have a negative effect on growth in the near term. A downturn in growth could negatively and materially affect future demand for our products and services in general, in certain geographic regions, or in particular countries, or industry sectors. Such difficulties could include thenegatively impact our ability to maintain client retention, wallet retention and consulting utilization rates, achieveor improve the various business measurements we utilize (which are defined in this annual report), such as contract value and consulting backlog growth, client retention, wallet retention, consulting utilization rates, and attractthe number of attendees and exhibitors at our conferences and other meetings. Failure to our events. Such developments couldachieve acceptable levels of these measurements or improve them will negatively impact our financial condition, results of operations, and cash flows.
We face significant competition and our failure to compete successfully couldmaterially 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 Internetinternet 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, low 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 couldwill result in loss of market share, diminished value in our products and services, reduced pricing and increased marketing expenditures. Furthermore, we maywill not be successful if we cannot compete effectively on quality of research and analysis, timely delivery of information, customer service, the ability to offer products to meet changing market needs for information and analysis, or price.
We may not be able to maintain the quality of our existing products and services. We operate in a rapidly evolving market, and our success depends uponon our ability to deliver high quality and timely research and analysis to our clients. Any failure to continue to provide credible and reliable information and advice that is useful to our clients could have a material adverse effect on future business and operating results. Further, if our published data, opinions or viewpoints prove to be wrong, lack independence, or are not substantiated by appropriate research, our reputation maywill 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 via the Internetinternet and mobile applications. Failure to maintain state of the art electronic delivery capabilities could materially adversely affect our future business and operating results.
We may not be able to enhance and develop our existing products and servicesor introduce the new products and services that are needed to remaincompetitive. The market for our products and services is characterized by rapidly changing needs for information and analysis. The development of new products is a complex and time-consuming process. Nonetheless, to maintain our competitive position, we must continue to anticipate the needs of our client organizations,clients, develop, enhance and improve our existing products, as well as new products and services to address those needs, deliver all products and services in a timely, user-friendly and state of the art manner, and appropriately position and price new products and services relative to the marketplace and our costs of developing 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 service releases or significant problems in creating new products or services could materially adversely affect our business, results of operations and financial position.
As a result of the acquisition of CEB in 2017, a portion of our revenue is now derived from products, services, and tools that relate to human talent assessment, management, and development, which were new products for the Company. Revenue from these activities is concentrated in our Talent Assessment & Other business segment. Revenue from these activities is affected in part by our ability to create new offerings as demand changes, and our ability to support existing offerings. If we fail to successfully manage and grow this new business, our operating results, financial condition, and liquidity could be negatively impacted. Also, economic downturns in certain segments or geographic regions may cause reductions in discretionary spending by our customers, which may adversely affect our ability to maintain or grow the volume of business.
Technology is rapidly evolving, and if we do not continue to develop new product and service offerings in response to these changes, our business could suffer. Disruptive technologies are rapidly changing the environment in which we, our clients, and our competitors operate. We will need to continue to respond to these changes by enhancing our product and service offerings in order to maintain our competitive position. However, we may not be successful in responding to these forces and enhanceenhancing our products on a timely basis, and any enhancements we develop may not adequately address the changing needs of our clients. Our future success will depend upon our ability to develop and introduce in a timely manner new or enhanced existing offerings that address the changing needs of this constantly evolving marketplace. Failure to develop products that meet the needs of our clients in a timely manner could have a material adverse effect on our business, results of operations, and financial position.
Our Research business depends on renewals of subscription-based services and sales of newsubscription-based services for a significant portion of our revenue, and ourfailure to renew at historical rates or generate new sales of such servicescouldwill 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 approximately 70%73% and 71%72% of our total revenues from our on-going operations for 20172019 and 2016,2018, respectively. Generating new sales of our subscription-based products and services, both to new and existing clients, is a challenging, costly, and often time consumingtime-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 contracts are typically for 12-monthstwelve months or longer. Our ability to maintain contract renewals is subject to numerous factors, including the following:
delivering high-quality and timely analysis and advice to our clients;
understanding and anticipating market trends and the changing needs of our clients; and
providing products and services of the quality and timeliness necessary to withstand competition.
Additionally, as we continue to adjust our products and service offerings to meet our clients’ continuing needs, we may shift the type and pricing of our products which may impact client renewal rates. While our heritage Research client retention rate was 84%82% and 83% at both December 31, 20172019 and 2016,2018, respectively, there can be no guarantee that we will continue to maintain this rate of client renewals.
Our Consulting business depends on non-recurring engagements and our failure to secure newengagements could lead to a decrease in our revenues. Consulting segment revenues constituted 10% of our total revenues in 2017 and 14% in 2016. Consulting engagements typically are project-based and non-recurring. Our ability to replace consulting engagements is subject to numerous factors, including the following:
delivering consistent, high-quality consulting services to our clients;
tailoring our consulting services to the changing needs of our clients; and
our ability to match the skills and competencies of our consulting staff to the skills required for the fulfillment of existing or potential consulting engagements.
Any material decline in our ability to replace consulting engagements could have an adverse impact on our revenues and our financial condition. In addition, revenue from our contract optimization business can fluctuate significantly from period to period and is not predictable.
The profitability and success of our conferences symposia and events could beadversely affected byother meetings are subject to external factors beyond our control. Our EventsConferences business constituted 10%approximately 11% of our total revenues from our on-going operations in 2017both 2019 and 11% in 2016.2018. The market for desirable dates and locations for conferences, symposia and eventsour activities is highly competitive. If we cannot secure desirable dates and suitable venues for our conferences symposia and events their profitability couldwill suffer, and our financial condition and results of operations may be adversely affected. In addition, because our eventsconferences are scheduled in advance and held at specific locations, the success of these eventsactivities can be affected by circumstances outside of our control, such as the occurrence of or concerns related to labor strikes, transportation shutdowns and travel restrictions, economic slowdowns, reductions in government spending, geopolitical crises, terrorist attacks, war, weather, natural disasters, communicable diseases, and other occurrences impacting the global, regional, or national economies, the occurrence of any of which could negatively impact the success of the event.conference or meeting. We also face the challenge of procuring venues that are sizeable enough at a reasonable cost to accommodate some of our major events.activities.
Our Consulting business depends on non-recurring engagements and our failure to secure newengagements could lead to a decrease in our revenues. Consulting segment revenues constituted approximately 9% of total revenues from our on-going operations in both 2019 and 2018. Consulting engagements typically are project-based and non-recurring. In addition, revenue from our contract optimization business can fluctuate significantly from period to period and is not predictable. Our ability to replace consulting engagements is subject to numerous factors, including the following:
delivering consistent, high-quality consulting services to our clients;
tailoring our consulting services to the changing needs of our clients; and
our ability to match the skills and competencies of our consulting staff to the skills required for the fulfillment of existing or potential consulting engagements.
A material decline in our ability to replace consulting engagements will have an adverse impact on our revenues and our financial condition.
Our sales to governments are subject to appropriations and some may be terminated.terminated early. We derive significant revenues from research and consulting contracts with the United States government and its respective agencies, numerous state and local governments and their respective agencies, and foreign governments and their agencies. At December 31, 20172019 and 2016,2018, approximately $435.0$639 million and $355.0$555 million, respectively, of our outstanding revenue contracts were attributable to government entities. 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. Additionally, our contracts at the state and local levels, as well as foreign government contracts, are subject to various governmental authorizations and funding approvals and mechanisms. In general, most if not allCertain of these contracts may be terminated at any time by the government entity without cause or penalty (“termination for convenience”). In addition, contracts with U.S. federal, state and local, and foreign governments and their respective agencies are subject to increasingly complex bidding procedures and compliance
requirements, andas well as intense competition. ShouldWhile terminations by governments have not been significant historically, should appropriations for the various governments and agencies that contract with us be curtailed, or should our government contracts be terminated for convenience, we may experience a significant loss of revenues.
We may not be able to attract and retain qualified personnel which couldjeopardize our future growth plans, as well as the quality of our products and services.services and our future growth plans. Our success dependsis based on attracting and retaining talented employees and we depend heavily upon the quality of our senior management, research analysts, consultants, sales and other key personnel. The market for highly skilled workers and leaders in our industry is extremely competitive. Maintaining our brand and reputation is important to our ability to recruit and retain employees. We face competition for 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. Additionally, some of the personnel that we attempt to hire are subject to non-compete agreements that could impede our short-term recruitment efforts. AnyWe may also be limited in our ability to recruit internationally by restrictive domestic immigration laws, and changes to policies that restrain the flow of technical and professional talent could inhibit our ability to adequately staff our research and development and other efforts. An inability to retain key personnel or to hire and train additional qualified personnel to support the evolving needs of clients or the projected growth in our business, could materially adversely affect the quality of our products and services, as well as our future business and operating results. In addition, effective succession planning is important to our long-term success, and failure to ensure effective transfer of knowledge and smooth transitions involving key employees could hinder our strategic planning and execution.
We may not be able to maintain the equity in our brand name. We believe that our “Gartner” brand, in particular our independence, is critical to our efforts to attract and retain clients and top talent, and that the importance of brand recognition will increase as competition increases. We may also discover that our brand, though recognized, is not perceived to be relevant by new market segments we have targeted. 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, and expend additional sums to protect our brand and otherwise increase expenditures to create and maintain client brand loyalty. If we fail to effectively promote, maintain, and protect the Gartner brand, or incur excessive expenses in doing so, our future business and operating results could be materially adversely impacted.
Our international operations expose usWe are subject to a variety of operational and other risks whichcould negatively impact our future revenue and growth.from operating globally. We have clients in more than 100 countries and a substantial amount of our revenue is earned outside of the United States. Our operating results are subject to all of the risks typically 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 and complex foreign laws and regulations, currency restrictions and fluctuations, the difficulty of enforcing client agreements, collecting accounts receivable and protecting intellectual property rights orincluding against economic espionage in international jurisdictions. Furthermore,Further, 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.
Tariffs, trade barriers and restrictions, and other acts by governments to protect domestic markets or to retaliate against the trade tariffs and restrictions of other nations could negatively affect our business operations. In addition, the withdrawal of nations from existing common markets or trading blocs, such as the exit of the United Kingdom from the European Union (the EU), commonly referred to as Brexit, could be disruptive and negatively impact our business and the business of our clients. We continue to monitor Brexit and its potential impacts on our results of operations and financial condition, but its specific effects on our operations depend in part on what agreements are negotiated between the United Kingdom and the EU regarding post-Brexit access to EU markets. If Brexit leads to legal uncertainty and potentially divergent national laws and regulations in the United Kingdom and EU, then we, as well as our clients who have significant operations in the United Kingdom, may incur additional costs and expenses as we adapt to the divergent regulatory frameworks. For example, if Brexit requires us to change our legal entity structure in the United Kingdom and the EU, our contractual commitments in the United Kingdom and the rest of the EU may be impacted. Additionally, separation from the EU may negatively impact the United Kingdom economy, result in the imposition of tariffs on us or result in currency devaluations in the United Kingdom. The impact of any of these effects of Brexit, among others, could materially harm our business and financial results.
Our failure to comply with complex US and foreign laws and regulations could have a material adverse effect on our operations or financial condition.Our business and operations may be conducted in countries where corruption has historically penetrated the economy. It is our policy to comply, and to require our local partners, distributors, agents, and those with whom we do business to comply, with all applicable anti-bribery and anti-corruption laws, such as the U.S. Foreign Corrupt Practices Act and U.K. Bribery Act, and with applicable local laws of the foreign countries in which we operate. Our businessThere can be no assurance that all of our employees, contractors and reputation may be adversely affected if we fail toagents will comply with suchthe Company’s policies that mandate compliance with these laws. Any determination that we have violated or are responsible for violations of these laws, even if inadvertent, could be costly and disrupt our business, which could have a material adverse effect on our business, results of operations, financial condition, liquidity and cash flows, as well as on our reputation. For example, during the second half of 2018 we cooperated fully with a South African government commission established to review a wide range of issues related to the country’s revenue service, including the procurement and fulfillment of consulting agreements we entered into with the revenue service through a sales agent from late 2014 through early 2017. With respect to Gartner, the commission recommended that the revenue service explore lawful options to invalidate the agreements, in whole or in part, and attempt to recover certain payments it made to us. We are in ongoing discussions with the revenue service regarding the matter. In parallel with our cooperation in South Africa, we commenced an internal investigation regarding this matter and voluntarily disclosed to the SEC and Department of Justice (DOJ) in November 2018 that the commission was reviewing our procurement of these agreements. We are cooperating fully with the SEC and DOJ inquiries into this matter. At this time, we do not believe the ultimate outcome of these matters will have a material effect on our financial results, however, an unexpected adverse resolution of these matters could negatively impact our financial condition, results of operations, and liquidity.
We are exposed to volatility in foreign currencyexchange rates from our international operations. For both the years ended December 31, 2017 and 2016, 42% A significant portion of our revenues wereare typically derived from sales outside of the United States. Revenues earned outside the U.S.United States 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.
Natural disasters, pandemics, terrorist acts, war, actions by governments, and other geopolitical eventsactivities could disrupt our business.operations. We operate in numerous U.S. and international locations, and we have offices in a number of major cities across the globe. AThe occurrence of, or concerns related to, a major weather event, earthquake, flood, drought, volcanic activity, disease or pandemic, or other catastrophic natural disaster could significantly disrupt our operations. In addition, acts of civil unrest, failure of critical
infrastructure, terrorism, armed conflict, war, and abrupt political change, as well as responses by various governments and the international community to such acts, can have a negative effect on our business. Such events could cause delays in initiating or completing sales, impede delivery of our products and services to our clients, disrupt or shut down the Internetinternet or other critical client-facing and business processes, impede the travel of our personnel and clients, dislocate our critical internal functions and personnel, and in general harm our ability to conduct normal business operations, any of which can negatively impact our financial condition and operating results. Such events could also impact the timing and budget decisions of our clients, which could materially adversely affect our business.
Privacy concerns could damage our reputation and deter current and potential clients from using our products and services or attending our events.conferences. Concerns relating to global data privacy have the potential todamage our reputation and deter current and prospective clients from using our products and services or attending our events.conferences. In the ordinary course of our business and in accordance with applicable laws, we collect personal information (i) from our employees (ii) from the users of our products and services, including eventconference attendees; and (iii) from prospective clients. We collect only basic personal information from our clients
and prospects. While we believe our overall data privacy procedures are adequate, the theft or loss of such data, or concerns about our practices, even if unfounded, with regard to the collection, use, disclosure, or security of this personal information or other data protection related matters could damage our reputation and materially adversely affect our operating results. Any systems failure or compromise of our security that results in the disclosure of our users’ personal data could seriously limit the consumption of our products and services and the attendance at our events,conferences, as well as harm our reputation and brand and, therefore, our business.
In addition, newcontinuously evolving data protection laws and regulations, particularlysuch as the new European Union General Data Protection Regulation (“GDPR”)(GDPR), and the new California Consumer Privacy Act (CCPA) (effective in May 2018)January 2020), pose increasingly complex compliance challenges. We are closely monitoring these legal developmentshave implemented GDPR and are working towards timely GDPR compliance.CCPA compliance programs. In the meantime, Gartner will continue to maintain and rely upon our comprehensive global data protection compliance program, which includes administrative, technical, and physical controls to safeguard our associates’ and clients' personal data. The interpretation and application of these laws in the United States, the European UnionEU and elsewhere are often uncertain, inconsistent and ever changing. Complying with these various laws could cause us to incur substantial costs or require us to change our business practices in a manner adverse to our business.
Internet and critical internal computer system failures, cyber-attacks, or compromises of our systems or security could damage our reputation and harm our business.We are exposed to risks related to cybersecurity. A significant portion of our business is conducted over the Internetinternet and we rely heavily on the secure processing, storage and transmission of confidential, sensitive, proprietary and other types of information relating to our business operations and confidential and sensitive information about its customers and employees in our computer systems to conductand networks, and in those of our operations.third-party vendors. Individuals, groups, and state-sponsored organizations may take steps that pose threats to our operations, our computer systems, our employees, and our customers. They may developThe cybersecurity risks we face range from cyber attacks common to most industries, such as the development and deploydeployment of malicious software to gain access to our networks and attempt to steal confidential information, launch distributed denial of service attacks, or attempt other coordinated disruptions. Thesedisruptions, to more advanced threats are constantly evolvingthat target us because of our prominence in the a global research and becomingadvisory field.
Like many multinational corporations, we, and some third parties upon which we rely, have experienced cyber attacks on our computer systems and networks in the past and may experience them in the future, likely with more sophisticated, thereby increasingfrequency and sophistication, and involving a broader range of devices and modes of attack, all of which will increase the difficulty of detecting and successfully defending against them. To date, none have resulted in any material adverse impact to our business, operations, products, services or customers. We have implemented various security controls to both meet our security compliance obligations, while also defending against constantly evolving security threats. Our security controls help to secure our information systems, including our computer systems, intranet, proprietary websites, email and other telecommunications and data networks, and we 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) are 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. Additionally, the security compliance landscape continues to evolve, requiring us to stay apprised of changes in cybersecurity laws, regulations, and security requirements required by our clients, such as GDPR, CCPA, International Organization for Standardization (ISO), and National Institute of Standards and Technology (NIST). Recent well-publicized security breaches at other companies have led to enhanced government and regulatory scrutiny of the measures taken by companies to protect against cyber attacks, and may in the future result in heightened cybersecurity requirements, including additional regulatory expectations for oversight of vendors and service providers.
A cyber-attack,cyber attack, widespread Internetinternet failure or Internetinternet access limitations, or disruption of our critical information technology systems through denial of service, viruses, or other events could cause delays in initiating or completing sales, impede delivery of our products and services to our clients, disrupt other critical client-facing or business processes or dislocate our critical internal functions. Such events could significantly harm our ability to conduct normal business operations and negatively impact our financial results.
We take steps 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 securityAdditionally, any material breaches 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 materially adversely affected if, as a result of a significant cyber eventcybersecurity or other technology-related catastrophe, or media reports of perceived security vulnerabilities to our operations are disruptedsystems or shutdown;those of our confidential, proprietary information is stolenthird parties, even if no breach has been attempted or disclosed; we incur costs or are requiredoccurred,
could cause us to payexperience reputational harm, loss of customers and revenue, fines, in connection with stolen customer, employee,regulatory actions and scrutiny, sanctions or other confidential information; westatutory penalties, litigation, liability for failure to safeguard our customers’ information, or financial losses that are required to dedicate significant resources to system repairseither not insured against or increase cyber security protection; or we otherwise incur significant litigation, regulatory actionnot fully covered through any insurance maintained by us.
Any of the foregoing may have a material adverse effect on our business, operating results and scrutiny or other costs as a result of these occurrences.financial condition.
We may experience outages and disruptions of our online services if we fail tomaintain 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 for access to maintain data centers and equipment and to move more of our workload into cloud services, to upgrade our technology and network infrastructure to handle increased traffic on our 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.
Our outstanding debt obligations could negatively impact our financial condition and future operating results. As of December 31, 2017,2019, the Company had outstanding debt of $2.5$1.4 billion under its 2016 term loan and revolving credit facility, as amended (the "20162016 Credit Agreement")Agreement) and $800.0 million of Senior Notes Due 2025 ("(the Senior Notes")Notes). The 2016 Credit Agreement was amended three times during 2017 and it currently provides for a $1.5 billion Term loan A facility, a $500.0 million Term loan B facility, and a $1.2 billion revolving credit facility. The Company borrowed significant amounts in 2017 under the 2016 Credit Agreement, and issued the Senior Notes, in conjunction with the CEB acquisition. Additional information regarding the 2016 Credit FacilityAgreement and the Senior Notes is included in Note 5 —6 - Debt in the Notes to the Consolidated Financial Statements included in this Annual Report on Form 10-K.Statements.
The debt service requirements of these credit arrangementsborrowings could impair our future financial condition and operating results. In addition, the affirmative, negative and financial covenants of the 2016 Credit Agreement, as amended, as well as the covenants related to the Senior Notes, could limit our future financial flexibility. A failure to comply with these covenants could result in acceleration of all amounts outstanding, which could materially impact our financial condition unless accommodations could be
negotiated with our lenders and Noteholders.noteholders. No assurance can be given that we would be successful in doing so, or that any accommodations that we were able to negotiate would be on terms as favorable as those currently.currently in place. 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.
In addition, variable-rate borrowings under our 2016 Credit Agreement typically use LIBOR as a benchmark for establishing the rate of interest. LIBOR is the subject of recent national and international regulatory scrutiny which may result in changes that cause LIBOR to disappear entirely after 2021 or to cause it to perform differently than in the past. The consequences of these LIBOR developments on our variable-rate borrowings, including the possible transition to other rates such as the Secured Overnight Financing Rate (SOFR), cannot be predicted at this time, but could include an increase in the cost of our variable-rate indebtedness and volatility in our earnings.
We may require additional cash resources which may not be available onfavorable terms or at all. 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, including acquisitions. If our existing financial resources are insufficient to satisfy our requirements, we may seek additional 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, ourcompetitive 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 restrictive covenant agreements (which include restrictions on employees' ability to compete and solicit customers and employees) and assignment of invention agreements, to the extent permitted under applicable law. When the period expires relating to thetheir particular restriction,restrictions, former employees may compete against us. If a former employee violates the provisions of his/her restrictive covenant agreement, we seek to enforce the restrictions but there is no assurance that we will be successful in our efforts.
We have grown, and may continue to grow, through acquisitions and strategicinvestments, 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 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 should 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, increase revenue or fully realize anticipated synergies, 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.
Our business has increased significantly with the CEB acquisition. Our success depends, in part, upon our ability to continue to integrate its operations as well as manage the overall expanded business, which poses substantial challenges for management, including challenges related to the management and monitoring of new operations, new products, and associated increased cost and complexity. A failure to realize the expected benefits from the acquisition or successfully manage the expanded operation could adversely and materially affect our future business and operating results.
We face risks related to leased office space. With the CEB acquisition we We assumed a significant amount of additional leased office space, in particular in Arlington, Virginia, which formerly served as CEB's headquarters location, and where the majority of its staff is currently located. Gartner is continuingin connection with a plan originally approved by CEB before the acquisition to relocate and consolidate its office spaceof CEB Inc. in 2017. In Arlington, we have consolidated all our businesses into a new, nearbysingle building and sublease the entirety of the existing space. The consolidation into the new building is expected to be completed in the first half of 2018 with the first set of moves already completed in December 2017. We have also made significant progress in subleasing the existing space and we expect to subleasesublet substantially all of the remainingexcess space during 2018.in our other properties. Through our real estate consolidations and other related activities, we have tried to secure quality sub-tenants with appropriate sub-lease terms. However, if we are unable to sublease the remaining existing space at acceptable rents or at all, or if subtenants default on their sublease obligationobligations with us or otherwise terminate thetheir subleases with us, we may experience a loss of planned sublease rental income, which could result in a material charge which could adversely affectagainst our operating results.
We are also in the process of adding new leased space.spaces to support our continued growth. If the new spaces are not completed on schedule, or if the landlord defaults on its commitments and obligations pursuant to the new leases, we may incur additional expenses. In addition, unanticipated difficulties in initiating operations in thisa new space, including construction delays, IT system interruptions, or other infrastructure
support problems, could result in a delay in moving into the new space, resulting in a loss of employee and operational productivity and a loss of revenue and/or additional expenses, which could also have an adverse, material impact on our operating results.
We face risks related to litigation. We are, and in the future may 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 of any claim and despite vigorous efforts to defend any such claim, claims can affect our reputation, and 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 claim is made against us whichthat we cannot defend or resolve on reasonable terms, our business, brand, and financial results could be materially adversely affected.
We face risks related to taxation. We are a global company and a substantial amount of our earnings is generated outside of the United States and taxed at rates less than the U.S. statutory federal income tax rate. Our effective tax rate, financial position and results of operations could be adversely affected by earnings being higher than anticipated in jurisdictions with higher statutory tax rates and, conversely, lower than anticipated in jurisdictions that have lower statutory tax rates, by changes in the valuation of our deferred tax assets and/or by changes in tax laws or accounting principles and their interpretation by relevant authorities.
At the present time, the United StatesCorporate tax reform, base-erosion efforts and other countriestax transparency continue to be high priorities in many countries. Tax reform legislation is being proposed or enacted in a number of jurisdictions where we do business have either changed or are actively considering changes in theirbusiness. The U.S. Tax Cuts and Jobs Act of 2017 (the Act) adopted broad U.S. corporate income tax accountingreform and introduced several highly complex provisions. The U.S. Treasury Department and other related laws. Instandard-setting bodies will continue to interpret and issue guidance on how provisions of the United States, recently enacted Tax Reform introduced several new complicated tax laws which could unfavorablyAct will be applied and administered. We will continue to monitor and reflect the impact ourof the Act in future effective tax rate. In 2014, Ireland modified its tax residency rules. While these changes are not effective until 2021 for many companies with Irish resident operations, including Gartner, the new rules could increase our effective tax rate at that future date. Likewise, duringfinancial statements as appropriate.
During 2015, the Organization for Economic Cooperation and Development (“OECD”)(OECD) released final reports on various actionsaction items associated with its initiative to prevent Base Erosion and Profit Shifting (“BEPS”)(BEPS). Numerous countries have and continue to propose unilateral tax law changes intended to address BEPS. The future enactment by various governments of these and other proposals could significantly increase our tax obligations in 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, as regulations and guidance evolve with respect to the U.S. Tax Cuts and Jobs Act of 2017, and as we gather more information and perform additional analysis, the impact of the new law may differ from previous estimates and may materially affect our results of operations and financial position in the future.
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 various tax authorities. Recent and future actions on the part of the OECD and various governments have increased scrutiny of our tax filings. 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, results of operations, and cash flows, particularly in major taxing jurisdictions including, but not limited to: the United States, Ireland, India, Canada, United Kingdom, Japan, and France.flows.
As of December 31, 2017,2019, we had approximately $194.0$142.0 million of accumulated undistributed earnings in our non-U.S. subsidiaries. Our cash and cash equivalents are held in numerous locations throughout the world. At December 31, 2017, 97%2019, 92% of our cash and cash equivalents was held overseas, with a substantial portion representing accumulated undistributed earnings of our non-U.S. subsidiaries. Under U.S. GAAP,generally accepted accounting principles in the United States of America, no provision for income taxes that may result from the remittance of accumulated undistributed foreign earnings is required if the Company intends to reinvest such earnings overseas indefinitely. OurThe provisions of the Act significantly changed the way earnings of non-U.S. subsidiaries are taxed in the United States. The Act imposed a one-time transition tax on earnings of foreign subsidiaries that were previously tax deferred, adopted a system of current liquidity requirements do not demonstratetaxation of foreign global intangible low-taxed income and provided for a needdeduction on repatriation of dividends from foreign subsidiaries. As a result of and subsequent to repatriate accumulatedthe enactment of the Act, the Company has remitted previously undistributed foreign earnings to fund our U.S. operations or otherwise satisfy the liquidity needs of our U.S. operations. Accordingly, thewith minimal additional tax cost. The Company intends to continue to reinvest substantially all of its accumulated undistributed foreign earnings, except in instances in whichwhere the repatriation of those earnings would result in minimal additional tax. As a result, we have not recognized income tax expense on the amounts deemed permanently reinvested. However, with the recently enacted U.S Tax Cuts and Jobs Act of 2017, we envision that the income tax that would be payable if such earnings were repatriated would be minimal.
Our corporate compliance program cannot guarantee that we are in compliance with all applicable laws and regulations. We operate in a number of countries, including emerging markets, and as a result we are required to comply with numerous, and in many cases, changing international and U.S. federal, state and local laws and regulations. As a result,Accordingly, we have a corporate compliance program whichthat includes the creation of appropriate policies defining employee behavior that mandate adherence to laws, employee training, annual affirmations, monitoring and enforcement. However, iffailure of any employee fails to comply with or intentionally disregards, any of these laws, regulations or our policies, could result in a range of liabilities could result for the employee and for
the Company, including, but not limited to, significant penalties and fines, sanctions and/or litigation, and the expenses associated with defending and resolving any of the foregoing, any of which could have a negative impact on our reputation and business.
Risks related to our common stock
Our operating results may fluctuate from period to period and/or the financial guidance we have given may not meet theexpectations of investors, 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,our conferences, 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, competition in our industry, the impact of our acquisitions, and general economic conditions. An inability to generate sufficient earnings and cash flow, and achieve our forecasts, may impact our operating and other activities. The potential fluctuationsFluctuations 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 investors or the financial guidance we have previously provided. If this occurs, the price of our common stock could decline.
Our stock price may be impacted by factors outside of our control and you maynot be able to resell shares of our common stock at or above the price youpaid. The price of our common stock is 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 regarding our securities and our performance relative to securities analysts’ expectations for any quarterly period, as well as other factors outside of our control, including any and all factors that move the securities markets generally. These factors may materially adversely affect the market price of our common stock.
Future sales or issuances of our common stock in the public market could lower our stockprice. 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. The issuance of additional shares of our common stock could also lower the market price of our common stock. Furthermore, we have various equity incentive plans that provide for awards in the form of 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. We have a board-approved share repurchase program and at December 31, 2017,2019, approximately $1.1 billion$715.5 million remained available for share purchases under this program. No assurance can be given that we will continue these share repurchase activities in the future whenafter the current program is completed, or in the event that the price of our common stock reaches levels at which repurchases are not accretive.
Future sales of our common stock from grants and awards could lower our stockprice. As of December 31, 2017,2019, the aggregate number of shares of our common stock issuable pursuant to outstanding grants and awards under our equity incentive plans was approximately 2.82.6 million shares (approximately 1.30.6 million of which have vested). In addition, at the present time, approximately 5.64.5 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 and 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.
Interests of certain of our significant stockholders may conflict with yoursour interests or the interests of other stockholders. To our knowledge, as of the date hereof, and based upon publicly-available SEC filings, five institutional investors each presently hold over 5% of our common stock. While no stockholder or institutional investor individually holds a majority of our outstanding shares, these significant stockholders may be able, either individually or acting together, to exercise significant influence over matters requiring stockholder approval, including the election of directors, amendment of our certificate of incorporation, adoption or amendment of equity plans and approval of significant transactions such as mergers, acquisitions, consolidations and sales or purchases of assets. In addition, in the event of a proposed acquisition of the Company by a third party, this concentration of ownership may delay or prevent a change of control in us. Accordingly, the interests of these stockholders may not always coincide with our interests or the interests of other stockholders, or otherwise be in the best interests of us or all stockholders.
Our anti-takeover protections may discourage or prevent a change of control,even if a change in control would be beneficial to our stockholders. Provisions of our restated certificate of incorporation and bylaws and Delaware law may make it difficult for any party to acquire control of us in a transaction not approved by our Board of Directors. These provisions include: (i) the ability of our Board of Directors to issue and determine the terms of preferred stock; (ii) advance notice requirements for inclusion of stockholder proposals at stockholder meetings; and (iii) 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.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
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.None.
ITEM 2. PROPERTIES.
Our acquisition of CEB in 2017 resulted in a significant increase in the number of properties where we have business operations. As of December 31, 2017,2019, we leased 59approximately 45 domestic and 10675 international active properties.office properties for our ongoing business operations. These offices, which exclude certain properties that we sublease to others, support our executive and administrative activities, research and consulting, sales, systems support, operations, and other functions. We have a significant presenceOur corporate office is based in Stamford, Connecticut; Ft.Connecticut. We also maintain an important presence in: Fort Myers, Florida; Arlington, Virginia; Egham, the United KingdomKingdom; Gurgaon, India; Irving, Texas; and Gurgaon, India.Barcelona, Spain. The Company does not own any real properties.property.
Our Stamford corporate headquarters are located in 213,000 square feetis comprised of leased office space in three buildings located on the same campus. The Company'sOur lease onfor the Stamford headquarters facility expires in 2027 and contains three five-year renewal options at fair value. In 2016Additionally, we leased an additional 21,179 square feet oflease office space in a fourth building adjacent to our Stamford headquarters facility under a five-yearlease designed to be co-terminus with our headquarters lease.
In Ft. Myers we lease 257,795 square feet in two buildings located on the same campus and we also We have anoptions for additional 41,590 square feet of leased space in two separate but nearby buildings that house staff training and other facilities. Our Ft. Myers leases expire in 2030. To accommodate future growth in Ft. Myers we have also signed a lease (20 year lease with a termination option at 15 years) with a new multi-building development just south of our current campus for an additional 242,000 square feet to be delivered in phases in 2018 and 2019. This site also offers us options for further growth as necessary.this fourth building.
In Arlington, which was the heritage CEB corporate headquarters location, we are progressing with a strategy to consolidate multiple heritage CEB and Gartner offices that occupied 439,354 square feet across 4 different locations into 290,215 square feet of space in a single building which is a heritage CEB lease for a 15 year term that expires at the end of 2032. We expect to complete this consolidation by the end of 2018.
In Egham, we have consolidated most of our operations into a new 107,540 square foot building that opened in September 2017. The Egham lease has a term of 15 years. We also continue to maintain some operations in an adjacent legacy building. In Gurgaon we have two locations, a 30,000 square foot office and a 48,468 square foot office that was part of the heritage CEB business. To accommodate future growth in Gurgaon and consolidate our operations we have signed an agreement to lease 250,000 square feet in a new development to be delivered in 2019. This development, which is close to our current locations, also offers us potential for further growth as necessary.
In addition to the above locations, we have also announced the creation of a new Center of Excellence to be located in Irving, TX. To support the growth of this site we have signed a lease (15 year lease with termination option at 10 years) for 152,000 square feet that will be occupied in a phased manner from 2018 through 2020.
We expect to continue to invest in our business by adding headcount and, 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 aton reasonable terms.
ITEM 3. LEGAL PROCEEDINGS.
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, weWe believe that the ultimate resolutionpotential liability, if any, in excess of these matters, after considering amounts already accrued from all proceedings, claims and insurance coverage,litigation will not have a material adverse effect on our financial position, cash flows or results of operations or cash flowswhen resolved in a future periods.period.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
PART II
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Our common stock is listed on the New York Stock Exchange under the symbol "IT". As of January 31, 2018,2020, there were 1,2631,113 holders of record of our common stock. Our 20182020 Annual Meeting of Stockholders will be held on May 24, 2018June 8, 2020 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 2017.
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:
|
| | | | | | | | | | | | | | | |
| | 2017 | | 2016 |
| | High | | Low | | High | | Low |
| Quarter ended March 31 | $ | 112.42 |
| | $ | 90.37 |
| | $ | 89.73 |
| | $ | 77.80 |
|
| Quarter ended June 30 | 124.92 |
| | 107.70 |
| | 103.00 |
| | 86.17 |
|
| Quarter ended September 30 | 130.02 |
| | 115.86 |
| | 100.74 |
| | 87.86 |
|
| Quarter ended December 31 | $ | 126.22 |
| | $ | 115.01 |
| | $ | 105.45 |
| | $ | 84.54 |
|
DIVIDEND POLICY
We currently do not pay cash dividends on our common stock. In addition, our 2016 Credit Agreement contains a negative covenant which may limit our ability to pay dividends.2019.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
The equity compensation plan information set forth in Part III, Item 12 of this Annual Report on Form 10-K is hereby incorporated by reference into this Part II, Item 5.
SHARE REPURCHASES
The Company has a $1.2 billion board authorization to repurchase the Company'sits common stock. The Company may repurchase its common stock from time-to-time in amounts, and at prices and in the manner that 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 (which may include repurchase plans designed to comply with Rule 10b5-1 of the Securities Exchange Act of 1934, as amended), accelerated share repurchases, private transactions or other transactions and will be funded fromby cash on hand and borrowings under the Company’s 2016 Credit Agreement.borrowings. Repurchases may also be made from time-to-time in connection with the settlement of the Company's share-basedstock-based compensation awards.
The following table below summarizes the repurchases of our outstanding common stock induring the three months ended December 31, 20172019 pursuant to our $1.2 billion share repurchase authorization and pursuant to the settlement of share-basedstock-based compensation awards: awards.
|
| | | | | | | | | | | |
| Period | | Total Number of Shares Purchased (#) | | Average Price Paid Per Share ($) | | | Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in billions) |
| October | | 5,685 | | $ | 124.07 |
| | | |
|
| November | | 14,987 | | 118.40 |
| | | |
|
| December | | 13,275 | | 120.89 |
| | | |
|
| Total (1) | | 33,947 | | $ | 120.32 |
| | | $ | 1.1 |
|
|
| | | | | | | | | | | | | | |
| Period | | Total Number of Shares Purchased (#) | | Average Price Paid Per Share ($) | | Total Number of Shares Purchased Under Announced Programs (#) | | Maximum Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (in thousands) |
| October 1, 2019 to October 31, 2019 | | 25,240 | | $ | 138.99 |
| | 25,094 | | $ | 773,017 |
|
| November 1, 2019 to November 30, 2019 | | 54,039 | | 158.83 | | 15,006 | | 770,680 |
|
| December 1, 2019 to December 31, 2019 | | 360,836 | | 153.85 | | 358,877 | | $ | 715,473 |
|
| Total for the quarter (1) | | 440,115 |
| | $ | 153.61 |
| | 398,977 |
| | |
| |
| (1) | ForThe repurchased shares during the yearthree months ended December 31, 2017, the Company repurchased a total of 0.4 million shares, all of which were repurchased pursuant to2019 included purchases for both the settlement of share-basedstock-based compensation awards. No shares were repurchased under the Company's publicly-announced $1.2 billion share repurchase program.awards and open market purchases. |
ITEM 6. SELECTED FINANCIAL DATADATA.
The fiscal years presented below are for the respective twelve-month periodperiods 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 FormForms 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.10-K and prior year filings with the Securities and Exchange Commission.
| | | (In thousands, except per share data) | | 2017 | | 2016 | | 2015 | | 2014 | | 2013 | | 2019 | 2018 | 2017 | 2016 | 2015 |
| STATEMENT OF OPERATIONS DATA: | | |
| | | | | | |
| | |
| |
| STATEMENT OF OPERATIONS DATA | | | |
| | |
| |
|
| Revenues: | | |
| | | | | | |
| | |
| | |
| | |
| |
|
| Research | | $ | 2,471,280 |
| | $ | 1,857,001 |
| | $ | 1,614,904 |
| | $ | 1,479,976 |
| | $ | 1,303,984 |
| | $ | 3,374,548 |
| $ | 3,105,764 |
| $ | 2,471,280 |
| $ | 1,857,001 |
| $ | 1,614,904 |
|
| Conferences | | | 476,869 |
| 410,461 |
| 337,903 |
| 268,605 |
| 251,835 |
|
| Consulting | | 327,661 |
| | 318,934 |
| | 296,317 |
| | 313,758 |
| | 281,284 |
| | 393,904 |
| 353,667 |
| 327,661 |
| 318,934 |
| 296,317 |
|
| Events | | 337,903 |
| | 268,605 |
| | 251,835 |
| | 227,707 |
| | 198,945 |
| |
| Talent Assessment & Other | | 174,650 |
| | — |
| | — |
| | — |
| | — |
| |
| Other | | | — |
| 105,562 |
| 174,650 |
| — |
| — |
|
| Total revenues | | 3,311,494 |
| | 2,444,540 |
| | 2,163,056 |
| | 2,021,441 |
| | 1,784,213 |
| | $ | 4,245,321 |
| $ | 3,975,454 |
| $ | 3,311,494 |
| $ | 2,444,540 |
| $ | 2,163,056 |
|
| Operating (loss) income | | (6,329 | ) | | 305,141 |
| | 287,997 |
| | 286,162 |
| | 275,492 |
| |
| Operating income (loss) | | | $ | 370,087 |
| $ | 259,715 |
| $ | (6,329 | ) | $ | 305,141 |
| $ | 287,997 |
|
| Net income | | $ | 3,279 |
| | 193,582 |
| | $ | 175,635 |
| | $ | 183,766 |
| | $ | 182,801 |
| | $ | 233,290 |
| $ | 122,456 |
| $ | 3,279 |
| $ | 193,582 |
| $ | 175,635 |
|
| | | | | | | | | | | | | |
| PER SHARE DATA: | | |
| | | | | | | | |
| |
| PER SHARE DATA | | | |
| | |
|
| Basic income per share | | $ | 0.04 |
| | $ | 2.34 |
| | $ | 2.09 |
| | $ | 2.06 |
| | $ | 1.97 |
| | $ | 2.60 |
| $ | 1.35 |
| $ | 0.04 |
| $ | 2.34 |
| $ | 2.09 |
|
| Diluted income per share | | $ | 0.04 |
| | $ | 2.31 |
| | $ | 2.06 |
| | $ | 2.03 |
| | $ | 1.93 |
| | $ | 2.56 |
| $ | 1.33 |
| $ | 0.04 |
| $ | 2.31 |
| $ | 2.06 |
|
| | | | | | | | | | | | | |
| Weighted average shares outstanding: | | |
| | | | | | | | |
| | |
| | |
|
| Basic | | 88,466 |
| | 82,571 |
| | 83,852 |
| | 89,337 |
| | 93,015 |
| | 89,817 |
| 90,827 |
| 88,466 |
| 82,571 |
| 83,852 |
|
| Diluted | | 89,790 |
| | 83,820 |
| | 85,056 |
| | 90,719 |
| | 94,830 |
| | 90,971 |
| 92,122 |
| 89,790 |
| 83,820 |
| 85,056 |
|
| | | | | | | | | | | | | |
| OTHER DATA: | | |
| | | | | | | | |
| |
| OTHER DATA | | | |
| | |
|
| Cash and cash equivalents | | $ | 538,908 |
| | 474,233 |
| | $ | 372,976 |
| | $ | 365,302 |
| | $ | 423,990 |
| | $ | 280,836 |
| $ | 156,368 |
| $ | 538,908 |
| $ | 474,233 |
| $ | 372,976 |
|
| Total assets | | 7,283,173 |
| | 2,367,335 |
| | 2,168,517 |
| | 1,904,351 |
| | 1,783,582 |
| | 7,151,294 |
| 6,201,474 |
| 7,283,173 |
| 2,367,335 |
| 2,168,517 |
|
| Long-term debt | | 2,943,341 |
| | 672,500 |
| | 790,000 |
| | 385,000 |
| | 136,250 |
| | 2,067,796 |
| 2,146,514 |
| 2,943,341 |
| 672,500 |
| 790,000 |
|
| Stockholders’ equity (deficit) | | 983,465 |
| | 60,878 |
| | (132,400 | ) | | 161,171 |
| | 361,316 |
| | 938,593 |
| 850,757 |
| 983,465 |
| 60,878 |
| (132,400 | ) |
| Cash provided by operating activities | | $ | 254,517 |
| | 365,632 |
| | $ | 345,561 |
| | $ | 346,779 |
| | $ | 315,654 |
| | $ | 565,436 |
| $ | 471,158 |
| $ | 254,517 |
| $ | 365,632 |
| $ | 345,561 |
|
The following items impactdescribed below impacted the comparabilitypresentation and presentationcomparability of our consolidated data:selected financial data.
During 2018, the Company divested all of the non-core businesses that comprised its Other segment and moved a small residual product from the Other segment into the Research business and, as a result, no operating activity has been recorded in the Other segment in 2019. Note 2 — Acquisitions and Divestitures in the Notes to Consolidated Financial Statements provides additional information regarding the Company's 2018 divestitures.
In April
During 2017, the Company acquired CEB.CEB Inc. The operating results of CEB wereInc. have been included in ourthe Company's operating results beginning onsince the acquisition date. The Company also made other acquisitions in 2017, 2016 and 2015. Seethe years presented in the above table. Note 2 — Acquisitions and DivestitureDivestitures in the Notes to the Consolidated Financial Statements forprovides additional information.information regarding the Company's recent acquisitions.
During 2019, 2018 and 2017, the Company recognized $9.5 million, $107.2 million and $158.5 million, respectively, of acquisition and integration charges related to its acquisitions. Note 2 — Acquisitions and Divestitures in the Notes to Consolidated Financial Statements provides additional information regarding the Company's acquisition and integration charges.
During 2019, the Company recorded a net tax benefit of approximately $38.1 million related to an intercompany sale of certain intellectual property, which increased our diluted earnings per share by $0.42 per share. Note 12 — Income Taxes in the Notes to Consolidated Financial Statements provides additional information regarding the Company's income taxes.
In December
During 2017, wethe Company recorded a $59.6 million one-time tax benefit related to the U.S. Tax Cuts and Jobs Act of 2017, which increased our diluted earnings per share by approximately $0.66 per share. See Note 1012 — Income Taxes in the Notes forto Consolidated Financial Statements provides additional information.information regarding the Company's income taxes.
| |
| • | On January 1, 2019, the Company adopted Accounting Standards Update No. 2016-02, Leases, which resulted in a net increase of $638.7 million in its total assets on that date. The adoption of this new lease standard did not affect the Company's stockholders’ equity. Note 1 — Business and Significant Accounting Policies and Note 7 — Leases provide additional information regarding the Company's adoption of Accounting Standards Update No. 2016-02. |
InDuring 2017, wethe Company borrowed approximately $2.8 billion and issued approximately 7.4 million shares of its common stock in connection with the acquisition of CEB Inc. Note 2 — Acquisitions and Divestitures and Note 6 — Debt in the Notes to Consolidated Financial Statements provide additional information regarding the Company's acquisition of CEB Inc. and its debt arrangements, respectively.
The Company repurchased 1.4 million, 2.1 million, 0.4 million, of our common shares. We also repurchased 0.6 million and 6.2 million 5.9 million,shares of its common stock in 2019, 2018, 2017, 2016 and 3.4 million of our common shares in 2016, 2015, 2014, and 2013, respectively. We used $199.0 million, $260.8 million, $41.3 million, $59.0 million $509.0 million, $432.0 million, and $181.7$509.0 million in cash for share repurchases in 2019, 2018, 2017, 2016 and 2015, 2014, and 2013, respectively. See Note 78 — Stockholders’ Equity in the Notes for additional information.
In 2017 we borrowed additional amounts under an amended credit facility as well as the issuance of Senior Notes. Note 5 — Debt in the Notesto Consolidated Financial Statements provides additional information.information regarding the Company's share repurchase activity.
In 2017 we added the Talent Assessment & Other segment as a result of the CEB acquisition. Note 14 — Segments in the Notes provides additional information. In February 2018 we announced a definitive agreement to sell a significant portion of this segment. Additional information related to the sale is provided in Notes 2 and 16.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The purpose of the followingthis Management’s Discussion and Analysis (“MD&A”) is to facilitate an understanding of significant factors influencing the operating results, financial condition and cash flows of Gartner, Inc. Additionally, the MD&A 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 Annual Report on Form 10-K. Historical results and percentage relationships are not necessarily indicative of operating results for future periods. References to "Gartner,"“Gartner,” the "Company,” “we,” “our” and “us” in this MD&A are to Gartner, Inc. and its consolidated subsidiaries.
AcquisitionsThis MD&Aprovides an analysis of CEB Inc.our consolidated financial results, segment results and Other Businessescash flows for 2019 and 2018 under the headings "Results of Operations," "Segment Results" and "Liquidity and Capital Resources."For a similar detailed discussion comparing 2018 and 2017, refer to those headings under Item 7., "Management’s Discussion and Analysis of Financial Condition and Results of Operations," in our Annual Report on Form 10-K for the year ended December 31, 2018.
Acquisition of TOPO Research LLC
On April 5, 2017,October 1, 2019, the Company completedacquired 100% of the outstanding membership interests of TOPO Research LLC ("TOPO"), a privately-held company based in Redwood City, California, for $25.0 million. TOPO is a subscription-based research and advisory business that helps sales leaders at the world’s fastest-growing companies achieve their growth objectives.
Business Divestitures
During 2018, the Company divested all of the non-core businesses that comprised its acquisitionOther segment and moved a small residual product from the Other segment into the Research business and, as a result, no operating activity has been recorded in the Other segment in 2019. The Other segment had $105.6 million of CEB Inc. ("CEB"). revenue during 2018, while gross contribution was $65.1 million.
Note 2 — Acquisitions and DivestitureDivestitures in the Notes to Consolidated Financial Statements provides additional information regarding the CEB acquisition. Our operating results discussed below forTOPO acquisition and the year ended December 31, 2017 include the results of CEB beginning on the acquisition date. References to "heritage Gartner" operating results and business measurements below refer to Gartner excluding CEB. References to "CEB" below refer to the operating results and business measurements of CEB subsequent to the acquisition.Company's 2018 divestitures.
We also acquired other businesses in 2017, 2016 and 2015, which are also described in Note 2 — Acquisitions and Divestiture in the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K. The operating results of these other acquired businesses were not material to our consolidated or segment results.
Talent Assessment Business - Announcement of a Definitive Agreement to Sell
On February 6, 2018, the Company announced that it had reached a definitive agreement to sell its CEB Talent Assessment business to Exponent Private Equity, a UK-based private equity firm, for $400.0 million. The agreement comes at the end of a previously announced process to evaluate strategic alternatives for CEB Talent Assessment, formerly SHL, which was acquired by Gartner as part of the CEB acquisition. The transaction is expected to close in the first half of 2018 and is subject to customary closing conditions.
FORWARD-LOOKING STATEMENTS
In addition to historical information, this Annual Report on Form 10-K contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are any statements other than statements of historical fact, including statements regarding our expectations, beliefs, hopes, intentions, projections 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.
We operate in a very competitive and rapidly changing environment that involves numerous risks and uncertainties, some of which are beyond our control. Although we believe that the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any of our forward-looking statements. Our future quarterly and annual revenues, operating income, results of operations and cash flows, as well as any forward-looking statement, are subject to change and to inherent risks and uncertainties, such as those disclosed or incorporated by reference in our filings with the Securities and Exchange Commission. Important factors that could cause our actual results, performance and achievements, or industry results to differ materially from estimates or projections contained in our forward-looking statements include, among others, the following: the timing of our Gartner Symposium/Xposeries that normally occurs during the fourth quarter, as well as our other conferences and meetings; the amount of new business generated, including from acquisitions; the mix of domestic and international business; domestic and international economic conditions; the U.K.’s exit from the European Union and its impact on our results; the impact of changes in tax policy and heightened scrutiny from various taxing authorities globally; 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; the payment of performance compensation; uncertainty from the expected discontinuance of LIBOR and transition to any other interest rate benchmark; 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. A description of the risk factors associated with our business is included under “Risk Factors” in Item 1A. of this Annual Report on Form 10-K, which is incorporated herein by reference.
Forward-looking statements are subject to risks, estimates 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 discussedlisted above or described under “Risk Factors” in Part 1, Item 1A, Risk Factors included in1A. of this Annual Report on Form 10-K. 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. Forward-looking statements in this Annual Report on Form 10-K speak only as of the date hereof, and forward-looking statements in documents attached that are incorporated by reference speak only as of the date of those documents. 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 carefully review our risk factors described in this Annual Report on Form 10-K.
BUSINESS OVERVIEW
Gartner, Inc. (NYSE: IT) is the world’s leading research and advisory company and a member of the S&P 500. We equip business leaders with indispensable insights, advice and tools to achieve their mission-criticalmission–critical priorities today and build the successful organizations of tomorrow.
We believe our unmatched combination of expert-led, practitioner-sourced and data-driven research steers clients toward the right decisions on the issues that matter most. We’reWe are a trusted asadvisor and an objective resource and critical partner byfor more than 12,000 organizations15,000 enterprises in more than 100 countries — across all major functions, in every industry and enterprise size. Gartner is headquartered in Stamford, Connecticut, U.S.A. and, as of December 31, 2017, we had more than 15,000 associates, including 2,650 research analysts and consultants.
Gartner delivers its products and services globally through fourthree business segments:segments – Research, Conferences and Consulting, Events, and Talent Assessment & Other:as described below.
| |
| • | Research provides trusted, objective insights and advice on the mission-critical priorities of leaders across all functional areas of an enterprise through reports, briefings, proprietary tools, access to our research experts, peer networking services and membership programs that enable our clients to drive organizational performance. |
| |
| • | Conferences provides business professionals across an organization the opportunity to learn, share and network. From our Gartner Symposium/Xpo series, to industry-leading conferences focused on specific business roles and topics, to peer-driven sessions, our offerings enable attendees to experience the best of Gartner insight and advice live. |
Research provides trusted, objective insights and advice on the mission-critical priorities of leaders across all functional areas of the enterprise through research and other reports, briefings, proprietary tools, access to our analysts, peer networking services and membership programs that enable our clients to make better decisions. Gartner's traditional strengths in IT, marketing and supply chain research were enhanced in 2017 with Gartner's acquisition of CEB, Inc., which added CEB's best practice and talent management research insights across a range of business functions, to include human resources, sales, legal and finance.
| |
| • | Consulting combines the power of Gartner market-leading research with custom analysis and on-the-ground support to help chief information officers and other senior executives driving technology-related strategic initiatives move confidently from insight to action. |
Consulting provides customized solutions to unique client needs through on-site, day-to-day support, as well as proprietary tools for measuring and improving IT performance with a focus on cost, performance, efficiency and quality.
Events provides business professionals across the organization the opportunity to learn, share and network. From our flagship CIO event Gartner Symposium/ITxpo, to industry-leading conferences focused on specific business roles and topics, to member-driven sessions, our events enable attendees to experience the best of Gartner insight and advice live.
Talent Assessment & Other helps organizations assess, engage, manage and improve talent. This is accomplished through knowledge and skills assessments, training programs, workshops, and survey and questionnaire services.
BUSINESS MEASUREMENTS
We believe that the following business measurements are important performance indicators for our business segments:
|
| | |
| BUSINESS SEGMENT | | BUSINESS MEASUREMENTSMEASUREMENT |
| Research | | Total contractvalue represents the value attributable to all of our subscription-related contracts. It is calculated as the annualized value of all contracts in effect at a specific point in time, without regard to the duration of the contract. Total contract value primarily includes Research deliverables for which revenue is recognized on a ratable basis, as well as other deliverables (primarily EventsConferences tickets) for which revenue is recognized when the deliverable is utilized. Comparing contract value year-over-year not only measures the short-term growth of our business, but also signals the long-term health of our Research subscription business since it measures revenue that is highly likely to recur over a multi-year period. Our total contract value consists of Global Technology Sales contract value, which includes sales to users and providers of technology, and Global Business Sales contract value, which includes sales to all other functional leaders. |
| | | |
| | | 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. Client retention is calculated at an enterprise level, which represents a single company or customer. |
| | | |
| | | 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 our current clients, who were also clients onea year ago, by the total contract value from a year ago, 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. Wallet retention is calculated at an enterprise level, which represents a single company or customer. |
| | |
| Conferences | | Number of destination conferences represents the total number of hosted destination conferences completed during the period. Single day, local meetings are excluded. |
| | |
| | Number of destination conferences attendees represents the total number of people who attend destination conferences. Single day, local meetings are excluded. |
| | | |
| Consulting | | Consulting backlog represents future revenue to be derived from in-process consulting and measurement engagements. |
| | | |
| | | Utilization rate represents 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. Single day, local events are excluded.
|
| | |
| | Number of attendees represents the total number of people who attend events. Single day, local events are excluded.
|
EXECUTIVE SUMMARY OF OPERATIONS AND FINANCIAL POSITION
We have executed a consistent growth strategy since 2005 to drive revenue and earnings growth. The fundamentals of our strategy include a focus on creating extraordinary research insight, 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 also continue to focus on maximizing shareholder value. During 2017, we repurchased 0.4 million shares of our outstanding common stock and we acquired CEB, an industry leader in providing best practice and talent management insights, and L2, Inc. ("L2"), a subscription-based research business that benchmarks the digital performance of brands. Note 2 — Acquisitions and Divestiture in the Notes to Consolidated Financial Statements provides additional information regarding these acquisitions.
We had total revenues of $3.3$4.2 billion in 2017,2019, an increase of 35% over 20167% compared to 2018 on both a reported basis and adjusted for9% excluding the foreign exchangecurrency impact. OnThere was $105.6 million of Other segment revenue on a reported basis CEB contributed $522.9 million of the increase in total revenues.2018 that did not recur in 2019. Net income declinedincreased to $3.3$233.3 million in 20172019 from $193.6$122.5 million in 20162018 and, as a result, diluted earnings per share was $0.04$2.56 in 20172019 compared to $2.31$1.33 in 2016. See Note 10 — Income Taxes in the Notes to Consolidated Financial Statements for information concerning the net favorable impact of $59.6 million on the Company's 2017 income tax provision from the Tax Cuts and Jobs Act of 2017.2018.
Research revenues increased to $2.5$3.4 billion during 2017, or 33%in 2019, an increase of 9% compared to 20162018 on both a reported basis and adjusted for10% excluding the impact of foreign currency exchange. Heritage Gartner revenues increased $304.7 million in 2017 compared to 2016, which represents a 16% increase on a reported basis, with approximately one point of the increase due to L2, which we acquired in the first quarter of 2017. Adjusted for the foreign exchange impact, heritage Gartner revenues also increased by 16% year-over-year. On a reported basis, CEB contributed $309.6 million of the 2017 increase in Research revenues.impact. The Research gross contribution margin declined by two points during 2017, primarily due to the impact of the deferred revenue fairwas 70% and 69% in 2019 and 2018, respectively. Total contract value accounting adjustment resulting from the CEB acquisition. Heritage Gartner client retention and wallet retention both remained strongwas $3.4 billion at 84% and 106%, respectively, as of December 31, 2017.2019, an increase of 12% compared to December 31, 2018 on a foreign currency neutral basis.
Conferences revenues increased to $476.9 million in 2019, an increase of 16% compared to 2018 on a reported basis and 18% excluding the foreign currency impact. The Conferences gross contribution margin was 51% and 50% in 2019 and 2018, respectively. We held 72 and 70 destination conferences in 2019 and 2018, respectively.
Consulting revenues increased to $327.7$393.9 million in 2017, or 3%2019, an increase of 11% compared to 20162018 on both a reported basis and adjusted for14% excluding the impact of foreign currency exchange.impact. The Consulting gross contribution margin was 30% and 29% in 2017 compared to 28% in 2016. Consultant utilization was 64%2019 and 66% in 2017 and 2016,2018, respectively. We had 682 billable consultants at December 31, 2017 compared to 628 at December 31, 2016. Backlog was $95.2$115.7 million at December 31, 2017.2019.
Events revenues increased to $337.9 million in 2017, or 26% compared to 2016 on a reported basis and 25% adjusted for the impact of foreign currency exchange. Heritage Gartner revenues increased $30.7 million in 2017 compared to 2016, an 11% increase on a reported basis and 10% adjusted for the foreign exchange impact. CEB contributed $38.6 million of the revenue increase on a reported basis. The heritage Gartner Events gross contribution margin was 49% and 51% for 2017 and 2016, respectively. In the heritage Gartner business, we held 65 events and 66 events in 2017 and 2016, respectively, while the number of attendees for 2017 increased 17% and exhibitors increased 3% compared to 2016, with average revenue per exhibitor up by 5% while average revenue per attendee was flat. CEB held four events during 2017 with 3,578 attendees.
As a result of the CEB acquisition, we added a new reportable segment in second quarter 2017 called Talent Assessment & Other, which contributed $174.7 million of revenues during 2017.
For a more complete discussion of our results by segment, see Segment Results below.
Cash provided by operating activities was $254.5$565.4 million and $365.6$471.2 million during 20172019 and 2016,2018, respectively. As of December 31, 2017,2019, we had $538.9$280.8 million of cash and cash equivalents which excludes amounts deemed to be held-for-sale, and $558.0 million$1.0 billion of available borrowing capacity on our revolving credit facility. For a more complete discussion of our cash flows and financial position, see Liquidity and Capital Resources below.
FLUCTUATIONS IN QUARTERLY RESULTS
Our quarterly and annual revenues, operating income (loss) and cash flows fluctuate as a result of many factors, including: the timing of our Symposium/ITxpo series that normally occurs during the fourth quarter, as well as our other events; the timing and amount of new business generated, including from acquisitions; the mix of domestic and international business; domestic and international economic conditions; changes in market demand for our products and services; changes in foreign currency rates; the timingDuring 2019, we repurchased 1.4 million shares of the development, introduction and marketingCompany's common stock for an aggregate purchase price of new products and services; competition in the industry; the payment of performance compensation; and other factors that are beyond our control. The potential fluctuations in our operating income (loss) 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.approximately $194.0 million.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of our consolidated financial statements requires the application of appropriate accounting policies and the use of estimates. Our significant accounting policies are described in Note 1 — Business and Significant Accounting Policies in the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.Statements. Management considers the policies discussed below to be critical to an understanding of our consolidated 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 consolidated financial statements 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 estimatesthey may ultimately differ materially from actual results. Ongoing changes in our estimates could be material and would be reflected in the Company’s consolidated financial statements in future periods.
Our critical accounting policies pertainingare described below.
Accounting for leases — On January 1, 2019, the Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update No. 2016-02, Leases (as amended, "ASU No. 2016-02" or the “new lease standard”), which substantively modifies the accounting anddisclosure requirements for lease arrangements. Prior to the years presentedissuance of ASU No. 2016-02, generally accepted accounting principles in the United States of America under FASB Accounting Standards Codification ("ASC") Topic 840, Leases, provided that lease arrangements meeting certain criteria werenot recorded on an entity's balance sheet. ASU No. 2016-02 significantly changes the accounting for leases because a right-of-use model is now used wherebya lessee must record a right-of-use asset and a related lease liability on its balance sheet for most of its leases. Under ASU No. 2016-02, leases are classified as either operating orfinance arrangements, with such classification affecting the pattern of expense recognition in an entity's income statement. ASU No. 2016-02 also requiressignificantly expanded disclosures to meet the objective of enabling users of financial statements to assess the amount, timing and uncertainty of cash flows related toleases.
The Company adopted ASU No. 2016-02 using a modified retrospective approach. We elected to use an optional transition method available under ASU No. 2016-02 to record the required cumulative effect adjustments to the opening balance sheet in the period of adoption rather than in the earliest comparative period presented. As such, the Company's historical consolidated financial statements includedhave not been restated. Certain permitted practical expedients were used by the Company upon adoption of the new lease standard, including: (i) combining lease and nonlease components as a single lease component for purposes of the recognition and measurement requirements under ASU No. 2016-02; (ii) not reassessing a lease arrangement to determine if its classification should be changed under ASU No. 2016-02; and (iii) not reassessing initial direct costs for leases that were in this Annual Reportexistence on Form 10-K are as follows:the date of adoption.
The adoption of ASU No. 2016-02 on January 1, 2019 had a material impact on our consolidated balance sheet because the right-of-use model significantly increased both our assets and liabilities from our lease arrangements (all of which were operating leases that were not previously recorded on the Company’s consolidated balance sheets). The adoption of the new lease standard resulted in the recognition of operating lease liabilities aggregating $851.3 million based on the present value of the Company’s remaining minimum lease payments, while the corresponding right-of-use assets totaled $651.9 million. Additionally, the Company’s adoption of ASU No. 2016-02 resulted in a net increase of $638.7 million in each of the Company’s Total Assets and Total Liabilities; however, there was no effect on the Company’s Total Stockholders’ Equity. The Company’s Consolidated Statements of Operations and its cash provided by operating activities in the Consolidated Statements of Cash Flows for 2019 were not materially impacted by the adoption of the new lease standard. Note 1 — Business and Significant Accounting Policies and Note 7 — Leases in the Notes to Consolidated Financial Statements provide additional information regarding the Company's leases and the adoption of ASU No. 2016-02.
Revenue recognition — Revenue isFor 2019 and 2018, revenue was recognized in accordance with the requirements of U.S. GAAP, as well asAccounting Standards Update No. 2014-09, Revenue from Contracts with Customers (as amended, "ASU No. 2014-09"). Prior to January 1, 2018, the Company recognized revenue in accordance with then-existing generally accepted accounting principles in the United States of America and SEC Staff Accounting Bulletin No. 104, Revenue Recognition (collectively, “Prior GAAP”). Revenue isUnder both ASU No. 2014-09 and Prior GAAP, revenue can only be recognized when all of the required criteria for revenue recognition have been met. RevenueAlthough there were certain changes to the Company’s revenue recognition policies and procedures with the adoption of ASU No. 2014-09 on January 1, 2018, there were no material differences between the pattern and timing of revenue recognition under ASU No. 2014-09 and Prior GAAP.
Our revenue by significant source is accounted for as follows:
Research revenues are mainly derived from subscription contracts for research products. The related revenues are deferred and recognized ratably over the applicable contract term. Fees derived from assisting organizations in selecting the right business software for their needs are recognized when the leads are provided to vendors.
Conferences revenues are deferred and recognized upon the completion of the related conference or meeting.
Consulting revenues are principally generated from fixed fee and time and materialmaterials engagements. Revenues from fixed fee contracts are recognized on a proportionalas we work to satisfy our performance basis.obligations. Revenues from time and materials engagements are recognized as work is delivered and/or services are provided. Revenues related to contract optimization contractsengagements 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.
Talent Assessment & Other revenues arising from knowledge and skill assessment services are recognized depending on the nature of the underlying contract: (i) ratably over the term of the service period; (ii) upon delivery; or (iii) on a proportional performance basis. Revenues from training programs and survey and questionnaire products are primarily recognized upon delivery of the service.
The majority of researchour Research contracts are billable upon signing, absent special terms granted on a limited basis from time to time. All researchResearch contracts are generally non-cancelable and non-refundable, except for government contracts that may have cancellation or fiscal funding clauses. It is our policy to record the amount of thea subscription contract that is billable as a fee receivable at the time the contract is signed with a corresponding amount as deferred revenue because the contract represents a legally enforceable claim.
The Company adopted Financial Accounting Standards Board ("FASB") Accounting Standards Update No. 2014-09, "Revenue from Contracts with Customers," on January 1, 2018. See Note 1 — Business and Significant Accounting Policies and Note 9 — Revenue and Related Matters in the Notes to Consolidated Financial Statements forprovide additional information regarding our revenues and the adoption of this accounting standard and its impactASU No. 2014-09 on the Company's revenue recognition policies.January 1, 2018.
Uncollectible fees receivable — We maintainThe Company maintains an allowance for losses of uncollectible receivables that is comprisedclassified in our consolidated balance sheets as an offset to the gross amount of a bad debtfees receivable. Increases and decreases to the allowance and a sales reserve. Provisions are charged against earnings, either as a reductionrecognized in revenues or an increase to expense. earnings.
The determination of the amount of the allowance for losses is based on historical loss experience, an assessment of current economic conditions, the aging of outstanding receivables, the financial health of specific clients and probable losses. This evaluation is
inherently judgmental and requires the use of estimates. The valuation reserves areallowance is periodically re-evaluated and adjusted as more information about the ultimate collectability of fees receivable becomes available. Circumstances that could cause our valuation reservesthe allowance 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 below presents our totalgross fees receivable and the related allowance for losses as of the dates indicated (in thousands):.
| | | | December 31, | December 31, |
| | 2017 | | 2016 | 2019 | | 2018 |
| Total fees receivable | $ | 1,189,543 |
| | $ | 650,413 |
| |
| Gross fees receivable | | $ | 1,334,012 |
| | $ | 1,262,818 |
|
| Allowance for losses | (12,700 | ) | | (7,400 | ) | (8,000 | ) | | (7,700 | ) |
| Fees receivable, net | $ | 1,176,843 |
| | $ | 643,013 |
| $ | 1,326,012 |
| | $ | 1,255,118 |
|
Goodwill and other intangible assets — When we acquire a business, we determine the fair value of the assets acquired and liabilities assumed on the date of acquisition, which may include a significant amount of intangible assets such as customer relationships, software content and other intangible assets,content, as well as resulting goodwill. When determining the fair values of the acquired intangible assets, we consider, among other factors, analyses of historical financial performance and an estimate of the future performance of the acquired business. The fair values of the acquired intangible assets are primarily calculated using an income approach that relies on discounted cash flows. This method starts with a forecast of the expected future net cash flows associated withfor the asset and then adjusts the forecast to present value by applying an appropriatea discount rate that reflects the risk factors associated with the cash flow streams. We consider this approach to be the most appropriate valuation technique because the inherent value of thean acquired intangible assetsasset is theirits ability to generate future income. In a typical acquisition, we engage a third-party valuation expert to assist us with the fair value analyses for acquired intangible assets.
Determining the fair values of acquired intangible assets requires us to exercise significant judgment. We select reasonable estimates and assumptions based on evaluating a number of factors, including, but not limited to, marketplace participants, consumer awareness and brand history. Additionally, there are significant judgments inherent in discounted cash flows such as estimating the amount and timing of projected future cash flows, the selection of appropriate discount rates, hypothetical royalty rates and contributory asset capital charges. Specifically, the selected discount rates used in discounted cash flow analyses are intended to reflect the risk inherent in the projected future cash flows generated by the underlying acquired intangible assets.
Determining an acquired intangible asset's useful life also requires significant judgment and is based on evaluating a number of factors, including, but not limited to, the expected use of the asset, historical client retention rates, consumer awareness and trade name history, as well as any contractual provisions that could limit or extend an asset's useful life.
The Company evaluates recordedCompany's goodwill is evaluated in accordance with FASB Accounting Standards Codification ("ASC")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 of goodwill may not be recoverable. In addition, an impairment evaluation of our amortizable intangible assets may also be performed if events or circumstances indicate potential impairment. Among the factors that could trigger an impairment review are our current operating results relative tothat do not align with our annual plan or historical performance; changes in our strategic planplans or the use of our assets; restructuring charges or other changes in our business segments; competitive pressures and changes in the general economy or in the markets in which we operate; and a significant decline in our stock price and our market capitalization relative to our net book value.
FASB ASC Topic 350 requires anWhen performing our annual assessment of the recoverability of recorded goodwill, which can be eitherwe initially perform a qualitative analysis evaluating whether any events or circumstances occurred or exist that provide evidence that it is more likely than not that the fair value of any of our reporting units is less than the related carrying amount. If we do not believe that it is more likely than not that the fair value of any of our reporting units is less than the related carrying amount, then no quantitative orimpairment test is performed. However, if the results of our qualitative in nature, orassessment indicate that it is more likely than not that the fair value of a combinationreporting unit is less than its respective carrying amount, then we perform a two-step quantitative impairment test.
Evaluating the recoverability of the two approaches. Both methods utilize estimates which, in turn, requiregoodwill requires judgments and assumptions regarding future trends and events. As a result, both the precision and reliability of the resultingour estimates are subject to uncertainty. If our goodwill impairment evaluation determines that the fair value of a reporting unit is less than its related carrying amount, we may recognize an impairment charge. Among the factors that we consider in aour qualitative assessment are general economic conditions and the competitive environment; actual and projected reporting unit financial performance; forward-looking business measurements; and external market assessments. ATo determine the fair values of our reporting units for a quantitative analysis, requires management to consider each of the factors relevant to a qualitative assessment, as well as the utilization ofwe typically utilize detailed financial projections, towhich include the ratesignificant variables, such as projected rates of revenue growth, profitability and cash flows, as well as assumptions regarding discount rates, the Company's weighted average cost of capital and other data, in order to determine a fair value for our reporting units. We conducteddata.
Our most recent annual impairment test of goodwill was a qualitative assessment of the fair value of all of the Company's reporting unitsanalysis conducted during the quarter ended September 30, 2017. The results of this2019 that indicated no impairment. Subsequent to completing our 2019 annual impairment test, determinedno events or changes in circumstances were noted that the fair values of the Company's reporting units continue to exceed their respective carrying values and as a result, norequired an interim goodwill impairment was indicated. Seetest. Note 1 — Business and Significant Accounting Policies and Note 3 — Goodwill and Intangible Assets in the Notes to Consolidated Financial Statements forprovide additional information regarding the Company's goodwill and amortizable intangible assets.
Accounting for income taxes — The Company uses the asset and liability method of accounting for income taxes. We estimate our income taxes in each of the jurisdictions where we operate.the Company operates. This process involves estimating our current tax expense or benefit 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 in our consolidated balance sheets. InWhen assessing the realizability of
deferred tax assets, we consider if it is more likely than not that some or all of the deferred tax assets will not be realized. In making this assessment, we consider the availability of loss carryforwards, projected reversals of deferred tax liabilities, projected future taxable income, and ongoing prudent and feasible tax planning strategies. The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained based on the technical merits of the position. Recognized tax positions are measured at the largest amount of benefit with greater than a 50% likelihood of being realized. The Company uses estimates in determining the amount of unrecognized tax benefits associated with uncertain tax positions. Significant judgment is required in evaluating tax law and measuring the benefits likely to be realized. Uncertain tax positions are periodically re-evaluated and adjusted as more information about their ultimate realization becomes available.
Accounting for stock-based compensation — The Company accounts for stock-based compensation awards in accordance with FASB ASC Topics 505 and 718 and SEC Staff Accounting Bulletins No. 107 and No. 110. The Company recognizes stock-based compensation expense, which is based on the fair value of the award on the date of grant, over the related service period (seeperiod. Note 810 — Stock-Based Compensation in the Notes to Consolidated Financial Statements forprovides additional information).information regarding stock-based compensation. Determining the appropriate fair value model and calculating the fair value of stock-based compensation awards requires the use of certain complex and subjective assumptions, including the expected life of a stock-based compensation award and the Company’s common stock price volatility. In addition, determining the appropriate periodic stock-based compensation expense requires management to estimate the likelihood of the achievement of certain performance targets. The assumptions used in calculating the fair values of stock-based compensation awards and the related periodic expense represent management’s best estimates, which involve inherent uncertainties and the application of judgment. As a result, if circumstances 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-based 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 ongoing actions we undertake to streamline our organization, reposition certain businesses and reduce ongoingfuture operating costs. Estimates of costs to be incurred to complete these actions, such as future lease payments sublease income,under contractual arrangements, 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 that 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 the end of our fiscal year.
RESULTS OF OPERATIONS
Consolidated Results
2017 VERSUS 2016
The table below presents an analysis of selected line items and year-over-year changes in our Consolidated Statements of Operations for the two years ended December 31, 2017indicated (in thousands). The operating results of CEB are included beginning on April 5, 2017, the date of the acquisition.
| | | | Year Ended December 31, 2017 | | Year Ended December 31, 2016 | | Income Increase (Decrease) $ | | Increase (Decrease) % | Year Ended December 31, 2019 | | Year Ended December 31, 2018 | | Increase (Decrease) | | Percentage Increase (Decrease) |
| Total revenues | $ | 3,311,494 |
| | $ | 2,444,540 |
| | $ | 866,954 |
| | 35 | % | $ | 4,245,321 |
| | $ | 3,975,454 |
| | $ | 269,867 |
| | 7 | % |
| Costs and expenses: | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
|
| Cost of services and product development | 1,320,198 |
| | 945,648 |
| | (374,550 | ) | | (40 | ) | 1,550,568 |
| | 1,468,800 |
| | 81,768 |
| | 6 |
|
| Selling, general and administrative | 1,599,004 |
| | 1,089,184 |
| | (509,820 | ) | | (47 | ) | 2,103,424 |
| | 1,884,141 |
| | 219,283 |
| | 12 |
|
| Depreciation | 63,897 |
| | 37,172 |
| | (26,725 | ) | | (72 | ) | 82,066 |
| | 68,592 |
| | 13,474 |
| | 20 |
|
| Amortization of intangibles | 176,274 |
| | 24,797 |
| | (151,477 | ) | | >(100) |
| 129,713 |
| | 187,009 |
| | (57,296 | ) | | (31 | ) |
| Acquisition and integration charges | 158,450 |
| | 42,598 |
| | (115,852 | ) | | >(100) |
| 9,463 |
| | 107,197 |
| | (97,734 | ) | | (91 | ) |
| Operating (loss) income | (6,329 | ) | | 305,141 |
| | (311,470 | ) | | >(100) |
| |
| Operating income | | 370,087 |
| | 259,715 |
| | 110,372 |
| | 42 |
|
| Interest expense, net | (124,936 | ) | | (25,116 | ) | | (99,820 | ) | | >(100) |
| (99,805 | ) | | (124,208 | ) | | (24,403 | ) | | (20 | ) |
| (Loss) gain from divested operations | | (2,075 | ) | | 45,447 |
| | (47,522 | ) | | >(100) |
|
| Other income, net | 3,448 |
| | 8,406 |
| | (4,958 | ) | | (59 | ) | 7,532 |
| | 167 |
| | 7,365 |
| | >100 |
|
| (Benefit) provision for income taxes | (131,096 | ) | | 94,849 |
| | 225,945 |
| | >100 |
| |
| Provision for income taxes | | 42,449 |
| | 58,665 |
| | (16,216 | ) | | (28 | ) |
| Net income | $ | 3,279 |
| | $ | 193,582 |
| | $ | (190,303 | ) | | (98 | )% | $ | 233,290 |
| | $ | 122,456 |
| | $ | 110,834 |
| | 91 | % |
TOTAL REVENUESTotal revenues for the year ended December 31, 2017 increased $867.0 million, to $3.32019 were $4.2 billion, an increase of 35%$269.9 million, or 7% compared to the year ended December 31, 20162018 on both a reported basis and adjusted for9% excluding the foreign exchangecurrency impact. CEB contributed approximately $522.9 million of the revenue increase.
The tabletables below presents totalpresent (i) revenues by geographic region for(based on where the years indicated (in thousands):
|
| | | | | | | | | | | | | | | | |
| Geographic Region | | Year Ended December 31, 2017 | | Year Ended December 31, 2016 | | Increase (Decrease) $ | | Increase (Decrease) % | |
| U.S. and Canada | | $ | 2,037,111 |
| | $ | 1,519,748 |
| | $ | 517,363 |
| | 34 | % | |
| Europe, Middle East and Africa | | 850,352 |
| | 616,721 |
| | 233,631 |
| | 38 |
| |
| Other International | | 424,031 |
| | 308,071 |
| | 115,960 |
| | 38 |
| |
| Totals | | $ | 3,311,494 |
| | $ | 2,444,540 |
| | $ | 866,954 |
| | 35 | % | |
The table below presents oursale is fulfilled) and (ii) revenues by segment for the years indicated (in thousands):.
|
| | | | | | | | | | | | | | | | |
| Segment | | Year Ended December 31, 2017 | | Year Ended December 31, 2016 | | Increase (Decrease) $ | | Increase (Decrease) % | |
| Research | | $ | 2,471,280 |
| | $ | 1,857,001 |
| | $ | 614,279 |
| | 33 | % | |
| Consulting | | 327,661 |
| | 318,934 |
| | 8,727 |
| | 3 |
| |
| Events | | 337,903 |
| | 268,605 |
| | 69,298 |
| | 26 |
| |
| Talent Assessment & Other | | 174,650 |
| | — |
| | 174,650 |
| | 100 |
| |
| Totals | | $ | 3,311,494 |
| | $ | 2,444,540 |
| | $ | 866,954 |
| | 35 | % | |
|
| | | | | | | | | | | | | | | |
| Primary Geographic Market | | Year Ended December 31, 2019 | | Year Ended December 31, 2018 | | Increase (Decrease) | | Percentage Increase (Decrease) |
| United States and Canada | | $ | 2,734,490 |
| | $ | 2,514,952 |
| | $ | 219,538 |
| | 9 | % |
| Europe, Middle East and Africa | | 996,004 |
| | 1,000,490 |
| | (4,486 | ) | | — |
|
| Other International | | 514,827 |
| | 460,012 |
| | 54,815 |
| | 12 |
|
| Total revenues (1) | | $ | 4,245,321 |
| | $ | 3,975,454 |
| | $ | 269,867 |
| | 7 | % |
|
| | | | | | | | | | | | | | | |
| Segment | | Year Ended December 31, 2019 | | Year Ended December 31, 2018 | | Increase (Decrease) | | Percentage Increase (Decrease) |
| Research | | $ | 3,374,548 |
| | $ | 3,105,764 |
| | $ | 268,784 |
| | 9 | % |
| Conferences | | 476,869 |
| | 410,461 |
| | 66,408 |
| | 16 |
|
| Consulting | | 393,904 |
| | 353,667 |
| | 40,237 |
| | 11 |
|
| Other (1) | | — |
| | 105,562 |
| | (105,562 | ) | | >(100) |
|
| Total revenues (1) | | $ | 4,245,321 |
| | $ | 3,975,454 |
| | $ | 269,867 |
| | 7 | % |
| |
| (1) | During 2018, the Company divested all of the non-core businesses that comprised its Other segment and moved a small residual product from the Other segment into the Research business and, as a result, no revenue has been recorded in the Other segment in 2019. Revenue from the Company's divested operations was approximately $97.3 million during 2018. Note 9 — Revenue and Related Matters in the Notes to Consolidated Financial Statements provides additional information regarding the Company's revenue by geography and by segment. |
Refer to the section of this MD&A below entitled “Segment Results” for a discussion of revenues and results by segment.
COST OF SERVICES AND PRODUCT DEVELOPMENTCost of services and product development was $1.3$1.6 billion in 2017,2019, an increase of $374.6$81.8 million compared to 2016,2018, or 40%6% on both a reported basis and 7% excluding the impactforeign currency impact. The increase in Cost of foreign exchange. Approximately $238.0 million of the increase was attributable to CEB. The $136.6 million increase attributable to heritage Gartnerservices and product development was primarily due to higher payroll and related benefits costs resulting from increased headcount, which increased 20%.partially offset by a reduction in expense from certain businesses that were divested during 2018. Cost of services and product development as a percentagepercent of revenues was 40%37% during both 2019 and 39% for 20172018.
Selling, general and 2016, respectively.
SELLING, GENERAL AND ADMINISTRATIVEadministrative (“SG&A”) expense was $1.6$2.1 billion in 2017,2019, an increase of $509.8$219.3 million compared to 2016,2018, or 47%12% on both a reported basis and 14% excluding the impact of foreign exchange. Approximately $283.8 million of thecurrency impact. The increase was attributable to CEB. Heritage Gartnerin SG&A costs for 2017 increased $226.0 million,expense was primarily due to $107.4 million into: (i) higher commissions from increased sales bookings; (ii) more payroll and related benefits costs, reflectingwhich were driven mostly by increased headcount; and (iii) higher facilities and corporate costs. These items were partially offset by a 17% overall headcount increase; $33.8 millionreduction in higher commissions due to increased sales bookings;SG&A expense from certain businesses that were divested during 2018 and $84.8 milliona reduction in higher corporate coststravel and foreign exchange impact.entertainment expenses during 2019. The overall headcount growth includesincluded quota-bearing sales associate increases in Global Technology Sales and Global Business Sales to 3,267 and 869, respectively, at December 31, 2019. On a 16% increase incombined basis, the total number of quota-bearing sales associates which increased to 2,807 at December 31, 2017 from 2,423 at December 31, 2016.
DEPRECIATION increased $26.7 million during 2017by 6% when compared to 2016, dueDecember 31, 2018. SG&A expense as a percent of revenues was 50% and 47% during 2019 and 2018, respectively. SG&A expense increased at a faster pace than our revenue in 2019 as we grew sales capacity and the enabling infrastructure during the year to property, equipment and leasehold improvements acquired with CEB and additional heritage Gartner investment.promote future revenue growth.
AMORTIZATION OF INTANGIBLESDepreciation increased $151.5 millionby 20% during 2017 when2019 compared to 20162018. This increase was due to additional amortization frominvestments, including new leasehold improvements as additional office space went into service and capitalized software.
Amortization of intangibles decreased by 31% during 2019 compared to 2018 due to certain businesses that were divested during 2018, including the intangibles recordedrelated intangible assets, as well as certain intangible assets that became fully amortized in connection with our recent acquisitions.2018 and 2019.
ACQUISITION AND INTEGRATION CHARGES increased $115.9Acquisition and integration charges declined by $97.7 million during 2017 when2019 compared to 2016.2018. This increase reflectsdecrease was the additional charges resulting from our recent acquisitions and primarily consistresult of higher professional fees, severance, stock-based compensation charges and accruals for exit costs for certain office space that the Company does not intend to occupyhaving completed two acquisitions in Arlington, Virginia.2017, no acquisitions in 2018 and one minor acquisition in late 2019.
OPERATING (LOSS) INCOMEOperating income was an operating loss of $(6.3)$370.1 million and $259.7 million during 2017 compared to2019 and 2018, respectively. The increase in operating income of $305.1 million in 2016. The decline reflects several factors. We had a lower segment contribution margin in our Research business resulting from a CEB deferred revenue fair value adjustment. We also had higher SG&A and acquisition-related costs,factors, including depreciation,(i) reduced amortization of intangibles and acquisition and integration charges.charges and (ii) higher segment contributions, primarily in our Research and Conferences segments and, to a lesser extent, Consulting, which were partially offset by higher SG&A expense and Depreciation.
INTEREST EXPENSE, NET increased $99.8Interest expense, net declined by $24.4 million during 2017 when2019 compared to 2016. The increase2018. This decrease was primarily due to higherlower average outstanding borrowings during 2017.2019 and nominally lower weighted average annual effective interest rates on the Company's total outstanding debt.
OTHER INCOME, NETGain from divested operations of $45.4 million in 2018 was $3.4due to sales of certain business units and other miscellaneous assets. Loss from divested operations of $2.1 million during 2017,in 2019 was primarily reflectingdue to adjustments of certain working capital balances related to the Company's 2018 divestitures. Note 2 — Acquisitions and Divestitures in the Notes to Consolidated Financial Statements provides additional information regarding the Company's 2018 divestitures.
Other income, net for the years presented herein included the net impact of foreign currency gains and losses from our hedging activities, as well as the salesales of certain state tax credits and the recognition of other tax incentives. During 2019, Other income, net was $8.4 million in 2016, whichalso included a pretax gain of $2.5$9.1 million from the extinguishment ofCompany's sale a portion ofminority equity investment.
The provision for income taxes was $42.4 million and $58.7 million during 2019 and 2018, respectively, with an economic development loan from the State of Connecticut, the sale of certain state tax credits and the recognition of other tax incentives, and the net impact of gains and losses from our foreign currency hedging activities.
(BENEFIT) PROVISION FOR INCOME TAXES in 2017 was a benefit of $(131.1) million on a pretax loss of $(127.8) million compared to an expense of $94.8 million on pretax income of $288.4 million in 2016. The effective income tax rate of 15.4% in 2019 and 32.4% in 2018. The 2019 effective tax rate includes a significant benefit from the intercompany sale of certain intellectual property, while no such benefit occurred in 2018. Note 12 — Income Taxes in the Notes to Consolidated Financial Statements provides additional information regarding the Company's income taxes.
Net income was 102.6%$233.3 million and $122.5 million during 2019 and 2018, respectively. Additionally, our diluted net income per share increased by $1.23 in 20172019 compared to 32.9%2018. These year-over-year changes reflect: (i) increases in 2016. The change in theour 2019 operating income; (ii) lower interest expense; and (iii) a lower effective income tax rate was primarily attributable to the favorable impact of U.S. tax reform, the recognition in 2017 of unrealized capital losses on the planned divestiture of the Talent Assessment business, and increases in tax benefits associated with equity compensation.
NET INCOME was $3.3 million and $193.6 million during 2017 and 2016, respectively. The year-over-year change primarily reflects declines in our operating profitability and higher interest expense, partially offset by income tax benefits in 2017, including the impact of the Tax Cuts and Jobs Act of 2017. As a result of substantially lower net income and a 7% increase in the number of weighted average shares outstanding, diluted earnings per share declined to $0.04 in 2017 from $2.31 in 2016.
2016 VERSUS 2015
The table below presents an analysis of selected line items and year-over-year changes in our Consolidated Statements of Operations for the two years ended December 31, 2016 (in thousands).
|
| | | | | | | | | | | | | | |
| | Year Ended December 31, 2016 | | Year Ended December 31, 2015 | | Income Increase (Decrease) $ | | Increase (Decrease) % |
| Total revenues | $ | 2,444,540 |
| | $ | 2,163,056 |
| | $ | 281,484 |
| | 13 | % |
| Costs and expenses: | |
| | |
| | |
| | |
|
| Cost of services and product development | 945,648 |
| | 839,076 |
| | (106,572 | ) | | (13 | ) |
| Selling, general and administrative | 1,089,184 |
| | 962,677 |
| | (126,507 | ) | | (13 | ) |
| Depreciation | 37,172 |
| | 33,789 |
| | (3,383 | ) | | (10 | ) |
| Amortization of intangibles | 24,797 |
| | 13,342 |
| | (11,455 | ) | | (86 | ) |
| Acquisition and integration charges | 42,598 |
| | 26,175 |
| | (16,423 | ) | | (63 | ) |
| Operating income | 305,141 |
| | 287,997 |
| | 17,144 |
| | 6 |
|
| Interest expense, net | (25,116 | ) | | (20,782 | ) | | (4,334 | ) | | (21 | ) |
| Other income, net | 8,406 |
| | 4,996 |
| | 3,410 |
| | 68 |
|
| (Benefit) provision for income taxes | 94,849 |
| | 96,576 |
| | 1,727 |
| | 2 |
|
| Net income | $ | 193,582 |
| | $ | 175,635 |
| | $ | 17,947 |
| | 10 | % |
TOTAL REVENUES for the year ended December 31, 2016 increased $281.5 million, to $2.4 billion, an increase of 13%2019 compared to the year ended December 31, 2015 and 14% adjusted for the impact of foreign currency exchange.
The table below presents total revenues by geographic region for the years indicated (in thousands):
|
| | | | | | | | | | | | | | | | |
| Geographic Region | | Year Ended December 31, 2016 | | Year Ended December 31, 2015 | | Increase (Decrease) $ | | Increase (Decrease) % | |
| U.S. and Canada | | $ | 1,519,748 |
| | $ | 1,347,676 |
| | $ | 172,072 |
| | 13 | % | |
| Europe, Middle East and Africa | | 616,721 |
| | 557,165 |
| | 59,556 |
| | 11 |
| |
| Other International | | 308,071 |
| | 258,215 |
| | 49,856 |
| | 19 |
| |
| Totals | | $ | 2,444,540 |
| | $ | 2,163,056 |
| | $ | 281,484 |
| | 13 | % | |
The table below presents our revenues by segment for the years indicated (in thousands):
|
| | | | | | | | | | | | | | | | |
| Segment | | Year Ended December 31, 2016 | | Year Ended December 31, 2015 | | Increase (Decrease) $ | | Increase (Decrease) % | |
| Research | | $ | 1,857,001 |
| | $ | 1,614,904 |
| | $ | 242,097 |
| | 15 | % | |
| Consulting | | 318,934 |
| | 296,317 |
| | 22,617 |
| | 8 |
| |
| Events | | 268,605 |
| | 251,835 |
| | 16,770 |
| | 7 |
| |
| Totals | | $ | 2,444,540 |
| | $ | 2,163,056 |
| | $ | 281,484 |
| | 13 | % | |
Please refer to the section of this MD&A below entitled “Segment Results” for a discussion of revenues and results by segment.
COST OF SERVICES AND PRODUCT DEVELOPMENT (“COS") increased $106.6 million, or 13%, in 2016 compared to 2015, to $945.6 million compared to $839.1 million in 2015. COS increased 14% in 2016 when compared to 2015 adjusted for the impact of foreign exchange. The year-over-year increase in COS was due to $88.0 million in higher payroll and related benefits costs from additional headcount and merit salary increases, and $28.6 million in higher charges in 2016 for events costs and other program related expenses.2018. Partially offsetting these increased expensesitems was approximately $10.0 million in foreign exchange impact. Overall COS headcount increased 13%, which was primarily in our Research segment. COS as a percentage of revenues was 39% in both 2016 and 2015.
SELLING, GENERAL AND ADMINISTRATIVE (“SG&A”) expense increased by $126.5 million in 2016, or 13%, to $1,089.2 millionloss from divested operations during 2019 compared to $962.7 million in 2015. Excluding the impact of foreign currency exchange, SG&A expense increased 15% year-over-year. The increase was primarily due to $115.0 million in higher payroll and related benefits costs from additional headcount, higher sales commissions, and merit salary increases, and we also had $27.5 million in additional legal, recruiting and training, and workplace costs. Partially offsetting these additional charges was approximately $16.0 million in foreign exchange impact. SG&A headcount increased 13% overall, with the majority of the increase in additional quota-bearing sales associates and related support staff. Quota-bearing sales associates increased 12% year-over-year, to 2,423 at December 31, 2016 from 2,171 at December 31, 2015.a corresponding gain during 2018.
DEPRECIATION increased 10% in 2016 compared to 2015, which reflects our additional investment in fixed assets.AMORTIZATION OF INTANGIBLES increased to $24.8 million in 2016 from $13.3 million in 2015 due to the additional intangibles resulting from our acquisitions.
ACQUISITION AND INTEGRATION CHARGES were $42.6 million in 2016 compared to $26.2 million in 2015. These charges are directly related to our acquisitions and primarily include amounts accrued for payments contingent on the achievement of certain employment conditions, legal, consulting and severance costs.
OPERATING INCOME increased 6% in 2016 compared to 2015, to $305.1 million in 2016 from $288.0 million in 2015. Operating income as a percentage of revenues was 12% in 2016 and 13% in 2015 with the decline due to a number of factors, to include lower gross contribution margins in our Consulting and Events segments and higher charges from acquisitions.
INTEREST EXPENSE, NET increased 21% year-over-year due to higher average borrowings in 2016.
OTHER INCOME, NET was $8.4 million in 2016, which included a gain of $2.5 million from the extinguishment of a portion of an economic development loan from the State of Connecticut, the sale of certain state tax credits and the recognition of other tax incentives, and the net impact of gains and losses from our foreign currency hedging activities. Other income, net was $5.0 million in 2015, which consisted of a $6.8 million gain from the sale of certain state tax credits, partially offset by a net loss from foreign currency hedging activities.
(BENEFIT) PROVISION FOR INCOME TAXES was $94.8 million in 2016 compared to $96.6 million in 2015 and the effective tax rate was 32.9% in 2016 compared to 35.5% in 2015. The decrease in the 2016 effective income tax rate was primarily attributable to the early adoption of FASB ASU No. 2016-09, "Improvements to Employee Share-Based Payment Accounting," partially offset by increases in non-deductible expenses relating to acquisitions.
NET INCOME was $193.6 million in 2016 and $175.6 million in 2015, an increase of 10%. Diluted earnings per share increased 12% year-over-year, to $2.31 in 2016 compared to $2.06 in 2015 due to higher net income and, to a lesser extent, a decrease in the number of weighted average shares outstanding in 2016.
SEGMENT RESULTS
We evaluate reportable segment performance and allocate resources based on gross contribution margin. Gross contribution is defined as operating income (loss),or loss excluding certain Cost of services and product development charges,expenses, SG&A expenses, Depreciation, Amortization of intangibles, and Acquisition and integration charges, and Amortization of intangibles.charges. Gross contribution margin is defined as gross contribution as a percentagepercent of revenues.
On April 5, 2017, Gartner completed2018 Business Divestitures
During 2018, the Company divested all of the non-core businesses that comprised its acquisitionOther segment and moved a small residual product from the Other segment into the Research business and, as a result, no operating activity has been recorded in the Other segment in 2019. The Other segment had $105.6 million of CEB. Withrevenue during 2018, while gross contribution was $65.1 million. Note 2 — Acquisitions and Divestitures in the CEB acquisition, Gartner began reporting four business segments reflectingNotes to Consolidated Financial Statements provides additional information regarding the Company’s enlarged scale and breadth of advisory services. Company's 2018 divestitures.
Reportable Segments
The Company'sCompany’s reportable segments are as follows:
| |
| • | Research provides trusted, objective insights and advice on the mission-critical priorities of leaders across all functional areas of an enterprise through reports, briefings, proprietary tools, access to our research experts, peer networking services and membership programs that enable our clients to drive organizational performance. |
| |
| • | Conferences provides business professionals across an organization the opportunity to learn, share and network. From our Gartner Symposium/Xpo series, to industry-leading conferences focused on specific business roles and topics, to peer-driven sessions, our offerings enable attendees to experience the best of Gartner insight and advice live. |
Research provides trusted, objective insights and advice on the mission-critical priorities of leaders across all functional areas of the enterprise through research and other reports, briefings, proprietary tools, access to our analysts, peer networking services and membership programs that enable our clients to make better decisions. Gartner's traditional strengths in IT, marketing and supply chain research were enhanced in 2017 with Gartner's acquisition of CEB, Inc., which added CEB's best practice and talent management research insights across a range of business functions, to include human resources, sales, legal and finance.
| |
| • | Consulting combines the power of Gartner market-leading research with custom analysis and on-the-ground support to help chief information officers and other senior executives driving technology-related strategic initiatives move confidently from insight to action. |
Consulting provides customized solutions to unique client needs through on-site, day-to-day support, as well as proprietary tools for measuring and improving IT performance with a focus on cost, performance, efficiency and quality.
Events provides business professionals across the organization the opportunity to learn, share and network. From our flagship CIO event Gartner Symposium/ITxpo, to industry-leading conferences focused on specific business roles and topics, to member-driven sessions, our events enable attendees to experience the best of Gartner insight and advice live.
Talent Assessment & Other helps organizations assess, engage, manage and improve talent. This is accomplished through knowledge and skills assessments, training programs, workshops, and survey and questionnaire services.
The sections below present the results of these fourthe Company's three reportable business segments. References to "heritage Gartner" operating results and business measurements below refer to Gartner excluding CEB. References to "CEB" operating results and business measurements below refer to CEB subsequent to the acquisition.
Research
| | | | As Of And For The Year Ended December 31, 2017 | | As Of And For The Year Ended December 31, 2016 | | Increase (Decrease) | | Percentage Increase (Decrease) | | As Of And For The Year Ended December 31, 2016 | | As Of And For The Year Ended December 31, 2015 | | Increase (Decrease) | | Percentage Increase (Decrease) | As Of And For The Year Ended December 31, 2019 | | As Of And For The Year Ended December 31, 2018 | | Increase (Decrease) | | Percentage Increase (Decrease) |
| Financial Measurements: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
|
Revenues (1), (2) | $2,471,280 | | $1,857,001 | | $ | 614,279 |
| | 33 | % | | $1,857,001 | | $1,614,904 | | $ | 242,097 |
| | 15 | % | |
| Revenues (1) | | $ | 3,374,548 |
| | $ | 3,105,764 |
| | $ | 268,784 |
| | 9 | % |
Gross contribution (1) | $1,653,014 | | $1,285,611 | | $ | 367,403 |
| | 29 | % | | $1,285,611 | | $1,117,534 | | $ | 168,077 |
| | 15 | % | $ | 2,351,720 |
| | $ | 2,144,097 |
| | $ | 207,623 |
| | 10 | % |
| Gross contribution margin | 67 | % | | 69 | % | | (2) points |
| | — |
| | 69 | % | | 69 | % | | — |
| | — |
| 70 | % | | 69 | % | | 1 point |
| | — |
|
| Business Measurements: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
|
| Heritage Gartner: | | | | | | | | | | | | | | | | |
| Total contract value (1) | $2,213,000 | | $1,930,000 | | $ | 283,000 |
| | 15 | % | | $1,930,000 | | $1,768,300 | | $ | 161,700 |
| | 9 | % | |
| Global Technology Sales (2): | | | | | | | | |
| Contract value (1), (3) | | $ | 2,799,000 |
| | $ | 2,492,000 |
| | $ | 307,000 |
| | 12 | % |
| Client retention | 84 | % | | 84 | % | | — |
| | — |
| | 84 | % | | 84 | % | | — |
| | — |
| 82 | % | | 83 | % | | (1) point |
| | — |
|
| Wallet retention | 106 | % | | 104 | % | | 2 points |
| | — |
| | 104 | % | | 105 | % | | (1) point |
| | — |
| 104 | % | | 105 | % | | (1) point |
| | — |
|
| CEB: | | | | | | | | | | | | | | | | |
| Total contract value (1) (3) | $557,000 | | $549,000 | | $ | 8,000 |
| | 1 | % | | $549,000 | | na | | — |
| | — |
| |
| Global Business Sales (2): | | | | | | | | |
| Contract value (1), (3) | | $ | 647,000 |
| | $ | 594,000 |
| | $ | 53,000 |
| | 9 | % |
| Client retention | | 82 | % | | 82 | % | | — |
| | — |
|
| Wallet retention | 96 | % | | 90 | % | | 6 points |
| | — |
| | 90 | % | | na |
| | — |
| | — |
| 101 | % | | 95 | % | | 6 points |
| | — |
|
| |
| (2) | In 2017 the Company began reporting the resultsGlobal Technology Sales includes sales to users and providers of its Strategic Advisory Services ("SAS") business in Research whereas previously the SAS business was reported with Consulting. Although the impact of the reclassification was not significant, |
the operating results of the SAS business for 2016 and 2015 were reclassified from Consulting to Research to be comparable with the current year presentation.
| |
(3) | The 2016 CEB contract value was calculated using Gartner's methodology as well as 2017 foreign exchange rates. |
na - not applicable or not available.
2017 VERSUS 2016
Research segment revenues increased $614.3 million on a reported basis during 2017 compared to 2016, or 33% on both a reported basis and adjusted for the impact of foreign currency exchange. Heritage Gartner revenues increased $304.7 million in 2017 compared to 2016, which represents a 16% increase on a reported basis, with approximately one point of the increase due to L2, which we acquired in the first quarter of 2017. Adjusted for the foreign exchange impact, heritage Gartner revenues also increased by 16% year-over-year. On a reported basis, CEB contributed $309.6 million of the 2017 increase in Research segment revenues. The gross contribution margin declined by two points during 2017, primarily due to the impact of the deferred revenue fair value accounting adjustment resulting from the CEB acquisition.
Heritage Gartner total contract value was $2.2 billion at December 31, 2017, an increase of 15% as reported and 16% on a foreign exchange neutral basis compared to December 31, 2016. Heritage Gartner client retention was 84% as of both December 31, 2017 and 2016, while wallet retention was 106% and 104% at December 31, 2017 and 2016, respectively. Heritage Gartner total contract value at December 31, 2017 increased by double-digits across all of the Company’stechnology. Global Business Sales includes sales regions and client sizes and virtually every industry segment compared to December 31, 2016. We increased the number of our research client enterprises by 7% in 2017. As of December 31, 2017, CEB contract value was $557.0 million and wallet retention was 96%.
2016 VERSUS 2015
Research segment revenues increased 15% in 2016 compared to 2015. Excluding the impact of foreign currency exchange, Research revenues increased approximately 17% in 2016. The segment gross contribution margin was 69% in both annual periods. The contribution margin remained at 69% in 2016 despite a 14% increase in segment headcount, which was mostly driven by new hires and, to a lesser extent, the additional employees resulting from our acquisitions. The headcount increase reflects our continued investment in this business. Total contract value increased 9% on a reported basis in 2016 to $1.9 billion, and increased 14% year-over-year adjusted for the impact of foreign currency exchange. The growth in contract value was broad-based, with every region and client size and virtually every industry sector growing at double-digit percentage rates. We increased the number of our research client enterprises by 3% in 2016 to 11,122. Both client retention and wallet retention remained strong at 84% and 104%, respectively, as of December 31, 2016.
Consulting
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As Of And For The Year Ended December 31, 2017 | | As Of And For The Year Ended December 31, 2016 | | Increase (Decrease) | | Percentage Increase (Decrease) | | As Of And For The Year Ended December 31, 2016 | | As Of And For The Year Ended December 31, 2015 | | Increase (Decrease) | | Percentage Increase (Decrease) |
| Financial Measurements: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Revenues (1), (2) | $327,661 | | $318,934 | | $ | 8,727 |
| | 3 | % | | $318,934 | | $296,317 | | $ | 22,617 |
| | 8 | % |
| Gross contribution (1) | $93,643 | | $89,734 | | $ | 3,909 |
| | 4 | % | | $89,734 | | $86,486 | | $ | 3,248 |
| | 4 | % |
| Gross contribution margin | 29 | % | | 28 | % | | 1 point |
| | — |
| | 28 | % | | 29 | % | | (1) point |
| | — |
|
| Business Measurements: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Backlog (1) (3) | $95,200 | | $88,600 | | $ | 6,600 |
| | 7 | % | | $88,600 | | $100,800 | | $ | (12,200 | ) | | (12 | )% |
| Billable headcount | 669 | | 628 | | 41 |
| | 7 | % | | 628 | | 606 | | 22 |
| | 4 | % |
| Consultant utilization | 64 | % | | 66 | % | | (2) points |
| | — |
| | 66 | % | | 66 | % | | — |
| | — |
|
| Average annualized revenue per billable headcount (1) | $ | 366 |
| | $ | 383 |
| | $ | (17 | ) | | (4 | )% | | $ | 383 |
| | $ | 391 |
| | $ | (8 | ) | | (2 | )% |
| |
(2) | In 2017 the Company began reporting the results of its SAS business in Research whereas previously the SAS business was reported with Consulting. Although the impact of the reclassification was not significant, the operating results of the SAS business for 2016 and 2015 were reclassified from Consulting to Research to be comparable with the current year presentation.all other functional leaders. |
| |
| (3) | The heritage Gartner backlogContract values are on a foreign exchange neutral basis. Contract values as of $88.6 million and $100.8 million at December 31, 2016 and 2015, respectively,2018 have been restated to reflectcalculated using the reclassification of the SAS business.same foreign currency rates as 2019. |
2017 VERSUS 2016
ConsultingResearch revenues increased 3%by $268.8 million during 20172019 compared to 20162018, or 9% on both a reported basis and adjusted for10% excluding the impact of foreign currency exchange, with revenue improvements in both core consulting and contract optimization. Grossimpact. The gross contribution margin was 29% and 28% for 2017 and 2016, respectively.70% in 2019 compared to 69% in 2018. The marginincrease in revenues during 2019 was primarily due to the same factors driving the trend in our Research contract value, which are discussed below. The improvement in 2017margin was primarily due to strong fourth quarter results in 2019 wherein program costs and travel and entertainment expenses grew at a slower pace than the corresponding quarterly revenue.
Total contract value increased to $3.4 billion at December 31, 2019, or 12% compared to December 31, 2018 on a foreign exchange neutral basis. Total contract value at December 31, 2019 increased by double-digits across more than half of the Company’s client sizes and half of its industry segments when compared to December 31, 2018. Global Technology Sales ("GTS") contract value increased by 12% at December 31, 2019 when compared to December 31, 2018. The increase in GTS contract value was primarily due to additional sales headcount and productivity improvements. Global Business Sales ("GBS") contract optimization revenue, which has a higher contribution margin than our labor-based core consulting, partially offset by lower consultant utilization and our investment in additional managing partners. Backlogvalue increased by $6.6 million, or 7%9% year-over-year (8% on a foreign exchange neutral basis after excluding the effects of the Company's 2019 acquisition of TOPO Research LLC), year-over-year.primarily driven by the combined effect of improved retention and new business, with a large portion of the new business coming from newly launched products.
GTS client retention was 82% and 83% as of December 31, 2019 and 2018, respectively, while wallet retention was 104% and 105%, respectively. GBS client retention was 82% as of both December 31, 2019 and 2018, while wallet retention was 101% and 95%, respectively. The $95.2 millionincrease in GBS wallet retention was largely due to increased spending by retained clients. The number of backlogGTS client enterprises increased by 1% at December 31, 2017 represented approximately four months of backlog, which is in line with the Company's operational target.
2016 VERSUS 2015
Consulting revenue increased 8% year-over-year to $318.9 million, with the increase mostly in our core consulting practice. Additionally, revenue in our contract optimization practice increased slightly during 20162019 when compared to 2015. The impact of foreign currency exchange was not significant. The year-over-year gross contribution marginDecember 31, 2018, while GBS client enterprises declined by one point due to several factors, including higher payroll costs resulting from higher headcount and severance. Backlog decreased by $12.2 million year-over-year, or 12%, mostly due to a large individual contract booked in 2015. Excluding that contract, backlog decreased approximately 3% year-over-year. The $88.6 million of backlog at December 31, 2016 represented approximately four months of forward backlog, which is in line with the Company's operational target.6%.
EventsConferences
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | As Of And For The Year Ended December 31, 2017 | | As Of And For The Year Ended December 31, 2016 | | Increase (Decrease) | | Percentage Increase (Decrease) | | As Of And For The Year Ended December 31, 2016 | | As Of And For The Year Ended December 31, 2015 | | Increase (Decrease) | | Percentage Increase (Decrease) |
| Financial Measurements: | |
| | |
| | | | |
| | |
| | |
| | |
| | |
|
| Revenues (1) | $337,903 | | $268,605 | | $ | 69,298 |
| | 26 | % | | $268,605 | | $251,835 | | $ | 16,770 |
| | 7 | % |
| Gross contribution (1) | $163,480 | | $136,655 | | $ | 26,825 |
| | 20 | % | | $136,655 | | $130,527 | | $ | 6,128 |
| | 5 | % |
| Gross contribution margin | 48 | % | | 51 | % | | (3) points |
| | — |
| | 51 | % | | 52 | % | | (1) point |
| | — |
|
| Business Measurements: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Heritage Gartner: | | | | | | | | | | | | | | | |
| Number of events (2) | 65 |
| | 66 |
| | (1 | ) | | (2 | )% | | 66 |
| | 65 |
| | 1 |
| | 2 | % |
| Number of attendees (2) | 63,823 |
| | 54,602 |
| | 9,221 |
| | 17 | % | | 54,602 |
| | 52,595 |
| | 2,007 |
| | 4 | % |
| CEB: | | | | | | | | | | | | | | | |
| Number of events (2) | 4 |
| | na |
| | — |
| | — |
| | na |
| | na |
| | — |
| | — |
|
| Number of attendees (2) | 3,578 |
| | na |
| | — |
| | — |
| | na |
| | na |
| | — |
| | — |
|
|
| | | | | | | | | | | | | | |
| | As Of And For The Year Ended December 31, 2019 | | As Of And For The Year Ended December 31, 2018 | | Increase (Decrease) | | Percentage Increase (Decrease) |
| Financial Measurements: | |
| | |
| | | | |
|
| Revenues (1) | $ | 476,869 |
| | $ | 410,461 |
| | $ | 66,408 |
| | 16 | % |
| Gross contribution (1) | $ | 241,757 |
| | $ | 207,260 |
| | $ | 34,497 |
| | 17 | % |
| Gross contribution margin | 51 | % | | 50 | % | | 1 point |
| | — |
|
| Business Measurements: | |
| | |
| | |
| | |
|
| Number of destination conferences (2) | 72 |
| | 70 |
| | 2 |
| | 3 | % |
| Number of destination conferences attendees (2) | 85,750 |
| | 78,136 |
| | 7,614 |
| | 10 | % |
| |
| (2) | Single day, local eventsmeetings are excluded. |
na - not applicable or not available.
2017 VERSUS 2016
EventsConferences revenues increased $69.3by $66.4 million or 26%, during 20172019 compared to 20162018, or 16% on a reported basis and 25% adjusted for18% excluding the impact of foreign currency exchange. Heritage Gartnerimpact. Revenues from both attendees and exhibitors at our destination conferences, as well as revenues from our single day, local meetings, increased $30.7 million in 2017by double-digits during 2019 compared to 2016, an 11% increase on a reported basis and 10% adjusted for the foreign exchange impact, as both attendee and exhibitor increased, with attendee revenue growing at double-digits.2018. We held 65 events72 destination conferences in 2017 in the heritage Gartner business,2019 with a 17%10% increase in the number of attendees and a 3%15% increase in exhibitors when compared to 2016,2018, while the average revenue per attendee and exhibitor was upboth increased by 5% and average revenue per attendee was flat. CEB contributed $38.6 million of the revenue increase with four events held with 3,578 attendees.3%. The segment gross contribution margin declined 3 pointswas 51% and 50% in 2017 compared to 2016, primarily driven by additional investment in headcount2019 and 2018, respectively. The higher program expenses in heritage Gartner, and to a lesser extent, a dilutive effect from the CEB events.
2016 VERSUS 2015
Events revenues increased $16.8 million, or 7%, when comparing 2016 to 2015. Excluding the impact of foreign currency exchange, revenues increased 6% year-over-year. We held 66 events in 2016, consisting of 59 ongoing events and 7 new events, compared to 65 events in 2015. The year-over-year revenue increasegross contribution margin during 2019 was primarily attributabledue to higher exhibitor revenue atimprovements in our on-going events, which increased 9%, while attendee revenue increased 2%. The number of attendees in 2016 increased 4% to 54,602. Averageaverage revenue per attendee declined slightly while average revenue perand exhibitor, improved margins from our single day, local meetings and our continuing efforts to efficiently manage our conference-related expenses. Partially offsetting these items were higher costs associated with increased 9%. The gross contribution margin decreased one point year-over-year.headcount.
Talent Assessment & OtherConsulting
| | | | As Of And For The Year Ended December 31, 2017 | | As Of And For The Year Ended December 31, 2019 | | As Of And For The Year Ended December 31, 2018 | | Increase (Decrease) | | Percentage Increase (Decrease) |
| Financial Measurements: | | | |
| | |
| | |
| | |
|
| Revenues (1) | $ | 174,650 |
| | $ | 393,904 |
| | $ | 353,667 |
| | $ | 40,237 |
| | 11 | % |
| Gross contribution (1) | $ | 90,249 |
| | $ | 118,450 |
| | $ | 102,541 |
| | $ | 15,909 |
| | 16 | % |
| Gross contribution margin | 52 | % | | 30 | % | | 29 | % | | 1 point |
| | — |
|
| Business Measurements: | | |
| | |
| | |
| | |
|
| Backlog (1), (2) | | $ | 115,700 |
| | $ | 108,400 |
| | $ | 7,300 |
| | 7 | % |
| Billable headcount | | 784 | | 718 | | 66 |
| | 9 | % |
| Consultant utilization | | 62 | % | | 63 | % | | (1) point |
| | — |
|
| Average annualized revenue per billable headcount (1) | | $ | 373 |
| | $ | 375 |
| | $ | (2 | ) | | (1 | )% |
| |
| (2) | Backlog is on a foreign exchange neutral basis. Backlog as of December 31, 2018 has been calculated using the same foreign currency rates as 2019. |
See Note 2 — AcquisitionsConsulting revenues increased 11% during 2019 compared to 2018 on a reported basis and Divestiture14% excluding the foreign currency impact, with revenue improvements in labor-based core consulting and Note 16 — Subsequent Eventscontract optimization of 7% and 31%, respectively, on a reported basis. Contract optimization revenue may vary significantly and, as such, 2019 revenues may not be indicative of future results. The segment gross contribution margin was 30% and 29% in 2019 and 2018, respectively. The higher gross contribution margin during 2019 was primarily due to the Notesincrease in contract optimization revenue, which has a higher contribution margin than our labor-based core consulting, billing rate increases, improvements in our labor-based consulting margins and benefits derived from certain cost-reduction initiatives, partially offset by increased personnel costs and commissions.
Backlog increased by $7.3 million, or 7%, from December 31, 2018 to Consolidated Financial Statements for information concerningDecember 31, 2019. The $115.7 million of backlog at December 31, 2019 represented approximately four months of backlog, which is in line with the pending disposal of a significant component of this reportable segment.Company's operational target.
LIQUIDITY AND CAPITAL RESOURCES
We finance our operations through cash generated from our operating activities and borrowings (Note 5borrowings. Note 6 — Debt in the Notes to the Consolidated Financial Statements provides additional information regarding the Company's 2016 Credit Agreement and other outstanding debt obligations).obligations. At December 31, 2017,2019, we had $538.9$280.8 million of cash and cash equivalents and $558.0 millionapproximately $1.0 billion of available borrowing capacity on the revolving credit facility portion ofunder our 2016 Credit Agreement. We believe that the Company has adequate liquidity to meet its currently anticipated needs, to include the payment of the transition tax liability related to the Tax Cuts and Jobs Act of 2017. Note 10 — Income Taxes in the Notes to the Consolidated Financial Statements provides information related to the Tax Cuts and Jobs Act of 2017.needs.
We have historically generated significant cash flows from our operating activities. Our operating cash flow has been continuously maintained and enhanced by the leverage characteristics of our subscription-based business model in our Research segment, which is our largest business segment. Revenues in our Research segment increased 33% in 2017 compared to 2016, and historically has constituted 75%a significant portion of our total revenues in both 2017 and 2016.revenues. The majority of our Research customer contracts are paid in advance and, combined with a strong customer retention rate and high incremental margins, has resulted in continuously strong operating cash flow. Our cashCash flow generation has also benefited from our continuingongoing 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.sales.
As of December 31, 2017, we had approximately $194.0 million of accumulated undistributed earnings in our non-U.S. subsidiaries. Our cash and cash equivalents are held in numerous locations throughout the world. Atworld with 92% held overseas at December 31, 2017, 97% of our cash and cash equivalents was held overseas, with a substantial portion representing accumulated undistributed earnings of our non-U.S. subsidiaries.2019. The Company intends to continue to reinvest substantially all of its accumulated undistributed foreign earnings, except in instances in which thewhere repatriation would result in minimal additional tax. As a result of the recently enacted U.S. Tax Cuts and Jobs Act of 2017, we envisionbelieve that the income tax that would be payableimpact if such earnings were repatriated would be minimal.
The following table below summarizes and explains the significant changes in ourthe Company's cash and cash equivalentsbalances for the three-years ended December 31, 2017years indicated (in thousands): .
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | 2017 vs. 2016 | | 2016 vs. 2015 |
| | Year Ended December 31, 2017 | | Year Ended December 31, 2016 | | Increase (Decrease) | | Year Ended December 31, 2016 | | Year Ended December 31, 2015 | | Increase (Decrease) |
| Cash provided by operating activities | $ | 254,517 |
| | $ | 365,632 |
| | $ | (111,115 | ) | | $ | 365,632 |
| | $ | 345,561 |
| | $ | 20,071 |
|
| Cash used in investing activities | (2,745,574 | ) | | (84,049 | ) | | (2,661,525 | ) | | (84,049 | ) | | (242,357 | ) | | 158,308 |
|
| Cash provided by (used in) financing activities | 2,539,830 |
| | (174,686 | ) | | 2,714,516 |
| | (174,686 | ) | | (67,690 | ) | | (106,996 | ) |
| Net increase (decrease) in cash and cash equivalents | 48,773 |
| | 106,897 |
| | (58,124 | ) | | 106,897 |
| | 35,514 |
| | 71,383 |
|
| Effects of exchange rate changes | 25,902 |
| | (5,640 | ) | | 31,542 |
| | (5,640 | ) | | (27,840 | ) | | 22,200 |
|
| Beginning cash and cash equivalents | 474,233 |
| | 372,976 |
| | 101,257 |
| | 372,976 |
| | 365,302 |
| | 7,674 |
|
| Ending cash and cash equivalents (1) | $ | 548,908 |
| | $ | 474,233 |
| | $ | 74,675 |
| | $ | 474,233 |
| | $ | 372,976 |
| | $ | 101,257 |
|
|
| | | | | | | | | | | |
| | Year Ended December 31, | | Increase (Decrease) |
| | 2019 | | 2018 | |
| Cash provided by operating activities | $ | 565,436 |
| | $ | 471,158 |
| | $ | 94,278 |
|
| Cash (used in) provided by investing activities | (160,885 | ) | | 384,051 |
| | (544,936 | ) |
| Cash used in financing activities | (285,992 | ) | | (1,257,115 | ) | | 971,123 |
|
| Net increase (decrease) in cash and cash equivalents and restricted cash | 118,559 |
| | (401,906 | ) | | 520,465 |
|
| Effects of exchange rates | 3,614 |
| | (6,489 | ) | | 10,103 |
|
| Beginning cash and cash equivalents and restricted cash | 158,663 |
| | 567,058 |
| | (408,395 | ) |
| Ending cash and cash equivalents and restricted cash | $ | 280,836 |
| | $ | 158,663 |
| | $ | 122,173 |
|
(1) As of December 31, 2017, the Company had $538.9 million of cash and cash equivalents and an additional $10.0 million of cash classified as held-for-sale in its Consolidated Balance Sheet, for an ending cash and cash equivalents balance of $548.9 million.
2017 VERSUS 2016
Operating
Cash provided by operating activities was $254.5$565.4 million and $471.2 million in 2017 compared to $365.6 million in 2016. The decline2019 and 2018, respectively. This year-over-year increase was primarily due to (i) a declinegreater profitability in net income, which was $3.3 million in the 2017 period compared to $193.6 million in the 2016 period; (ii) unfavorable changes in working capital in 2017 compared to 2016; and (iii) substantially higher2019, including lower cash payments for bonuses, commissions,both acquisition-related costs and interest on our borrowings, and acquisition and integration costs in the 2017 period compared to 2016.(ii) improved collections of our fees receivable during 2019. Partially offsetting these items were higher payments for income taxes, net of refunds received, during 2019.
Investing
Cash used in investing activities was $2.7 billion$160.9 million in 20172019 compared to $84.0cash provided by investing activities of $384.1 million in 2018. The cash used in 2019 was primarily for capital expenditures and the acquisition of TOPO Research LLC, partially offset by $14.1 million of cash used in 2016. proceeds from the sale of a minority equity investment. During 2018, $526.8 million of net cash was realized from business unit divestitures and other miscellaneous asset sales, partially offset by payments of $126.9 million for capital expenditures and $15.9 million for deferred consideration from a pre-2018 acquisition.
Financing
Cash used in 2017financing activities was substantially higher primarily due$286.0 million in 2019 compared to cash used of $1.3 billion in 2018. During 2019, the acquisitionsCompany borrowed $5.0 million under a financial program offered by the State of CEBConnecticut and L2repaid $109.6 million of other borrowings. We also used $199.0 million of cash during 2019 for share repurchases. During 2018, the Company paid $1.0 billion in April 2017debt principal repayments and March 2017, respectively.$260.8 million for share repurchases.
OBLIGATIONS AND COMMITMENTS
Debt
As of December 31, 2019, the Company had $2.2 billion of principal amount of debt outstanding. Note 26 — Acquisitions and DivestitureDebt in the Notes to the Consolidated Financial Statements provides additional information regarding the Company's acquisitions. We also made additional investment in capital expenditures in 2017, with $110.8 million invested in 2017 compared to $49.9 million in 2016.
Financing
Cash provided by financing activities was $2.5 billion in 2017 compared to cash used of $174.7 million in 2016. During the 2017 period, the Company borrowed a total of approximately $3.0 billion and paid: (i) $404.4 million in principal repayments, including $300.0 million for the senior unsecured 364-day Bridge Credit Facility; (ii) $51.2 million for deferred financing fees on borrowings; and (iii) $41.3 million for share repurchases. During the 2016 period, the Company used $59.0 million in cash for share repurchases and $125.0 million for debt.
2016 VERSUS 2015
Operating
Operating cash flow increased by $20.1 million, or 6%, in 2016 compared to 2015. The 2016 increase was primarily due to higher net income and the adoption of ASU No. 2016-09. Partially offsetting these increases were higher cash payments for acquisition and integration costs, bonus and commissions, and interest on our borrowings.
Investing
We used $84.0 million of cash in our investing activities in 2016 compared to $242.4 million of cash used in 2015. Cash used in 2015 was substantially higher due to additional expenditures for acquisitions.
Financing
Cash used was $174.7 million in 2016, which consisted of $59.0 million paid for share repurchases and $125.0 million for payments and fees on debt, which was partially offset by $9.3 million in cash realized from employee share-related activities. In the 2015 period the Company used $67.7 million in cash in its financing activities, with $509.0 million in cash used for share repurchases, while net borrowings on debt and employee share-related activities provided cash of $441.3 million.
OBLIGATIONS AND COMMITMENTS
Debt
As of December 31, 2017, the Company had $3.3 billion of principal amount of debt outstanding. Note 5 — Debt in the Notes to the Consolidated Financial Statements provides additional information regarding the Company'soutstanding debt obligations.
Off-Balance Sheet Arrangements
Through December 31, 2017, we have2019, the Company has not entered into any material off-balance sheet arrangements or transactions with unconsolidated entities or other persons.
Contractual Cash Commitments
The Company has certain commitments that contractually require future cash payments. The table below summarizes the Company's future contractual cash commitments as of December 31, 20172019 (in thousands):
.
| | | Commitment Description: | | Due In Less Than 1 Year | | Due In 2-3 Years | | Due In 4-5 Years | | Due In More Than 5 Years | | Total | |
| Commitment Description | | | Due In Less Than 1 Year | | Due In 2-3 Years | | Due In 4-5 Years | | Due In More Than 5 Years | | Total |
| Debt – principal and interest (1) | | $ | 469,392 |
| | $ | 492,579 |
| | $ | 1,691,395 |
| | $ | 1,396,750 |
| | $ | 4,050,116 |
| | $ | 237,948 |
| | $ | 1,422,379 |
| | $ | 100,141 |
| | $ | 822,585 |
| | $ | 2,583,053 |
|
| Operating leases (2) | | 129,570 |
| | 235,155 |
| | 203,596 |
| | 727,405 |
| | 1,295,726 |
| | 142,352 |
| | 273,920 |
| | 249,635 |
| | 682,883 |
| | 1,348,790 |
|
| Deferred compensation arrangements (3) | | 27,821 |
| | 13,968 |
| | 9,296 |
| | 46,798 |
| | 97,883 |
| | 10,116 |
| | 14,725 |
| | 8,784 |
| | 45,931 |
| | 79,556 |
|
| Tax Cuts and Job Act - transition tax (4) | | 3,066 |
| | 6,132 |
| | 6,132 |
| | 23,010 |
| | 38,340 |
| |
| Other (5) | | 18,980 |
| | 37,083 |
| | 17,987 |
| | 32,706 |
| | 106,756 |
| |
| Other (4) | | | 30,836 |
| | 34,606 |
| | 12,712 |
| | 35,834 |
| | 113,988 |
|
| Totals | | $ | 648,829 |
| | $ | 784,917 |
| | $ | 1,928,406 |
| | $ | 2,226,669 |
| | $ | 5,588,821 |
| | $ | 421,252 |
| | $ | 1,745,630 |
| | $ | 371,272 |
| | $ | 1,587,233 |
| | $ | 4,125,387 |
|
| |
| (1) | Principal repayments of the Company's debt obligations arewere classified in the above table based on the contractual repayment dates. However, the Due In Less Than 1 Year category includes a $255.0 million revolver principal payment the Company made in January 2018 which was not contractually due until 2022 (Due In 4-5 Years). Interest payments due were based on the effective interest rates as of December 31, 2017.2019, including the effects of the Company’s interest rate swap contracts. Note 56 — Debt in the Notes to the Consolidated Financial Statements provides information regarding the Company's debt obligations.obligations and interest rate swap contracts. |
| |
| (2) | The Company leases various facilities, furniture,automobiles, computer equipment automobiles , and equipmentother assets under non-cancelable operating lease agreements expiring between 20182020 and 2032. See2038. The total commitment excludes approximately $360.6 million of estimated future cash receipts from the Company's subleasing arrangements. Note 1 — Business and Significant Accounting Policies and Note 7 — Leases in the Notes to the Consolidated Financial Statements forprovide additional information onregarding the Company's leases. The total commitment excludes approximately $284.0 million of estimated income from the subleasing of certain facilities. |
| |
| (3) | The Company has supplemental deferred compensation arrangements with certain of its employees. Amounts payable with known payment dates have been classified in the above table based on those scheduled payment dates. Amounts payable whose payment dates are unknown have been included in the Due In More Than 5 Years category sincebecause the Company cannot determine when the amounts will be paid. See Note 1315 — Employee Benefits in the Notes to the Consolidated Financial Statements forprovides additional information regarding the arrangement.Company's supplemental deferred compensation arrangements. |
| |
| (4) | The amount due represents the Company's provisional estimate of the one-time transition tax liability under the Tax Cut and Jobs Act of 2017. The Company currently expects to pay the transition tax over approximately eight years. |
| |
(5) | The Other category includesincludes: (i) contractual commitments (a) to secure sites for our Conferences business and (b) for software, building maintenance, telecom and other services; (ii) amounts due for share repurchase transactions that occurred in late December 2019 but were settled in cash in January 2020; and (ii)(iii) projected cash contributions to the Company's defined benefit pension plans. See Note 1315 — Employee Benefits in the Notes to the Consolidated Financial Statements forprovides additional information regarding the Company's defined benefit pension plans. |
In addition to the contractual cash commitments included in the above table, above, the Company has other payables and liabilities that may be legally enforceable but are not considered contractual commitments. Information regarding the Company's payables and liabilities is included in Note 45 — Accounts Payable and Accrued and Other Liabilities in the Notes to the Consolidated Financial Statements.
QUARTERLY FINANCIAL DATA
The following tables below present our quarterly operating results for the two-year period ended December 31:31, 2019.
| | | 2017 | | | | | | | | | |
| 2019 | | | | | | | | | |
| (In thousands, except per share data) | | First | | Second | | Third | | Fourth | | First | | Second | | Third | | Fourth |
| Revenues | | $ | 625,169 |
| | $ | 843,731 |
| | $ | 828,085 |
| | $ | 1,014,509 |
| | $ | 970,444 |
| | $ | 1,070,882 |
| | $ | 1,000,502 |
| | $ | 1,203,493 |
|
| Operating income (loss) | | 53,514 |
| | (98,388 | ) | | (24,349 | ) | | 62,894 |
| |
| Net income (loss) (1) | | 36,433 |
| | (92,281 | ) | | (48,180 | ) | | 107,307 |
| |
| Net income (loss) per share (1), (2): | | |
| | |
| | | | |
| |
| Operating income | | | 48,799 |
| | 116,002 |
| | 69,147 |
| | 136,139 |
|
| Net income (1) | | | 20,795 |
| | 103,406 |
| | 41,388 |
| | 67,701 |
|
| Net income per share (1), (2): | | | |
| | |
| | | | |
|
| Basic | | $ | 0.44 |
| | $ | (1.03 | ) | | $ | (0.53 | ) | | $ | 1.18 |
| | $ | 0.23 |
| | $ | 1.15 |
| | $ | 0.46 |
| | $ | 0.76 |
|
| Diluted | | $ | 0.43 |
| | $ | (1.03 | ) | | $ | (0.53 | ) | | $ | 1.16 |
| | $ | 0.23 |
| | $ | 1.13 |
| | $ | 0.46 |
| | $ | 0.75 |
|
| | | 2016 | | | | | | | | | |
| 2018 | | | | | | | | | |
| (In thousands, except per share data) | | First | | Second | | Third | | Fourth | | First | | Second | | Third | | Fourth |
| Revenues | | $ | 557,266 |
| | $ | 609,998 |
| | $ | 574,059 |
| | $ | 703,217 |
| | $ | 963,565 |
| | $ | 1,001,336 |
| | $ | 921,674 |
| | $ | 1,088,878 |
|
| Operating income | | 64,429 |
| | 83,299 |
| | 48,726 |
| | 108,687 |
| |
| Net income | | 44,987 |
| | 51,626 |
| | 30,484 |
| | 66,485 |
| |
| Net income per share (2) | | |
| | |
| | | | |
| |
| Operating income (loss) | | | (8,711 | ) | | 86,096 |
| | 52,724 |
| | 129,606 |
|
| Net income (loss) | | | (19,587 | ) | | 46,270 |
| | 11,753 |
| | 84,020 |
|
| Net income (loss) per share: | | | |
| | |
| | | | |
|
| Basic | | $ | 0.55 |
| | $ | 0.63 |
| | $ | 0.37 |
| | $ | 0.80 |
| | $ | (0.22 | ) | | $ | 0.51 |
| | $ | 0.13 |
| | $ | 0.93 |
|
| Diluted | | $ | 0.54 |
| | $ | 0.62 |
| | $ | 0.36 |
| | $ | 0.79 |
| | $ | (0.22 | ) | | $ | 0.50 |
| | $ | 0.13 |
| | $ | 0.92 |
|
| |
| (1) | In December 2017April 2019, we completed an intercompany sale of certain intellectual property and, as a result, the Company recorded a $59.6 million one-timenet tax benefit related to the Tax Cuts and Jobs Act of 2017.approximately $38.1 million. The tax benefit increased our net income and each of our basic and diluted net income per share for the fourthsecond quarter of 20172019 by approximately $0.66$0.42 per share and $0.65 per share, respectively. Seeshare. Note 1012 — Income Taxes in the Notes to the Consolidated Financial Statements forprovides additional information regarding the tax impact of the Tax Cuts and Jobs Actour intercompany sale of 2017.certain intellectual property. |
| |
| (2) | The aggregate of the four quarters’ basic and diluted earningsnet income per common share may not equal the reported full calendar year amounts due to the effects of share repurchases, dilutive equity compensation and rounding. |
RECENTLY ISSUED ACCOUNTING STANDARDS
The FASB has issued accounting standards that havehad not yet become effective as of December 31, 2019 and that may impact the Company’s consolidated financial statements or relatedits disclosures in future periods. Note 1 — Business and Significant Accounting Policies in the Notes to the Consolidated Financial Statements herein provides information regarding thesethose accounting standards.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
INTEREST RATE RISK
AtAs of December 31, 2017,2019, the Company had $3.3$2.2 billion in total debt principal outstanding. Note 6 — Debt in the Notes to Consolidated Financial Statements provides additional information regarding the Company's outstanding debt. debt obligations.
Approximately $2.5$1.4 billion of the Company's total debt outstanding as of December 31, 20172019 was based on a floating base rate of interest, which potentially exposes the Company to increases in interest rates. However, we partially reduce our overall exposure to changes in interest ratesrate increases through our interest rate swap contracts, which effectively convertsconvert the floating base interest raterates on a portion of these variable ratethe borrowings to fixed rates. Thus, we are only exposed to base interest rate risk on floating rate borrowings only in excess of any amounts that are not hedged. At December 31, 2017, we had unhedged2019, the Company was effectively fully hedged against the base interest rate risk on approximately $1.1 billion ofits floating rate borrowings. As an indication of our potential exposure to changes in interest rates, a hypothetical 25 basis point increase or decrease in interest rates could change our annual pre-tax interest expense by approximately $2.8 million.
FOREIGN CURRENCY RISK
For both years ended December 31, 2017 and 2016, 42%A significant portion of our revenues wereare typically derived from sales outside of the United States. 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. The reporting currency of our consolidated financial statements is the U.S. dollar. As the values
of the foreign currencies in which we operate fluctuate over time relative to the U.SU.S. dollar, the Company is exposed to both foreign currency translation and transaction risk.
Translation risk arises as our foreign currency assets and liabilities are translated into U.S. dollars sincebecause the functional currencies of our foreign operations are generally denominated in the local currency. Adjustments resulting from the translation of these assets and liabilities are deferred and recorded as a component of stockholders’ equity (deficit).equity. A measure of the potential impact of foreign currency translation can be determined through a sensitivity analysis of our cash and cash equivalents. At December 31, 2017,2019, we had $538.9$280.8 million of cash and cash equivalents, (excluding cash held-for-sale), with a substantial portion denominated in foreign currencies. If the exchange rates of the foreign currencies we hold all changed in comparison to the U.S. dollar by 10%, the amount of cash and cash equivalents we would have reported on December 31, 2017 would2019 could have increased or decreased by approximately $28.0$26.0 million. The translation of our foreign currency revenues and expenses historically has not had a material impact on our consolidated earnings sincebecause movements in and among the major currencies in which we operate tend to impact our revenues and expenses fairly equally. However, our earnings could be impacted during periods of significant exchange rate volatility, or when some or all of the major currencies in which we operate move in the same direction against the U.SU.S. dollar.
Transaction risk arises when our foreign subsidiarieswe enter into transactionsa transaction that areis denominated in a currency that may differ from the local functional currency. As these transactions are translated into the local functional currency, a gain or loss may result, which is recorded in current period earnings. We typically enter into foreign currency forward exchange contracts to mitigate the effects of some of this foreign currency transaction risk. Our outstanding foreign currency forward exchange contracts as of December 31, 20172019 had an immaterial net unrealized loss. gain.
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, accountsfees receivable, interest rate swap contracts and foreign currency forward exchange contracts. The majority of the Company’s cash and cash equivalents, interest rate swap contracts and its foreign currency forward exchange contracts are with large investment grade commercial banks. AccountsFees 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. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Our consolidated financial statements for 2017, 2016,2019, 2018 and 2015,2017, 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 ANDFINANCIAL DISCLOSURE.
None.
ITEM 9A. CONTROLS AND PROCEDURESPROCEDURES.
DISCLOSURE CONTROLS AND PROCEDURES
Management conducted an evaluation, as of December 31, 2017,2019, 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, as amended (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 ourthe Company's 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 Exchange Act.
MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Gartner management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Gartner’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions and that the degree of compliance with the policies or procedures may deteriorate. Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2017.2019. In making this assessment, management used the criteria set forth in the Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Management’s assessment was reviewed with the Audit Committee of the Board of Directors.
Based on its assessment of internal control over financial reporting, management has concluded that, as of December 31, 2017,2019, Gartner’s internal control over financial reporting was effective. The effectiveness of management’s internal control over financial reporting as of December 31, 20172019 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their report, which is included in this Annual Report on Form 10-K in Part IV, Item 15.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
The Company acquired two businesses in 2017, L2 and CEB. We are currentlyThere have been no changes in the process of integrating these businesses, evaluating their internal controls, and implementing the Company's internal control structure over these operations. Due to the timing of these acquisitions, we have excluded them from the scope of our Sarbanes-Oxley Section 404 report on internal control over financial reporting for our fiscal year ending December 31, 2017. This exclusion is in accordance with the general guidance issued by the Staff of the Securities and Exchange Commission that an assessment of a recent business acquisition may be omitted from management's report on internal control over financial reporting in the first year of consolidation. We expect to complete the implementation of our internal control structure over these acquisitions in 2018.
Other than the changes noted above, there has been no change in our internal control over financial reporting during the quarter ended December 31, 2017,2019 that hashave materially affected, or isare reasonably likely to materially affect, ourthe Company's internal control over financial reporting.
ITEM 9B. OTHER INFORMATIONINFORMATION.
Not applicable.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE GOVERNANCE.
The information required to be furnished pursuant to this item will be set forth under the captions “Proposal“The Board of Directors," "Proposal One: Election of Directors,” “Executive Officers,” “Corporate Governance,” “Section“Delinquent Section 16(a) Beneficial Ownership Reporting Compliance”Reports” (if necessary) and “Miscellaneous“Proxy and Voting Information — Available Information” in the Company’s Proxy Statement to be filed with the SEC no later than April 30, 2018.29, 2020. If the Proxy Statement is not filed with the SEC by April 30, 2018,29, 2020, such information will be included in an amendment to this Annual Report filed by April 30, 2018.29, 2020. 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”captions “Compensation Discussion & Analysis,” “Compensation Tables and Narrative Disclosures,” “The Board of Directors - Compensation of Directors,” “The Board of Directors - Director Compensation Table,” “Corporate Governance - Risk Oversight - Risk Assessment of Compensation Policies and Practices,” and “Corporate Governance - Compensation Committee” in the Company’s Proxy Statement to be filed with the SEC no later than April 30, 2018.29, 2020. If the Proxy Statement is not filed with the SEC by April 30, 2018,29, 2020, such information will be included in an amendment to this Annual Report filed by April 30, 2018. 29, 2020.
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 captioncaptions "Compensation Tables and Narrative Disclosures — Equity Compensation Plan Information" and “Security Ownership of Certain Beneficial Owners and Management” in the Company’s Proxy Statement to be filed with the SEC by April 30, 2018.29, 2020. If the Proxy Statement is not filed with the SEC by April 30, 2018,29, 2020, such information will be included in an amendment to this Annual Report filed by April 30, 2018. 29, 2020.
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 Company’s Proxy Statement to be filed with the SEC by April 30, 2018.29, 2020. If the Proxy Statement is not filed with the SEC by April 30, 2018,29, 2020, such information will be included in an amendment to this Annual Report filed by April 30, 2018. 29, 2020.
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”“Proposal Three: Ratification of Appointment of Independent Registered Public Accounting Firm” in the Company’s Proxy Statement to be filed with the SEC no later than April 30, 2018.29, 2020. If the Proxy Statement is not filed with the SEC by April 30, 2018,29, 2020, such information will be included in an amendment to this Annual Report filed by April 30, 2018.29, 2020.
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 |
| | Agreement and Plan of Merger by and among the Company, Cobra Acquisition Corp. and CEB Inc., dated as of January 5, 2017. |
| | | |
| | Restated Certificate of Incorporation of the Company. |
| | | |
| | Bylaws as amended through February 2, 2012.By-laws of Gartner, Inc. (January 30, 2020). |
| | | |
| | Form of Certificate for Common Stock as of June 2, 2005. |
| | | |
| | Credit Agreement, dated as of June 17, 2016, among the Company, the several lenders from time to time parties thereto, and JPMorgan Chase Bank, N.A. as administrative agent. |
| | | |
| | Guarantee and Collateral Agreement, dated as of June 17, 2016, among the Company and certain of its subsidiaries, in favor of JPMorgan Chase Bank, N.A. as administrative agent. |
| | | |
| | Commitment Letter among the Company, JPMorgan Chase Bank, N.A. and Goldman Sachs Bank USA, dated January 5, 2017. |
| | |
| | First Amendment to Credit Agreement, dated as of January 20, 2017, among the Company, the several lenders from time to time parties thereto, and JPMorgan Chase Bank, N.A. as administrative agent, filed as of January 24, 2017.
|
| | | |
| | Second Amendment, dated as of March 20, 2017, among the Company, each other Loan Party party thereto, the Lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent.
|
| | | |
| | Incremental Amendment, dated as of April 5, 2017, among the Company, each other Loan Party party thereto, the Lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent.
|
| | | |
| | 364-Day Bridge Credit Agreement, dated as of April 5, 2017, among the Company, each other Loan Party party thereto, the Lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent.
|
| | |
| | Indenture (including form of Notes), dated as of March 30, 2017, among the Company, the guarantors named therein and U.S. Bank National Association, as trustee, relating to the $800,000,000 aggregate principal amount of 5.125% Senior Notes due 2025.
|
| | | |
| | Description of Gartner, Inc.'s Common Stock. |
| | |
| | Amended and Restated Lease dated April 16, 2010 between Soundview Farms and the Company for premises at 56 Top Gallant Road, 70 Gatehouse Road, and 88 Gatehouse Road, Stamford, Connecticut. |
| | | |
| | First Amendment to Amended and Restated Lease dated April 16, 2010 between Soundview Farms and the Company for premises at 56 Top Gallant Road, 70 Gatehouse Road, and 88 Gatehouse Road, Stamford, Connecticut. |
| | | |
| | 2011 Employee Stock Purchase Plan. |
| | | |
| | 2003 Long -TermLong-Term Incentive Plan, as amended and restated effective June 4, 2009. |
| | | |
| | Gartner, Inc. Long-Term Incentive Plan, as amended and restated effective August 1, 2017.January 31, 2019. |
| | | |
| | Amended and Restated Employment Agreement between Eugene A. Hall and the Company dated as of March 19, 2016.February 14, 2019. |
| | | |
| | Company Deferred Compensation Plan, effective January 1, 2009. |
| | | |
| | Form of 2017 Stock Appreciation Right Agreement for executive officers. |
|
| | |
| | | |
| | Form of 2017 Performance Stock Unit Agreement for executive officers. |
| | | |
| | Form of 2017 Restricted Stock Unit Agreement for Certain Officers.certain officers. |
|
| | |
| | | |
| | SeparationForm of 2018 Stock Appreciation Right Agreement and Release of Claims, dated October 12, 2017, between the Company and Per Anders Waern.
for executive officers. |
| | | |
| | Form of 2018 Performance Stock Unit Agreement for executive officers. |
| | |
| | Form of 2019 Stock Appreciation Right Agreement for executive officers. |
| | |
| | Form of 2019 Performance Stock Unit Agreement for executive officers. |
| | |
| | Form of 2020 Stock Appreciation Right Agreement for executive officers. |
| | |
| | Form of 2020 Performance Stock Unit Agreement for executive officers. |
| | |
| | Form of Restricted Stock Unit Agreement for non-employee directors. |
| | |
| | Enhanced Executive Rewards Policy. |
| | |
| | Subsidiaries of Registrant. |
| | | |
| | Consent of Independent Registered Public Accounting Firm. |
| | | |
| | Power of Attorney (see Signature Page). |
| | | |
| | Certification of chief executive officer under Section 302 of the Sarbanes-Oxley Act of 2002. |
| | | |
| | Certification of chief financial officer under Section 302 of the Sarbanes-Oxley Act of 2002. |
| | | |
| | Certification under Section 906 of the Sarbanes-Oxley Act of 2002. |
| | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
| | |
| | XBRL Taxonomy Extension Schema Document. |
| | |
| | XBRL Taxonomy Extension Calculation Linkbase Document. |
| | |
| | XBRL Taxonomy Extension Label Linkbase Document. |
| | |
| | XBRL Taxonomy Extension Presentation Linkbase Document. |
| | |
| | XBRL Taxonomy Extension Definition Linkbase Document. |
| | |
| | Cover Page Interactive Data File, formatted in Inline XBRL (included as Exhibit 101). |
|
| |
| * | Filed with this document. |
| |
| + | Management compensation plan or arrangement. |
| |
| (1) | Incorporated by reference from the Company’s Current Report on Form 8-K filed on January 5, 2017. |
| |
| (2) | Incorporated by reference from the Company’s Current Report on Form 8-K filed on July 6, 2005. |
| |
| (3) | Incorporated by reference from the Company’s Current Report on Form 8-K filed on February 7,2012. |
| 5, 2020. |
| (4) | Incorporated by reference from the Company’s Quarterly Report on formForm 10-Q filed on August 4, 2016. |
| |
| (5) | Incorporated by reference from the Company’s Current Report on formForm 8-K filed on January 24, 2017. |
| |
| (6) | Incorporated by reference from the Company’s Current Report on formForm 8-K filed on March 21, 2017. |
| |
| (7) | Incorporated by reference from the Company’s Current Report on formForm 8-K filed on April 6, 2017. |
| |
| (8) | Incorporated by reference from the Company’s Current Report on formForm 8-K filed on March 30, 2017. |
| |
| (9) | Incorporated by reference from the Company’s Quarterly Report on formForm 10-Q filed on August 9, 2010. |
| |
| (10) | Incorporated by reference from the Company’s Proxy Statement (Schedule 14A) filed on April 18, 2011. |
| |
| (11) | Incorporated by reference from the Company’s Proxy Statement (Schedule 14A) filed on April 21, 2009 |
| |
| (12) | Incorporated by reference from the Company’s Current Report on form 8-K filed on August 2, 2017. |
| |
(13) | Incorporated by reference from the Company’s QuarterlyAnnual Report on Form 10-Q10-K filed on May 5, 2016.February 22, 2019. |
| |
(14)(13) | Incorporated by reference from the Company’s Annual Report on Form 10-K filed on February 20, 2009. |
| |
(15)(14) | Incorporated by reference from the Company’s Current Report on Form 8-K dated on February 7, 2017. |
| |
(16)(15) | Incorporated by reference from the Company’s Quarterly Report on Form 10-Q filed on November 2, 2017. |
| (16) | Incorporated by reference from the Company’s Quarterly Report on Form 10-Q filed on May 8, 2018. |
| (17) | Incorporated by reference from the Company’s Quarterly Report on Form 10-Q filed on August 1, 2018. |
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
GARTNER, INC. AND SUBSIDIARIES
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.
Report of Independent Registered Public Accounting Firm
To the stockholdersStockholders and boardBoard of directorsDirectors
Gartner, Inc.:
Opinion on the ConsolidatedFinancial Statements
We have audited the accompanying consolidated balance sheets of Gartner, Inc. and subsidiaries (the Company) as of December 31, 20172019 and 2016,2018, the related consolidated statements of operations, comprehensive income, stockholders’ equity, (deficit), and cash flows for each of the years in the three‑yearthree-year period ended December 31, 2017,2019, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20172019 and 2016,2018, and the results of its operations and its cash flows for each of the years in the three‑yearthree-year period ended December 31, 2017,2019, 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) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2017,2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission”,Commission, and our report dated February 22, 201819, 2020 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Change in Accounting Principle
As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for leases as of January 1, 2019 due to the adoption of ASU No. 2016-02, Leases.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgment. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Assessment of unrecognized tax benefits
As discussed in Notes 1 and 12 to the consolidated financial statements, the Company has recorded gross unrecognized tax benefits of $102.8 million as of December 31, 2019. The Company recognizes tax positions when it believes there is more than a 50 percent likelihood of such positions being sustained based on the technical merits of the position. Recognized tax positions are measured at the largest amount of benefit greater than 50 percent likely of being realized. The Company uses estimates and assumptions in determining the amount of unrecognized tax benefits associated with uncertain tax positions.
We identified the assessment of unrecognized tax benefits relating to transfer pricing and certain other intercompany transactions as a critical audit matter. Complex auditor judgment was required in evaluating the Company’s interpretation of tax law and its determination of the recognition and measurement of the tax benefits that are recognized. This included judgments about re-measuring liabilities for positions taken in prior years’ tax returns, in light of new information.
The primary procedures we performed to address this critical audit matter included the following. We tested certain internal controls over the Company’s unrecognized tax benefits process, including controls over assessing the tax implications of transfer pricing and certain other intercompany transactions. We involved tax and transfer pricing professionals with specialized skills and knowledge, who assisted in:
Evaluating the Company’s interpretation of tax laws and income tax consequences of intercompany transactions, including internal restructurings and intra-entity transfers of assets;
Assessing intercompany agreements and related transfer pricing studies for compliance with relevant tax laws and regulations;
Performing an independent assessment of the Company’s tax positions and determination of unrecognized tax benefits and comparing the results to the Company’s assessment; and
Inspecting settlement documents with applicable taxing authorities.
In addition, we assessed the Company’s ability to estimate its unrecognized tax benefits by comparing historical unrecognized tax benefits to actual results upon conclusion of tax audits by applicable taxing authorities.
/s/ KPMG LLP
We have served as the Company’s auditor since 1996.
New York, New York
February 22, 201819, 2020
Report of Independent Registered Public Accounting Firm
To the stockholdersStockholders and boardBoard of directorsDirectors
Gartner, Inc.:
Opinion on Internal Control Over Financial Reporting
We have audited Gartner, Inc. and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2017,2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2019, based on criteria established in Internal Control - Integrated Framework (2013) 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) (PCAOB), the consolidated balance sheets of the Company as of December 31, 20172019 and 2016,2018, the related consolidated statements of operations, comprehensive income, stockholders’ equity, (deficit), and cash flows for each of the years in the three-year period ended December 31, 2017,2019, and the related notes (collectively, the consolidated financial statements), and our report dated February 22, 201819, 2020 expressed an unqualified opinion on those consolidated financial statements.
The Company acquired L2, Inc. on March 9, 2017 and CEB, Inc. on April 5, 2017. Management excluded these businesses from its assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2017. L2, Inc. and CEB, Inc. represented approximately 12% and 16% of the Company’s total consolidated assets and total consolidated revenues, respectively, as of and for the year ended December 31, 2017. Our audit of internal control over financial reporting of Gartner, Inc. and subsidiaries also excluded an evaluation of the internal control over financial reporting of L2, Inc. and CEB, Inc.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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 of internal control over financial reporting 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.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ KPMG LLP
New York, New York
February 22, 201819, 2020
GARTNER, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
| | | | December 31, | December 31, |
| | 2017 | | 2016 | 2019 | | 2018 |
| ASSETS | |
| | |
| |
| | |
|
| Current assets: | |
| | |
| |
| | |
|
| Cash and cash equivalents | $ | 538,908 |
| | $ | 474,233 |
| $ | 280,836 |
| | $ | 156,368 |
|
| Fees receivable, net of allowances of $12,700 and $7,400 respectively | 1,176,843 |
| | 643,013 |
| |
| Fees receivable, net of allowances of $8,000 and $7,700, respectively | | 1,326,012 |
| | 1,255,118 |
|
| Deferred commissions | 205,260 |
| | 141,410 |
| 265,867 |
| | 235,016 |
|
| Prepaid expenses and other current assets | 124,632 |
| | 84,540 |
| 146,026 |
| | 165,237 |
|
| Assets held-for-sale | 542,965 |
| | — |
| |
| Total current assets | 2,588,608 |
| | 1,343,196 |
| 2,018,741 |
| | 1,811,739 |
|
| Property, equipment and leasehold improvements, net | 221,507 |
| | 121,606 |
| 344,579 |
| | 267,665 |
|
| Operating lease right-of-use assets | | 702,916 |
| | — |
|
| Goodwill | 2,987,294 |
| | 738,453 |
| 2,937,726 |
| | 2,923,136 |
|
| Intangible assets, net | 1,292,022 |
| | 76,801 |
| 925,087 |
| | 1,042,565 |
|
| Other assets | 193,742 |
| | 87,279 |
| 222,245 |
| | 156,369 |
|
| Total Assets | $ | 7,283,173 |
| | $ | 2,367,335 |
| $ | 7,151,294 |
| | $ | 6,201,474 |
|
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |
| | |
| |
| | |
|
| Current liabilities: | |
| | |
| |
| | |
|
| Accounts payable and accrued liabilities | $ | 666,821 |
| | $ | 440,771 |
| $ | 788,796 |
| | $ | 710,113 |
|
| Deferred revenues | 1,630,198 |
| | 989,478 |
| 1,928,020 |
| | 1,745,244 |
|
| Current portion of long-term debt | 379,721 |
| | 30,000 |
| 139,718 |
| | 165,578 |
|
| Liabilities held-for-sale | 145,845 |
| | — |
| |
| Total current liabilities | 2,822,585 |
| | 1,460,249 |
| 2,856,534 |
| | 2,620,935 |
|
| Long-term debt, net of deferred financing fees | 2,899,124 |
| | 664,391 |
| 2,043,888 |
| | 2,116,109 |
|
| Operating lease liabilities | | 832,533 |
| | — |
|
| Other liabilities | 577,999 |
| | 181,817 |
| 479,746 |
| | 613,673 |
|
| Total Liabilities | 6,299,708 |
| | 2,306,457 |
| 6,212,701 |
| | 5,350,717 |
|
| Stockholders’ Equity: | |
| | |
| |
| | |
|
| Preferred stock: | |
| | |
| |
| | |
|
| $.01 par value, authorized 5,000,000 shares; none issued or outstanding | — |
| | — |
| |
| $0.01 par value, authorized 5,000,000 shares; none issued or outstanding | | — |
| | — |
|
| Common stock: | |
| | |
| |
| | |
|
| $.0005 par value, authorized 250,000,000 shares for both periods; 163,602,067 shares issued at December 31, 2017 and 156,234,415 shares issued at December 31, 2016 | 82 |
| | 78 |
| |
| $0.0005 par value, 250,000,000 shares authorized; 163,602,067 shares issued for both periods | | 82 |
| | 82 |
|
| Additional paid-in capital | 1,761,383 |
| | 863,127 |
| 1,899,273 |
| | 1,823,710 |
|
| Accumulated other comprehensive income (loss), net | 1,508 |
| | (49,683 | ) | |
| Accumulated other comprehensive loss, net | | (77,938 | ) | | (39,867 | ) |
| Accumulated earnings | 1,647,284 |
| | 1,644,005 |
| 1,988,722 |
| | 1,755,432 |
|
| Treasury stock, at cost, 72,779,205 and 73,583,172 common shares, respectively | (2,426,792 | ) | | (2,396,649 | ) | |
| Treasury stock, at cost, 74,444,288 and 73,899,977 common shares, respectively | | (2,871,546 | ) | | (2,688,600 | ) |
| Total Stockholders’ Equity | 983,465 |
| | 60,878 |
| 938,593 |
| | 850,757 |
|
| Total Liabilities and Stockholders’ Equity | $ | 7,283,173 |
| | $ | 2,367,335 |
| $ | 7,151,294 |
| | $ | 6,201,474 |
|
See Notes to Consolidated Financial Statements.
GARTNER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
| | | | Year Ended December 31, | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 | 2019 | | 2018 | | 2017 |
| Revenues: | |
| | |
| | |
| |
| | |
| | |
|
| Research | $ | 2,471,280 |
| | $ | 1,857,001 |
| | $ | 1,614,904 |
| $ | 3,374,548 |
| | $ | 3,105,764 |
| | $ | 2,471,280 |
|
| Conferences | | 476,869 |
| | 410,461 |
| | 337,903 |
|
| Consulting | 327,661 |
| | 318,934 |
| | 296,317 |
| 393,904 |
| | 353,667 |
| | 327,661 |
|
| Events | 337,903 |
| | 268,605 |
| | 251,835 |
| |
| Talent Assessment & Other | 174,650 |
| | — |
| | — |
| |
| Other | | — |
| | 105,562 |
| | 174,650 |
|
| Total revenues | 3,311,494 |
| | 2,444,540 |
| | 2,163,056 |
| 4,245,321 |
| | 3,975,454 |
| | 3,311,494 |
|
| Costs and expenses: | |
| | |
| | |
| |
| | |
| | |
|
| Cost of services and product development | 1,320,198 |
| | 945,648 |
| | 839,076 |
| 1,550,568 |
| | 1,468,800 |
| | 1,320,198 |
|
| Selling, general and administrative | 1,599,004 |
| | 1,089,184 |
| | 962,677 |
| 2,103,424 |
| | 1,884,141 |
| | 1,599,004 |
|
| Depreciation | 63,897 |
| | 37,172 |
| | 33,789 |
| 82,066 |
| | 68,592 |
| | 63,897 |
|
| Amortization of intangibles | 176,274 |
| | 24,797 |
| | 13,342 |
| 129,713 |
| | 187,009 |
| | 176,274 |
|
| Acquisition and integration charges | 158,450 |
| | 42,598 |
| | 26,175 |
| 9,463 |
| | 107,197 |
| | 158,450 |
|
| Total costs and expenses | 3,317,823 |
| | 2,139,399 |
| | 1,875,059 |
| 3,875,234 |
| | 3,715,739 |
| | 3,317,823 |
|
| Operating (loss) income | (6,329 | ) | | 305,141 |
| | 287,997 |
| |
| Operating income (loss) | | 370,087 |
| | 259,715 |
| | (6,329 | ) |
| Interest income | 3,011 |
| | 2,449 |
| | 1,766 |
| 3,026 |
| | 2,566 |
| | 3,011 |
|
| Interest expense | (127,947 | ) | | (27,565 | ) | | (22,548 | ) | (102,831 | ) | | (126,774 | ) | | (127,947 | ) |
| (Loss) gain from divested operations | | (2,075 | ) | | 45,447 |
| | — |
|
| Other income, net | 3,448 |
| | 8,406 |
| | 4,996 |
| 7,532 |
| | 167 |
| | 3,448 |
|
| (Loss) income before income taxes | (127,817 | ) | | 288,431 |
| | 272,211 |
| |
| (Benefit) provision for income taxes | (131,096 | ) | | 94,849 |
| | 96,576 |
| |
| Income (loss) before income taxes | | 275,739 |
| | 181,121 |
| | (127,817 | ) |
| Provision (benefit) for income taxes | | 42,449 |
| | 58,665 |
| | (131,096 | ) |
| Net income | $ | 3,279 |
| | $ | 193,582 |
| | $ | 175,635 |
| $ | 233,290 |
| | $ | 122,456 |
| | $ | 3,279 |
|
| | | | | | | | | | | |
| Net income per share: | |
| | |
| | |
| |
| | |
| | |
|
| Basic | $ | 0.04 |
| | $ | 2.34 |
| | $ | 2.09 |
| $ | 2.60 |
| | $ | 1.35 |
| | $ | 0.04 |
|
| Diluted | $ | 0.04 |
| | $ | 2.31 |
| | $ | 2.06 |
| $ | 2.56 |
| | $ | 1.33 |
| | $ | 0.04 |
|
| Weighted average shares outstanding: | |
| | |
| | |
| |
| | |
| | |
|
| Basic | 88,466 |
| | 82,571 |
| | 83,852 |
| 89,817 |
| | 90,827 |
| | 88,466 |
|
| Diluted | 89,790 |
| | 83,820 |
| | 85,056 |
| 90,971 |
| | 92,122 |
| | 89,790 |
|
See Notes to Consolidated Financial Statements.
GARTNER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS)
| | | | Year Ended December 31, | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 | 2019 | | 2018 | | 2017 |
| Net income | $ | 3,279 |
| | $ | 193,582 |
| | $ | 175,635 |
| $ | 233,290 |
| | $ | 122,456 |
| | $ | 3,279 |
|
| Other comprehensive income (loss), net of tax | |
| | |
| | |
| |
| Other comprehensive (loss) income, net of tax: | | |
| | |
| | |
|
| Foreign currency translation adjustments | 47,363 |
| | (5,986 | ) | | (23,089 | ) | 4,169 |
| | (31,245 | ) | | 47,363 |
|
| Interest rate hedges - net change in deferred gain or loss | 3,892 |
| | 1,670 |
| | (1,339 | ) | |
| Interest rate swaps - net change in deferred gain or loss | | (39,394 | ) | | (10,844 | ) | | 3,892 |
|
| Pension plans - net change in deferred actuarial loss | (64 | ) | | (965 | ) | | 1,196 |
| (2,846 | ) | | 123 |
| | (64 | ) |
| Other comprehensive income (loss), net of tax | 51,191 |
| | (5,281 | ) | | (23,232 | ) | |
| Other comprehensive (loss) income, net of tax | | (38,071 | ) | | (41,966 | ) | | 51,191 |
|
| Comprehensive income | $ | 54,470 |
| | $ | 188,301 |
| | $ | 152,403 |
| $ | 195,219 |
| | $ | 80,490 |
| | $ | 54,470 |
|
See Notes to Consolidated Financial Statements.
GARTNER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(IN THOUSANDS)
| | | | Common Stock | | Additional Paid-In Capital | | Accumulated Other Comprehensive Income (Loss), Net | | Accumulated Earnings | | Treasury Stock | | Total Stockholders’ Equity (Deficit) | Common Stock | | Additional Paid-In Capital | | Accumulated Other Comprehensive (Loss) Income, Net | | Accumulated Earnings | | Treasury Stock | | Total Stockholders’ Equity |
| Balance at December 31, 2014 | $ | 78 |
| | $ | 764,433 |
| | $ | (21,170 | ) | | $ | 1,275,049 |
| | $ | (1,857,219 | ) | | $ | 161,171 |
| |
| Balance at December 31, 2016 | | $ | 78 |
| | $ | 863,127 |
| | $ | (49,683 | ) | | $ | 1,644,005 |
| | $ | (2,396,649 | ) | | $ | 60,878 |
|
| Net income | — |
| | — |
| | — |
| | 175,635 |
| | — |
| | 175,635 |
| — |
| | — |
| | — |
| | 3,279 |
| | — |
| | 3,279 |
|
| Other comprehensive loss | — |
| | — |
| | (23,232 | ) | | — |
| | — |
| | (23,232 | ) | |
| Issuances under stock plans | — |
| | (5,964 | ) | | — |
| | — |
| | 13,495 |
| | 7,531 |
| |
| Stock compensation tax benefits | — |
| | 13,928 |
| | — |
| | — |
| | — |
| | 13,928 |
| |
| Other comprehensive income | | — |
| | — |
| | 51,191 |
| | — |
| | — |
| | 51,191 |
|
| Issuances under stock plans and for an acquisition | | 4 |
| | 819,313 |
| | — |
| | — |
| | 11,129 |
| | 830,446 |
|
| Common share repurchases | — |
| | — |
| | — |
| | — |
| | (513,582 | ) | | (513,582 | ) | — |
| | — |
| | — |
| | — |
| | (41,272 | ) | | (41,272 | ) |
| Stock compensation expense | — |
| | 46,149 |
| | — |
| | — |
| | — |
| | 46,149 |
| |
| Balance at December 31, 2015 | $ | 78 |
| | $ | 818,546 |
| | $ | (44,402 | ) | | $ | 1,450,684 |
| | $ | (2,357,306 | ) | | $ | (132,400 | ) | |
| Adoption of ASU No. 2016-09 | — |
| | — |
| | — |
| | (261 | ) | | — |
| | (261 | ) | |
| Stock-based compensation expense | | — |
| | 78,943 |
| | — |
| | — |
| | — |
| | 78,943 |
|
| Balance at December 31, 2017 | | 82 |
| | 1,761,383 |
| | 1,508 |
| | 1,647,284 |
| | (2,426,792 | ) | | 983,465 |
|
| Adoption of ASU No. 2018-02 | | — |
| | — |
| | 591 |
| | (591 | ) | | — |
| | — |
|
| Adoption of ASU No. 2016-16 | | — |
| | — |
| | — |
| | (13,717 | ) | | — |
| | (13,717 | ) |
| Net income | — |
| | — |
| | — |
| | 193,582 |
| | — |
| | 193,582 |
| — |
| | — |
| | — |
| �� | 122,456 |
| | — |
| | 122,456 |
|
| Other comprehensive loss | — |
| | — |
| | (5,281 | ) | | — |
| | — |
| | (5,281 | ) | — |
| | — |
| | (41,966 | ) | | — |
| | — |
| | (41,966 | ) |
| Issuances under stock plans | — |
| | (2,080 | ) | | — |
| | — |
| | 12,419 |
| | 10,339 |
| — |
| | (3,845 | ) | | — |
| | — |
| | 14,026 |
| | 10,181 |
|
| Common share repurchases | — |
| | — |
| | — |
| | — |
| | (51,762 | ) | | (51,762 | ) | — |
| | — |
| | — |
| | — |
| | (275,834 | ) | | (275,834 | ) |
| Stock compensation expense | — |
| | 46,661 |
| | — |
| | — |
| | — |
| | 46,661 |
| |
| Balance at December 31, 2016 | $ | 78 |
| | $ | 863,127 |
| | $ | (49,683 | ) | | $ | 1,644,005 |
| | $ | (2,396,649 | ) | | $ | 60,878 |
| |
| Stock-based compensation expense | | — |
| | 66,172 |
| | — |
| | — |
| | — |
| | 66,172 |
|
| Balance at December 31, 2018 | | 82 |
| | 1,823,710 |
| | (39,867 | ) | | 1,755,432 |
| | (2,688,600 | ) | | 850,757 |
|
| Net income | — |
| | — |
| | — |
| | 3,279 |
| | — |
| | 3,279 |
| — |
| | — |
| | — |
| | 233,290 |
| | — |
| | 233,290 |
|
| Other comprehensive income | — |
| | — |
| | 51,191 |
| | — |
| | — |
| | 51,191 |
| |
| Issuances under stock plans and for acquisition | 4 |
| | 819,313 |
| | — |
| | — |
| | 11,129 |
| | 830,446 |
| |
| Other comprehensive loss | | — |
| | — |
| | (38,071 | ) | | — |
| | — |
| | (38,071 | ) |
| Issuances under stock plans | | — |
| | 6,555 |
| | — |
| | — |
| | 11,094 |
| | 17,649 |
|
| Common share repurchases | — |
| | — |
| | — |
| | — |
| | (41,272 | ) | | (41,272 | ) | — |
| | — |
| | — |
| | — |
| | (194,040 | ) | | (194,040 | ) |
| Stock compensation expense | — |
| | 78,943 |
| | — |
| | — |
| | — |
| | 78,943 |
| |
| Balance at December 31, 2017 | $ | 82 |
| | $ | 1,761,383 |
| | $ | 1,508 |
| | $ | 1,647,284 |
| | $ | (2,426,792 | ) | | $ | 983,465 |
| |
| Stock-based compensation expense | | — |
| | 69,008 |
| | — |
| | — |
| | — |
| | 69,008 |
|
| Balance at December 31, 2019 | | $ | 82 |
| | $ | 1,899,273 |
| | $ | (77,938 | ) | | $ | 1,988,722 |
| | $ | (2,871,546 | ) | | $ | 938,593 |
|
See Notes to Consolidated Financial Statements.
GARTNER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2019 | | 2018 | | 2017 |
| Operating activities: | |
| | |
| | |
|
| Net income | $ | 233,290 |
| | $ | 122,456 |
| | $ | 3,279 |
|
| Adjustments to reconcile net income to net cash provided by operating activities: | |
| | |
| | |
|
| Depreciation and amortization | 211,779 |
| | 255,601 |
| | 240,171 |
|
| Stock-based compensation expense | 69,008 |
| | 66,172 |
| | 78,943 |
|
| Deferred taxes | (55,787 | ) | | 1,524 |
| | (217,414 | ) |
| Loss (gain) from divested operations | 2,075 |
| | (45,447 | ) | | — |
|
| Gain on sale of an equity security | (9,120 | ) | | — |
| | — |
|
| Reduction in the carrying amount of operating lease right-of-use assets | 86,466 |
| | — |
| | — |
|
| Amortization and write-off of deferred financing fees | 6,497 |
| | 13,815 |
| | 15,062 |
|
| Changes in assets and liabilities, net of acquisitions and divestitures: | |
| | |
| | |
|
| Fees receivable, net | (66,729 | ) | | (115,003 | ) | | (368,516 | ) |
| Deferred commissions | (30,315 | ) | | (31,247 | ) | | (61,393 | ) |
| Prepaid expenses and other current assets | 18,985 |
| | (50,551 | ) | | 13,251 |
|
| Other assets | (27,303 | ) | | 11,456 |
| | (18,529 | ) |
| Deferred revenues | 181,203 |
| | 187,147 |
| | 382,852 |
|
| Accounts payable and accrued and other liabilities | (54,613 | ) | | 55,235 |
| | 186,811 |
|
| Cash provided by operating activities | 565,436 |
| | 471,158 |
| | 254,517 |
|
| Investing activities: | |
| | |
| | |
|
| Additions to property, equipment and leasehold improvements | (149,016 | ) | | (126,873 | ) | | (110,765 | ) |
| Acquisitions - cash paid (net of cash acquired) | (25,989 | ) | | (15,855 | ) | | (2,641,780 | ) |
| Divestitures - cash received (net of cash transferred) | — |
| | 526,779 |
| | — |
|
| Proceeds from the sale of an equity security | 14,120 |
| | — |
| | — |
|
| Cash (used in) provided by investing activities | (160,885 | ) | | 384,051 |
| | (2,752,545 | ) |
| Financing activities: | |
| | |
| | |
|
| Proceeds from employee stock purchase plan | 17,629 |
| | 14,689 |
| | 11,711 |
|
| Proceeds from borrowings | 5,000 |
| | — |
| | 3,025,000 |
|
| Payments for deferred financing fees | — |
| | — |
| | (51,171 | ) |
| Payments on borrowings | (109,579 | ) | | (1,010,972 | ) | | (404,438 | ) |
| Purchases of treasury stock | (199,042 | ) | | (260,832 | ) | | (41,272 | ) |
| Cash (used in) provided by financing activities | (285,992 | ) | | (1,257,115 | ) | | 2,539,830 |
|
| Net increase (decrease) in cash and cash equivalents and restricted cash | 118,559 |
| | (401,906 | ) | | 41,802 |
|
| Effects of exchange rates on cash and cash equivalents and restricted cash | 3,614 |
| | (6,489 | ) | | 25,902 |
|
| Cash and cash equivalents and restricted cash, beginning of year | 158,663 |
| | 567,058 |
| | 499,354 |
|
| Cash and cash equivalents and restricted cash, end of year | $ | 280,836 |
| | $ | 158,663 |
| | $ | 567,058 |
|
| | | | | | |
| Supplemental disclosures of cash flow information: | |
| | |
| | |
|
| Cash paid during the year for: | |
| | |
| | |
|
| Interest | $ | 102,298 |
| | $ | 117,500 |
| | $ | 98,500 |
|
| Income taxes, net of refunds received | $ | 119,156 |
| | $ | 95,800 |
| | $ | 76,100 |
|
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| Operating activities: | |
| | |
| | |
|
| Net income | $ | 3,279 |
| | $ | 193,582 |
| | $ | 175,635 |
|
| Adjustments to reconcile net income to net cash provided by operating activities: | |
| | |
| | |
|
| Depreciation and amortization | 240,171 |
| | 61,969 |
| | 47,131 |
|
| Stock-based compensation expense | 78,943 |
| | 46,661 |
| | 46,149 |
|
| Excess tax benefits from stock-based compensation exercises | — |
| | — |
| | (13,860 | ) |
| Deferred taxes | (217,414 | ) | | (2,648 | ) | | 344 |
|
| Gain on extinguishment of debt | — |
| | (2,500 | ) | | — |
|
| Amortization and write-off of deferred financing fees | 15,062 |
| | 3,082 |
| | 1,512 |
|
| Changes in assets and liabilities, net of acquisitions: | |
| | |
| | |
|
| Fees receivable, net | (368,516 | ) | | (68,661 | ) | | (44,476 | ) |
| Deferred commissions | (61,393 | ) | | (18,673 | ) | | (13,236 | ) |
| Prepaid expenses and other current assets | 13,251 |
| | (21,604 | ) | | (13,268 | ) |
| Other assets | (18,529 | ) | | 20,005 |
| | (14,733 | ) |
| Deferred revenues | 382,852 |
| | 97,979 |
| | 91,840 |
|
| Accounts payable, accrued, and other liabilities | 186,811 |
| | 56,440 |
| | 82,523 |
|
| Cash provided by operating activities | 254,517 |
| | 365,632 |
| | 345,561 |
|
| Investing activities: | |
| | |
| | |
|
| Additions to property, equipment and leasehold improvements | (110,765 | ) | | (49,863 | ) | | (46,128 | ) |
| Acquisitions - cash paid (net of cash acquired) | (2,634,809 | ) | | (34,186 | ) | | (196,229 | ) |
| Cash used in investing activities | (2,745,574 | ) | | (84,049 | ) | | (242,357 | ) |
| Financing activities: | |
| | |
| | |
|
| Proceeds from employee stock purchase plan | 11,711 |
| | 9,250 |
| | 7,499 |
|
| Proceeds from borrowings | 3,025,000 |
| | 715,000 |
| | 440,000 |
|
| Payments for deferred financing fees | (51,171 | ) | | (4,975 | ) | | — |
|
| Payments on borrowings | (404,438 | ) | | (835,000 | ) | | (20,000 | ) |
| Purchases of treasury stock | (41,272 | ) | | (58,961 | ) | | (509,049 | ) |
| Excess tax benefits from stock-based compensation exercises | — |
| | — |
| | 13,860 |
|
| Cash provided by (used in) financing activities | 2,539,830 |
| | (174,686 | ) | | (67,690 | ) |
| Net increase in cash and cash equivalents | 48,773 |
| | 106,897 |
| | 35,514 |
|
| Effects of exchange rates on cash and cash equivalents | 25,902 |
| | (5,640 | ) | | (27,840 | ) |
| Cash and cash equivalents, beginning of period | 474,233 |
| | 372,976 |
| | 365,302 |
|
| Cash and cash equivalents, end of period | $ | 548,908 |
| | $ | 474,233 |
| | $ | 372,976 |
|
| | | | | | |
| Supplemental disclosures of cash flow information: | |
| | |
| | |
|
| Cash paid during the period for: | |
| | |
| | |
|
| Interest | $ | 98,500 |
| | $ | 23,400 |
| | $ | 21,200 |
|
| Income taxes, net of refunds received | $ | 76,100 |
| | $ | 86,300 |
| | $ | 83,500 |
|
See Notes to Consolidated Financial Statements.
GARTNER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 — BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Business. Gartner, Inc. (NYSE:IT) is the world’s leading research and advisory company and a member of the S&P 500. We equip business leaders with indispensable insights, advice and tools to achieve their mission-critical priorities today and build the successful organizations of tomorrow. We believe we have anour unmatched combination of expert-led, practitioner-sourced and data-driven research that steers clients toward the right decisions on the issues that matter most. We’reWe are a trusted asadvisor and an objective resource and critical partner byfor more than 12,000 organizations15,000 enterprises in more than 100 countries — across all major functions, in every industry and enterprise size. To learn more about how we help decision makers fuel
Segments. Gartner delivers its products and services globally through 3 business segments: Research, Conferences and Consulting. Note 9 — Revenue and Related Matters and Note 16 — Segment Information describe the futureproducts and services offered by each of our segments and provide additional financial information for those segments.
During 2018, the Company divested all of the non-core businesses that comprised its Other segment and moved a small residual product from the Other segment into the Research business visit gartner.com.and, as a result, no operating activity has been recorded in the Other segment in 2019. Note 2 — Acquisitions and Divestitures provides additional information regarding the Company's 2018 divestitures.
Basis of presentation. The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”), as defined in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 270, for financial information and with the applicable instructions of U.S. Securities &and Exchange Commission (“SEC”) Regulation S-X.
The fiscal year of Gartner is the twelve-month period from January 1 through December 31. All references to 2017, 20162019, 2018 and 20152017 herein refer to the fiscal year unless otherwise indicated.
Gartner delivers its principal products and services globally through four business segments: Research, Consulting, Events and Talent Assessment & Other. The Company acquired two businesses during 2017, L2, Inc. ("L2") and CEB Inc. ("CEB"). Note 2 — Acquisitions and Divestiture provides additional information regarding these acquisitions. When used in these notes, the terms “Gartner,” the “Company,” “we,” “us,”“us” or “our” refer to Gartner, Inc. and its consolidated subsidiaries.
Principles of consolidation. The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated.
Use of estimates. The preparation of the accompanying consolidated financial statements requires management to make estimates and assumptions about future events. These estimates and the underlying assumptions affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities, and reported amounts of revenues and expenses. Such estimates include the valuation of fees 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 or benefit, performance-based compensation charges, depreciation and amortization. Management believes its use of estimates in the accompanying consolidated financial statements to be reasonable.
Management continually evaluates and revises its estimates using historical experience and other factors, including the general economic environment and actions it may take in the future. Management adjusts these 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 management’s best judgment at a point in time. As a result, differences between our estimates and actual results could be material and would be reflected in the Company’s consolidated financial statements in future periods.
Business Acquisitions. The Company completed acquisitions in each of the three years ended December 31, 2017 and detailed information related to these acquisitions is included in Note 2 — Acquisitions and Divestiture. acquisitions. The Company accounts for business acquisitions in accordance with the acquisition method of accounting as prescribed by FASB ASC Topic No. 805, Business Combinations.Combinations. The acquisition method of accounting requires the Company to record the net assets acquired and liabilities acquiredassumed based on their estimated fair values as of the acquisition date, with anycertain exceptions. Any excess of the consideration transferred over the estimated fair value of the net assets acquired, including identifiable intangible assets, to beis recorded toas goodwill. Under the acquisition method, the operating results of acquired companies are included in the Company's consolidated financial statements beginning on the date of acquisition. The Company completed business acquisitions in both 2019 and 2017. Note 2 — Acquisitions and Divestitures provides additional information regarding those business acquisitions.
The determination of the fair values of intangible and other assets acquired in acquisitionsan acquisition requires management judgment and the consideration of a number of factors, significant among themincluding the historical financial performance of the acquired businesses and their projected future performance, and estimates surrounding customer turnover, as well as assumptions regarding the level of competition and
the costcosts necessary to reproduce certain assets. Establishing the useful lives of the intangiblesintangible assets also requires management judgment and the evaluation of a number of factors, among them projected cash flowsincluding the expected use of an asset, historical client retention rates, consumer awareness and the likelihood of competition.trade name history, as well as any contractual provisions that could limit or extend an asset's useful life.
The Company classifies chargesCharges that are directly-relateddirectly related to itsthe Company's acquisitions in the lineare expensed as incurred and classified as Acquisition and integration charges in the Consolidated Statements of Operations. The Company recorded $158.5 million, $42.6 millionNote 2 — Acquisitions and $26.2 million of such charges in 2017, 2016Divestitures provides additional information regarding the Company's Acquisition and 2015, respectively. Included in these directly-related and incremental charges are legal, consulting, retention,integration charges.
severance, and accruals for cash payments subject to the continuing employment of certain key employees of the acquired companies.
Revenue Recognition. Revenue is recognized in accordance with U.S. GAAP and SEC Staff Accounting Bulletin No. 104, Revenue Recognition (“SAB 104”). Revenues are only recognized once all required criteria for recognition have been met. The accompanying Consolidated Statements of Operations present revenues net of any sales or value-added taxes that we collect from customers and remit to government authorities.
recognition.On January 1, 2018, the Company adopted FASB Accounting Standards Update ("ASU") No. 2014-09, "Revenue from Contracts with Customers" ("ASU (as amended, "ASU No. 2014-09") which requires changes in revenue recognition policies as well as enhanced disclosures. Theusing the modified retrospective method of adoption. Under that approach, the cumulative effect of applying the new accounting standard is recorded on the date of initial application, with no restatement of the comparative prior periods presented. Although the adoption of ASU No. 2014-09 did not have a material impact on the Company’s consolidated financial statements. Additionalstatements, implementation of the new accounting standard resulted in changes in our revenue recognition policies and enhanced footnote disclosures. Note 9 — Revenue and Related Matters (i) provides information regarding the Company'sour adoption of ASU No. 2014-09 is provided below inand its impact on the section titled Accounting standards issued but not yet adopted.
The Company’s revenuesCompany's consolidated financial statements and (ii) includes the new enhanced disclosures required by significant source are as follows:
Research
Research revenues are mainly derived from subscription contracts for research products. The related revenues are deferred and recognized ratably over the applicable contract term. Fees derived from assisting organizations in selecting the right business software for their needs are recognized as earned when the leads are providedASU No. 2014-09. Prior to vendors.
The Company typically enters into subscription contracts for research products for twelve-month periods or longer. The majority of research contracts are billable upon signing, absent special terms granted on a limited basis from time to time. Research contracts are non-cancelable and non-refundable, except for government contracts that may have cancellation or fiscal funding clauses, which historically have not produced material cancellations. It is our policy to record the 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.
Consulting
Consulting revenues, primarily derived from custom consulting and measurement services, are principally generated from fixed fee or time and materials engagements. Revenues from fixed fee engagements are recognized on a proportional performance basis, while revenues from time and material engagements are recognized as work is delivered and/or services are provided. Revenues related to contract optimization engagements are contingent in nature and are only recognized upon satisfaction of all conditions related to their payment. Unbilled fees receivable associated with consulting engagements were $66.2 million at December 31, 2017 and $45.7 million at December 31, 2016.
Events
Events revenues are deferred and recognized upon the completion of the related symposium, conference or exhibition. In addition,January 1, 2018, the Company defers certain costs directly related to eventsrecognized revenue in accordance with then-existing U.S. GAAP and expenses these costs in the period during which the related symposium, conference or exhibition occurs. The Company's 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 the expected direct costs of producing a scheduled event will exceed the expected revenues. If such costs are expected to exceed revenues, the Company records the expected loss in the period determined.SEC Staff Accounting Bulletin No. 104, Revenue Recognition.
Talent Assessment & Other
Talent Assessment & Other revenues arising from knowledge and skill assessment services are recognized depending on the nature of the underlying contract: (i) ratably over the term of the service period; (ii) upon delivery; or (iii) on a proportional performance basis. Revenues from training programs and survey and questionnaire products are primarily recognized upon delivery of the service.
Allowance for losses.The Company maintains an allowance for losses whichthat provides for estimated uncollectible fees receivable due to credit and other associated risks. The allowance for losses is composedclassified as an offset to the gross amount of a bad debt allowance and a sales reserve.fees receivable. Provisions are charged against earnings, either as a reduction in revenues or an increase to expense. The determination
of the allowance for losses due to credit and other associated risks are recorded as bad debt expense.
The allowance for losses for bad debts is based on historical loss experience, an assessment of current economic conditions, the aging of outstanding receivables, the financial health of specific clients and probable losses. This evaluation is inherently judgmental and requires the use of estimates. The allowance for losses for bad debts is periodically re-evaluated and adjusted as more information about the ultimate collectability of fees receivable becomes available. Circumstances that could cause such allowance for losses 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.
Cost of services and product development (“COS”). COS expense includes the direct costs incurred in the creation and delivery of our products and services. These costs primarily relate to personnel.
Selling, general and administrative (“SG&A”). SG&A expense includes direct and indirect selling costs, general and administrative costs, facility costs and charges against earnings related to uncollectible accounts.bad debt expense.
Commission expense. The Company records deferred commissions upon the signing ofa customer contractscontract and amortizes the deferred amount as commission expense over a period that aligns with the period intransfer to the customer of the services to which the related revenues are earned. Commission expense is included in SG&A incommissions relate. Note 9 — Revenue and Related Matters provides additional information regarding deferred commissions and the Consolidated Statementsamortization of Operations.such costs.
Stock-based compensation expense. The Company accounts for stock-based compensation awards in accordance with FASB ASC Topics 505 and 718 and SEC Staff Accounting Bulletins No. 107 and No. 110. Stock-based compensation expense for equity awards is based on the fair value of the award on the date of grant. The Company recognizes stock-based compensation expense over the period that the related service is performed, which is generally the same as the vesting period of the underlying award. During 2017, 2016 and 2015, the CompanyForfeitures are recognized $78.9 million, $46.7 million and $46.1 million, respectively, of stock-based compensation expense.
Effective January 1, 2016, the Company adopted FASB ASU No. 2016-09, "Improvements to Employee Share-Based Payment Accounting" ("ASU No. 2016-09"). ASU No. 2016-09 mandated certain changes in accounting for stock-based compensation, including a requirement that excess tax benefits or deficiencies resulting from stock-based compensation awards be recognized in income tax expense or benefit subsequent to the date of adopting the new accounting standard. Previously, an entity’s excess tax benefits or deficiencies were recorded in additional paid-in capital. ASU No. 2016-09 also requires that excess tax benefits related to stock-based compensation awards be reported as an operating activity in an entity’s statement of cash flows. Previously, excess tax benefits were reported as financing activities. As permitted by ASU No. 2016-09, the Company elected to apply these changes prospectively, commencing on January 1, 2016. The provisions of ASU No. 2016-09 had no impact on our financial results for periods prior to 2016. If the Company had applied ASU No. 2016-09 to 2015: (i) income tax expense would have declined by $13.9 million; (ii) basic and diluted income per share would have increased by $0.17 and $0.16, respectively; and (iii) cash provided by operating activities would have increased by $13.9 million.
ASU No. 2016-09 also permits companies to make an entity-wide accounting policy election to recognize forfeitures of share-based compensation awards as they occur or make an estimate by applying a forfeiture rate each quarter. The Company previously estimated forfeitures but optionally elected to change its accounting policy and account for forfeitures as they occur. ASU No. 2016-09 requires this change in accounting policy to be applied using a cumulative effect adjustment to accumulated earnings as ofNote 10 — Stock-Based Compensation provides additional information regarding the beginning of the period in which the rule is adopted. Accordingly,Company's stock-based compensation activity.
Other income, net. During 2019, the Company sold a minority equity investment for $14.1 million in cash and recognized a pretax gain of $9.1 million that was recorded a $0.3 million decrease to its opening accumulated earnings effective January 1, 2016.in Other income, net in the Consolidated Statements of Operations.
Income taxes. The Company uses the asset and liability method of accounting for income taxes. We estimate our income taxes in each of the jurisdictions where we operate. This process involves estimating our current tax expense or benefit 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 withinin our consolidated balance sheets. InWhen assessing the realizability of deferred tax assets, management considerswe consider if it is more likely than not that some or all of the deferred tax assets will not be realized. WeIn making this assessment, we consider the availability of loss carryforwards, projected reversalreversals of deferred tax liabilities, projected future taxable income, and ongoing prudent and feasible tax planning strategies in making this assessment.strategies. The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained based on the technical merits of the position. Recognized tax positions are measured at the largest amount of benefit with greater than a 50% likelihood of being realized. The Company uses estimates in determining the amount of unrecognized tax benefits associated with uncertain tax
positions. Significant judgment is required in evaluating tax law and measuring the benefits likely to be realized. Uncertain tax positions are periodically re-evaluated and adjusted as more information about their ultimate realization becomes available. Note 12 — Income Taxes provides additional information regarding the Company's income taxes.
On April 1, 2018, the Company early adopted ASU No. 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income ("ASU No. 2018-02"). ASU No. 2018-02 provides an entity with the option to reclassify to retained earnings the tax effects from items that have been stranded in accumulated other comprehensive income as a result of the U.S. Tax Cuts and Jobs Act of 2017 (the “Act”). Gartner elected to early adopt ASU No. 2018-02 as of the beginning of the second quarter of 2018, which resulted in a reclassification of $0.6 million of stranded tax amounts related to the Act from Accumulated other comprehensive (loss) income, net to Accumulated earnings. ASU No. 2018-02 had no impact on the Company's operating results in 2019 or 2018.
On January 1, 2018, the Company adopted ASU No. 2016-16, Intra-Entity Transfers of Assets Other Than Inventory ("ASU No. 2016-16"). ASU No. 2016-16 accelerates the recognition of taxes on certain intra-entity transactions. U.S. GAAP previously required deferral of the income tax implications of an intercompany sale of assets until the assets were sold to a third party or recovered through use. Under ASU No. 2016-16, a seller’s tax effects and a buyer’s deferred taxes on asset transfers are immediately recognized upon a sale. Pursuant to the transition rules in ASU No. 2016-16, any taxes attributable to pre-2018 intra-entity transfers that were previously deferred should be accelerated and recorded to accumulated earnings on the date of adoption. As a result, certain of the Company's balance sheet income tax accounts pertaining to pre-2018 intra-entity transfers, which aggregated $13.7 million, were reversed against accumulated earnings on January 1, 2018. Additionally, in accordance with the new requirements of ASU No. 2016-16, the Company recorded income tax benefits of approximately (i) $38.1 million in 2019 from an intercompany sale of certain intellectual property and (ii) $6.8 million in 2018 related to intra-entity transfers upon the merger of certain foreign subsidiaries. In the future, there could be a material impact from ASU No. 2016-16, depending on the nature, size and tax consequences of intra-entity transfers, if any.
Cash and cash equivalents. Includesequivalents and restricted cash. Cash and cash equivalents includes cash and all highly liquid investments with original maturities of three months or less, which are considered to be cash equivalents. The carrying value of cash equivalents approximates fair value due to theirthe short-term maturity.maturity of such instruments. Investments with maturities of more than three months are classified as marketable securities. Interest earned is classifiedrecorded in Interest income in the Consolidated Statements of Operations. As of December 31, 2017, the Company had $538.9 million of
U.S. GAAP requires that amounts generally described as restricted cash and restricted cash equivalents be presented with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts presented on an additional $10.0 millionentity's statement of cash classified as held-for-sale in itsflows. Below is a table presenting the beginning-of-period and end-of-period cash amounts from the Company's Consolidated Balance Sheet, for aSheets and the total cash balance of $548.9 million, which was reported as the ending cash balanceamounts presented in the Consolidated StatementStatements of Cash Flows.Flows (in thousands).
|
| | | | | | | | | | | | | | | | |
| | | December 31, |
| | | 2019 | | 2018 | | 2017 | | 2016 |
| Cash and cash equivalents | | $ | 280,836 |
| | $ | 156,368 |
| | $ | 538,908 |
| | $ | 474,233 |
|
| Restricted cash classified in (1), (2): | | | | | | | | |
| Prepaid expenses and other current assets | | — |
| | 2,295 |
| | 15,148 |
| | 25,121 |
|
| Other assets | | — |
| | — |
| | 3,002 |
| | — |
|
| Cash classified as held-for-sale (3) | | — |
| | — |
| | 10,000 |
| | — |
|
| Cash and cash equivalents and restricted cash per the Consolidated Statements of Cash Flows | | $ | 280,836 |
| | $ | 158,663 |
| | $ | 567,058 |
| | $ | 499,354 |
|
| |
| (1) | Restricted cash consists of escrow accounts established in connection with certain of the Company's business acquisitions. Generally, such cash is restricted to use due to provisions contained in the underlying stock or asset purchase agreement. The Company will disburse the restricted cash to the sellers of the businesses upon satisfaction of any contingencies described in such agreements (e.g., potential indemnification claims, etc.). |
| |
| (2) | Restricted cash is recorded in Prepaid expenses and other current assets and Other assets in the Company's consolidated balance sheets with the short-term or long-term classification dependent on the projected timing of disbursements to the sellers. |
| |
| (3) | Represents cash classified as a held-for-sale asset for the CEB Talent Assessment business, which was divested in 2018. Note 2 — Acquisitions and Divestitures provides additional information regarding the Company's 2018 divestitures. |
Leases. On January 1, 2019, the Company adopted ASU No. 2016-02, Leases. Prior to January 1, 2019, the Company recognized lease expense in accordance with then-existing U.S. GAAP under FASB ASC Topic 840, Leases. Information regarding the
Company's lease accounting, including our adoption of the new accounting standard, is provided below under the heading "Adoption of new accounting standards" and at Note 7 — Leases.
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 increases, rent concessions, and landlord incentives, are recognized ratably over the life of the related lease agreement. Lease expense was $87.9 million, $38.0 million, and $33.8 million in 2017, 2016 and 2015, respectively.
Equipment, leasehold improvements and other fixed assets owned by the Company are recorded at cost less accumulated depreciation. Except fordepreciation and amortization. Fixed assets, other than leasehold improvements, these fixed assets are depreciated using the straight-line method over the estimated useful liveslife of the assets.underlying asset. Leasehold improvements are amortized using the straight-line method over the shorter of the estimated useful liveslife of the improvement or the remaining term of the related lease. The Company had total depreciationDepreciation and amortization expense offor fixed assets was $82.1 million, $68.6 million and $63.9 million $37.2 million,in 2019, 2018 and $33.8 million2017, respectively. Property, equipment and leasehold improvements, net are presented in 2017, 2016 and 2015, respectively. The Company's total fixed assets, less accumulated depreciation and amortization, consisted of the followingtable below (in thousands):.
|
| | | | | | | | | | |
| | | Useful Life | | December 31, |
| Category | | (Years) | | 2019 | | 2018 |
| Computer equipment and software | | 2-7 | | $ | 256,451 |
| | $ | 210,955 |
|
| Furniture and equipment | | 3-8 | | 104,370 |
| | 85,002 |
|
| Leasehold improvements | | 2-15 | | 275,114 |
| | 218,405 |
|
| Total cost | | | | 635,935 |
| | 514,362 |
|
| Less — accumulated depreciation and amortization | | | | (291,356 | ) | | (246,697 | ) |
| Property, equipment and leasehold improvements, net | | | | $ | 344,579 |
| | $ | 267,665 |
|
|
| | | | | | | | | | |
| | | Useful Life | | December 31, |
| Category | | (Years) | | 2017 | | 2016 |
| Computer equipment and software | | 2-7 | | $ | 189,015 |
| | $ | 166,385 |
|
| Furniture and equipment | | 3-8 | | 67,288 |
| | 43,137 |
|
| Leasehold improvements | | 2-15 | | 175,716 |
| | 96,603 |
|
| | | | | $ | 432,019 |
| | $ | 306,125 |
|
| Less — accumulated depreciation and amortization | | | | (210,512 | ) | | (184,519 | ) |
| Property, equipment, and leasehold improvements, net | | | | $ | 221,507 |
| | $ | 121,606 |
|
The Company incurs costs to develop internal useinternal-use software used in our operations, and certainits operations. Certain of thesethose costs meetingthat meet the criteria outlined in FASB ASC Topic No. 350,Intangibles - Goodwill and Other are capitalized and amortized over future periods. Net capitalized internal-use software development costs for internal use software was $26.9were $55.7 million and $16.6$37.4 million at December 31, 20172019 and 2016,2018, respectively, which isand are included in the Computer equipment and software categoryin the table above. Amortization ofexpense for capitalized internalinternal-use software development costs, which is classified inincluded with Depreciation in the Consolidated Statements of Operations, totaled $20.0 million, $13.2 million and $9.9 million $8.8 millionin 2019, 2018 and $8.2 million during 2017, 2016 and 2015 respectively.
Finite-lived intangible assets. The Company has finite-lived intangible assets which are amortized against earnings using the straight-line method over their expected useful lives. Changes in intangible assets subject to amortization during the two-year period ended December 31, 2017 were as follows (in thousands):
|
| | | | | | | | | | | | | | | | | | | | |
| December 31, 2017 | | Customer
Relationships | | Software | | Content | | Other | | Total |
| Gross cost, December 31, 2016 | | $ | 63,369 |
| | $ | 16,025 |
| | $ | 3,728 |
| | $ | 33,645 |
| | $ | 116,767 |
|
| Additions due to acquisitions (1) | | 1,253,312 |
| | 180,787 |
| | 141,707 |
| | 24,384 |
| | 1,600,190 |
|
| Intangibles fully amortized | | — |
| | — |
| | (4,227 | ) | | — |
| | (4,227 | ) |
| Reclassified as held-for-sale (2) | | (140,156 | ) | | (69,012 | ) | | (38,593 | ) | | (2,711 | ) | | (250,472 | ) |
| Foreign currency translation impact | | 23,791 |
| | (4,376 | ) | | 1,698 |
| | (389 | ) | | 20,724 |
|
| Gross cost | | 1,200,316 |
| | 123,424 |
| | 104,313 |
| | 54,929 |
| | 1,482,982 |
|
| Accumulated amortization (3) | | (92,983 | ) | | (26,344 | ) | | (47,475 | ) | | (24,158 | ) | | (190,960 | ) |
| Balance, December 31, 2017 | | $ | 1,107,333 |
| | $ | 97,080 |
| | $ | 56,838 |
| | $ | 30,771 |
| | $ | 1,292,022 |
|
|
| | | | | | | | | | | | | | | | | | | | |
| December 31, 2016 | | Customer
Relationships | | Software | | Content | | Other | | Total |
| Gross cost, December 31, 2015 | | $ | 62,860 |
| | $ | 16,219 |
| | $ | 5,450 |
| | $ | 33,474 |
| | $ | 118,003 |
|
| Additions due to acquisitions | | 3,677 |
| | — |
| | 1,948 |
| | 302 |
| | 5,927 |
|
| Intangibles fully amortized | | — |
| | (125 | ) | | (162 | ) | | — |
| | (287 | ) |
| Foreign currency translation impact | | (3,168 | ) | | (69 | ) | | (3,508 | ) | | (131 | ) | | (6,876 | ) |
| Gross cost | | 63,369 |
| | 16,025 |
| | 3,728 |
| | 33,645 |
| | 116,767 |
|
| Accumulated amortization (3) | | (16,744 | ) | | (8,904 | ) | | (2,033 | ) | | (12,285 | ) | | (39,966 | ) |
| Balance, December 31, 2016 | | $ | 46,625 |
| | $ | 7,121 |
| | $ | 1,695 |
| | $ | 21,360 |
| | $ | 76,801 |
|
| |
(1) | The additions were primarily due to the Company's acquisitions of CEB and L2 during April 2017 and March 2017, respectively. See Note 2 — Acquisitions and Divestiture for additional information. |
| |
(2) | Represents amounts reclassified (net) as held-for-sale assets related to the CEB Talent Assessment business. See Note 2 — Acquisitions and Divestiture for additional information. |
| |
(3) | Finite-lived intangible assets are amortized using the straight-line method over the following periods: Customer Relationships—4 to 13 years; Software 3 to 7 years; Content—1.5 to 5 years; and Other —2 to 5 years. |
Amortization expense related to finite-lived intangible assets was $176.3 million, $24.8 million and $13.3 million in 2017, 2016 and 2015, respectively. The estimated future amortization expense by year from finite-lived intangibles is as follows (in thousands):
|
| | | |
| 2018 | $ | 190,442 |
|
| 2019 | 134,530 |
|
| 2020 | 128,133 |
|
| 2021 | 107,715 |
|
| 2022 and thereafter | 731,202 |
|
| | $ | 1,292,022 |
|
Goodwill. Goodwill represents the excess of the purchase price of acquired businesses over the estimated fair valuevalues of the tangible and identifiable intangible net assets acquired. Evaluations of the recoverability of goodwill are performed in accordance with FASB ASC Topic 350, which requires an annual assessment of potential goodwill impairment at the reporting unit level and whenever events or changes in circumstances indicate that the carrying value of goodwill may not be recoverable.
TheWhen performing our annual assessment of the recoverability of recorded goodwill, can be based on eitherwe initially perform a qualitative analysis evaluating whether any events or circumstances occurred or exist that provide evidence that it is more likely than not that the fair value of any of our reporting units is less than the related carrying amount. If we do not believe that it is more likely than not that the fair value of any of our reporting units is less than the related carrying amount, then no quantitative impairment test is performed. However, if the results of our qualitative assessment orindicate that it is more likely than not that the fair value of a combinationreporting unit is less than its respective carrying amount, then we perform a two-step quantitative impairment test. Evaluating the recoverability of the two approaches. Both methods utilize estimates which, in turn, requiregoodwill requires judgments and assumptions regarding future trends and events. As a result, both the precision and reliability of the resultingour estimates are subject to uncertainty. If our annual goodwill impairment evaluation determines that the fair value of a reporting unit is less than its related carrying amount, we may recognize an impairment charge. In connection with our
Our most recent annual impairment test of goodwill was a qualitative analysis conducted during the third quarter of 2017, whichended September 30, 2019 that indicated no impairment. Subsequent to completing our 2019 annual impairment test, no events or changes in circumstances were noted that required an interim goodwill impairment test. Note 3 — Goodwill and Intangible Assets provides additional information regarding the Company's goodwill.
Finite-lived intangible assets. The Company has finite-lived intangible assets that are amortized using the straight-line method over the expected useful life of recorded goodwill, the Company utilizedunderlying asset. Note 3 — Goodwill and Intangible Assets provides additional information regarding the qualitative approach in assessing the fair values of its reporting units relative to their respective carrying values.Company's finite-lived intangible assets.
The following table presents changes to the carrying amount of goodwill by segment during the two-year period ended December 31, 2017 (in thousands):
|
| | | | | | | | | | | | | | | | | | | |
| | Research | | Consulting | | Events | | Talent Assessment & Other
| | Total |
| Balance, December 31, 2015 (1) | $ | 575,292 |
| | $ | 98,412 |
| | $ | 41,655 |
| | $ | — |
| | $ | 715,359 |
|
| Additions due to acquisitions | 28,465 |
| | — |
| | 5,843 |
| | — |
| | 34,308 |
|
| Foreign currency translation impact | (8,307 | ) | | (1,932 | ) | | (975 | ) | | — |
| | (11,214 | ) |
| Balance, December 31, 2016 | $ | 595,450 |
| | $ | 96,480 |
| | $ | 46,523 |
| | $ | — |
| | $ | 738,453 |
|
| Additions due to acquisitions (2) | 2,042,514 |
| | — |
| | 140,914 |
| | 274,363 |
| | 2,457,791 |
|
Reclassified as held-for-sale (3)
| — |
| | — |
| | — |
| | (212,994 | ) | | (212,994 | ) |
| Foreign currency translation impact | (18,287 | ) | | 1,318 |
| | 483 |
| | 20,530 |
| | 4,044 |
|
| Balance, December 31, 2017 | $ | 2,619,677 |
| | $ | 97,798 |
| | $ | 187,920 |
| | $ | 81,899 |
| | $ | 2,987,294 |
|
| |
(1) | The Company does not have any accumulated goodwill impairment losses. |
| |
(2) | The 2017 goodwill additions are due to the acquisitions of CEB and L2 during April 2017 and March 2017, respectively. See Note 2—Acquisitions and Divestiture for additional information. |
| |
(3) | Represents amounts reclassified as held-for-sale assets related to the CEB Talent Assessment business. See Note 2 — Acquisitions and Divestiture for additional information. |
Impairment of long-lived assets. The Company's long-lived assets primarily consist of intangible assets other than goodwill and property, equipment and leasehold improvements. The Company reviews its long-lived asset groups for impairment whenever events or changes in circumstances indicate that the carrying amount of the respectivean asset or an asset group may not be recoverable. Such evaluation may be based on a number of factors, including current and projected operating results and cash flows, and changes in management’s strategic direction as well as external economic and market factors. The Company evaluates the recoverability of these assets and asset groups by determining whether thetheir carrying valuevalues can be recovered through undiscounted future operating cash flows. If events or circumstances indicate that the carrying valuevalues might not be recoverable based on undiscounted future operating
cash flows, an
impairment loss wouldmay be recognized. The amount of impairment if any, is measured based on the difference between the projected discounted future operating cash flows, using a discount rate reflecting the Company’s average cost of funds, and the carrying value of the asset.asset or asset group. The Company did not record any impairment charges for long-lived assets or asset groups during the three yearthree-year period ended December 31, 2017.2019.
Pension obligations. The Company has defined-benefitdefined benefit pension plans inat several of its international locations (see Note 13 — Employee Benefits).locations. Benefits earned and paid under thesethose plans are generally based on years of service and level of employee compensation. The Company accounts forCompany's defined benefit pension plans are accounted for in accordance with the requirements of FASB ASC Topic No. 715.Topics 715 and 960. The Company determines the periodic pension expense and related liabilities for theseits defined benefit pension plans through actuarial assumptions and valuations. The Company recognized approximately $3.5 millionservice cost component of pension expense in eachis recorded as SG&A expense and all other components of the years ended 2017, 2016, and 2015. The Company classifies pension expense in SG&Aare recorded as Other income, net in the Consolidated Statements of Operations. Note 15 — Employee Benefits provides additional information regarding the Company's defined benefit pension plans.
Debt. The Company presents amounts borrowed in the Consolidated Balance Sheets, at amortized cost, net of deferred financing fees. Interest accrued on amounts borrowed is classified inrecorded as Interest expense in the Consolidated Statements of Operations. The Company amended its credit facility during 2017 and borrowed additional amounts related to its acquisitions. The Company had $3.3 billion of principal amount of debt outstanding at December 31, 2017 compared to $702.5 million at December 31, 2016. Note 56 — Debt provides additional information regarding the Company's debt.debt arrangements.
Foreign currency exposure. The functional currency of our foreign subsidiaries is typically the local currency. All assets and liabilities of foreign subsidiaries are translated into U.S. dollars at exchange rates in effect at the balance sheet date. Income and expense items are translated at average exchange rates for the year. The resulting translation adjustments are recorded as foreign currency translation adjustments, a component of Accumulated other comprehensive (loss) income, (loss), net within the Stockholders’ Equity section ofon the Consolidated Balance Sheets.
Currency transaction gains or losses arising from transactions denominated in currencies other than the functional currency of a subsidiary are recognized in results of operations inas part of Other income, net withinin the Consolidated Statements of Operations. The Company had net currency transaction lossesgains (losses) of $(1.1) million, $9.2 million and $(5.5) million $(0.4) million,in 2019, 2018 and $(2.6) million in 2017, 2016, and 2015, respectively. The Company enters into foreign currency forward exchange contracts to mitigate the effects of adverse fluctuations in foreign currency exchange rates on thesecertain transactions. TheseThose contracts generally have a short durationdurations and are recorded at fair value with both realized and unrealized gains and losses recorded in Other income, net. The net gain (loss) from theseforeign currency forward exchange contracts was $(2.5) million, $(10.4) million and $0.8 million $(0.3) million,in 2019, 2018 and $(0.1) million in 2017, 2016,respectively. Note 13 — Derivatives and 2015, respectively.Hedging provides additional information regarding the Company's foreign currency forward exchange contracts.
Comprehensive income. The Company reports comprehensive income in a separate statement called the Consolidated Statements of Comprehensive Income, which is included herein. The Company's comprehensive income disclosures are included in Note 7 — Stockholders' Equity.
Fair value disclosures. The Company has a limited number of assets and liabilities that are adjusted to fair value at each balance sheet date. The Company’sCompany's required fair value disclosures are included inprovided at Note 1214 — Fair Value Disclosures.
Concentrations of credit risk. Assets that may subject the Company to concentration of credit risk consist primarily of short-term, highly liquid investments classified as cash equivalents, fees receivable, contract assets, interest rate swaps and a pension reinsurance asset. The majority of the Company’s cash equivalent investments and its interest rate swap contracts are with investment grade commercial banks. Fees receivable and contract asset balances deemed to be collectible from customers have limited concentration of credit risk due to our diverse customer base and geographic dispersion. The Company’s pension reinsurance asset (see Note 1315 — Employee Benefits) is maintained with a large international insurance company that was rated investment grade as of December 31, 20172019 and 2016.2018.
Stock repurchase programs. The Company records the cost to repurchase shares of its own common shares tostock as treasury stock. During 2017, 2016 and 2015, the Company used $41.3 million, $59.0 million, and $509.0 million, respectively, in cash for stock repurchases (see Note 7 — Stockholders’ Equity for additional information). Shares repurchased by the Company are added to treasury shares and are not retired. Note 8 — Stockholders' Equity provides additional information regarding the Company's common stock repurchase activity.
Adoption of new accounting standards. The Company did not adopt any significant new accounting standards during 2017.
Accounting standards issued but not yet adopted. The FASB has issued accounting standards that have not yet become effective and that may impact the Company’s consolidated financial statements or related disclosures in future periods. These standards and their potential impact are discussed below:
Accounting standards effective in 2018
Stock Compensation Award Modifications — In May 2017, the FASB issued ASU No. 2017-09, "Compensation—Stock Compensation - Scope of Modification Accounting" ("ASU No. 2017-09"). ASU No. 2017-09 provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. ASU No. 2017-09 was effective for Gartner on January 1, 2018. We have concluded that the adoption of ASU No. 2017-09 will not have a material impact on the Company's consolidated financial statements.
Retirement Benefits Cost Presentation — In March 2017, the FASB issued ASU No. 2017-07, "Compensation—Retirement Benefits" ("ASU No. 2017-07"). ASU No. 2017-07 improves the reporting of net benefit cost in the financial statements, and provides additional guidance on the presentation of net benefit cost in the income statement and clarifies the components eligible for capitalization. ASU No. 2017-07 was effective for Gartner on January 1, 2018. We have concluded that the adoption of ASU No. 2017-07 will not have a material impact on the Company's consolidated financial statements.
Partial Sales of Non-financial Assets — In February 2017, the FASB issued ASU No. 2017-05, "Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Non-financial Assets" ("ASU No. 2017-05"). ASU No. 2017-05 clarifies the scope of the FASB’s recently established guidance on non-financial asset de-recognition as well as the accounting for partial sales of non-financial assets. It conforms the de-recognition guidance on non-financial assets with the model for revenue transactions. ASU No. 2017-05 was effective for Gartner on January 1, 2018. We have concluded that the adoption of ASU No. 2017-05 will not have a material impact on the Company's consolidated financial statements.
Definition of a Business — In January 2017, the FASB issued ASU No. 2017-01, "Clarifying the Definition of a Business" ("ASU No. 2017-01"), which was effective for Gartner on January 1, 2018. ASU No. 2017-01 changes the U.S. GAAP definition of a business which can impact the accounting for asset purchases, acquisitions, goodwill impairment, and other assessments. We have concluded that the adoption of ASU No. 2017-01 will not have a material impact on the Company's consolidated financial statements.
Presentation of Restricted Cash — In November 2016, the FASB issued ASU No. 2016-18, "Restricted Cash" ("ASU No. 2016-18"). ASU No. 2016-18 requires that amounts generally described as restricted cash and restricted cash equivalents be presented with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. If different, a reconciliation of the cash balances reported in the cash flow statement and the balance sheet would need to be provided along with explanatory information. ASU No. 2016-18 was effective for Gartner on January 1, 2018. The adoption of ASU No. 2016-18 will require the Company to disclose restricted cash and, as a result, will change the presentation of its consolidated statements of cash flows.
Income Taxes — In October 2016, the FASB issued ASU No. 2016-16, "Intra-Entity Transfers of Assets Other Than Inventory" ("ASU No. 2016-16"). ASU No. 2016-16 accelerates the recognition of taxes on certain intra-entity transactions and was effective for Gartner on January 1, 2018. Current U.S. GAAP requires deferral of the income tax implications of an intercompany sale of assets until the assets are sold to a third party or recovered through use. Under the new rule, the seller’s tax effects and the buyer’s deferred taxes on post-adoption asset transfers will be immediately recognized upon the sale. On the date of adoption of ASU No. 2016-16 any taxes attributable to pre-2018 intra-entity transfers that were previously deferred will be accelerated and recorded to accumulated earnings as permitted by the transition rules. ASU 2016-16 could have a material impact on our consolidated financial statements in the future depending on the nature, size, and tax consequences of future intra-entity transfers, if any.
Statement of Cash Flows — In August 2016, the FASB issued ASU No. 2016-15, "Classification of Certain Cash Receipts and Cash Payments" ("ASU No. 2016-15"). ASU No. 2016-15 sets forth classification requirements for certain cash flow transactions. ASU No. 2016-15 was effective for Gartner on January 1, 2018. We have concluded that the adoption of ASU No. 2016-15 will not have a material impact on the Company's consolidated financial statements.
Financial Instruments Recognition and Measurement — In January 2016, the FASB issued ASU No. 2016-01, "Financial Instruments Overall - Recognition and Measurement of Financial Assets and Liabilities" ("ASU No. 2016-01") to address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. Among the significant changes required by ASU No. 2016-01 is that equity investments will be measured at fair value with changes in fair value recognized in net income. ASU No. 2016-01 was effective for Gartner on January 1, 2018. We have concluded that the adoption of ASU No. 2016-01 will not have a material impact on the Company's consolidated financial statements.
Revenue Recognition — In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers" ("ASU No. 2014-09"). ASU No. 2014-09 and related amendments require changes in revenue recognition policies as well as enhanced disclosures. ASU No. 2014-09 is intended to clarify the principles for recognizing revenue by removing inconsistencies and weaknesses in existing revenue recognition rules; provide a more robust framework for addressing revenue recognition issues; improve comparability of revenue recognition practices across entities, industries, jurisdictions and capital markets; and provide more useful information to users of financial statements through improved disclosures. ASU No. 2014-09 also requires significantly expanded disclosures around the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. An entity may adopt ASU No. 2014-09 using either a full retrospective approach for each prior reporting period presented or a modified retrospective approach (the cumulative effect method). The Company adopted ASU No. 2014-09 on January 1, 2018 using the cumulative effect method of adoption. The adoption of ASU No. 2014-09 did not have a material impact on the Company’s consolidated financial statements. The adoption of the standard does require the Company to reclassify certain immaterial amounts in the Company’s consolidated balance sheet as well as provide the enhanced disclosures required by the standard, both of which will be provided in the Company's Form 10-Q filing for the quarterly period ending March 31, 2018.accounting standards described below during 2019.
Accounting standards effective in 2019
Targeted Improvements to Accounting for Hedging Activities - In August 2017,— On January 1, 2019, the FASB issuedCompany adopted ASU No. 2017-12, "Derivatives and Hedging(" ("ASU No. 2017-12"). ASU No. 2017-12 is intended to improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. In addition to that main objective, the standard makes certain targeted improvements to simplify the application of the hedge accounting guidance in current U.S. GAAP. ASU No. 2017-12 is effective for Gartner on January 1, 2019. We are currently evaluatingThe adoption of the standard had no impact of ASU No. 2017-12 on the Company's consolidated financial statements.
Distinguishing Liabilities from EquityLeases — In July 2017, the FASB issued ASU No. 2017-11, "Earnings Per Share, Distinguishing Liabilities from Equity, and Derivatives and Hedging" ("ASU No. 2017-11"). ASU No. 2017-11 is intended to simplify the accounting for financial instruments with characteristics of liabilities and equity. Among the issues addressed are: (i) determining whether an instrument (or embedded feature) is indexed to an entity’s own stock; (ii) distinguishing liabilities from equity for mandatorily redeemable financial instruments of certain nonpublic entities; and (iii) identifying mandatorily redeemable non-controlling interests. ASU No. 2017-11 is effective for Gartner onOn January 1, 2019. We are currently evaluating2019, the potential impact of ASU No. 2017-11 on the Company's consolidated financial statements.
Leases — In February 2016, the FASB issuedCompany adopted ASU No. 2016-02, "Leases" ("ASU(as amended, "ASU No. 2016-02" or the “new lease standard”) which will require significant changes in the accounting and disclosure for lease arrangements. Currently under U.S. GAAP, lease arrangements that meet certain criteria are considered operating leases and are not recorded on the balance sheet. All of the Company's existing lease arrangements are accounted for as operating leases and are thus not recorded on the Company's balance sheet.using a modified retrospective approach. ASU No. 2016-02 will significantly changechanges the accounting for leases sincebecause a right-of-use ("ROU") model must beis now used in which thewhereby a lessee must record a ROUright-of-use asset and a related lease liability on theits balance sheet for most of its leases. Under ASU No. 2016-02, leases with terms longer than 12 months. Leases will beare classified as either financeoperating or operatingfinance arrangements, with such
classification affecting the pattern of expense recognition in thean entity's income statement. For operating leases, ASU No. 2016-02 also requires expanded disclosures about leasing arrangements. ASU No. 2016-02 will be effective for Gartnerrecognition in an entity’s income statement of a single lease cost, calculated so that the cost of the lease is allocated over the lease term, generally on a straight-line basis.
The adoption of the new lease standard had a material impact on the Company's Consolidated Balance Sheet as of December 31, 2019, while the Consolidated Statement of Operations and the cash provided by operating activities in the Consolidated Statement of Cash Flows in 2019 were not materially impacted. Prior to January 1, 2019. We are currently evaluating2019, the potential impactCompany recognized lease expense in accordance with then-existing U.S. GAAP under FASB ASC Topic 840, Leases (“ASC Topic 840”). Although there were significant changes to the Company’s leasing policies and procedures effective January 1, 2019 with the adoption of ASU No. 2016-02, onthe lease expense recognition patterns under ASU No. 2016-02 in 2019 and ASC Topic 840 in 2018 and 2017 were substantively the same. As required by the new lease standard, the Company's disclosures regardingits leasing activities have been significantly expanded to enable users of our consolidated financial statements.statements to assess the amount, timing and uncertainty of cash flows related to leases. Information regarding our adoption of ASU No. 2016-02 and its impact on the Company's consolidated financial statements and related disclosures is provided at Note 7 — Leases.
Accounting standards issued but not yet adopted. The FASB has issued accounting standards that had not yet become effective as of December 31, 2019 and may impact the Company’s consolidated financial statements or related disclosures in future periods. Those standards and their potential impact are discussed below.
Accounting standards effective in 2020
Implementation Costs in a Cloud Computing Arrangement — In August 2018, the FASB issued ASU No. 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract ("ASU No. 2018-15"). ASU No. 2018-15 aligns the requirements for capitalizing implementation costs incurred in a cloud computing arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. Costs that are capitalized under ASU No. 2018-15 will be expensed over the term of the cloud computing arrangement. Gartner adopted ASU No. 2018-15 on January 1, 2020 on a prospective basis. We have concluded that the adoption of ASU No. 2018-15 will not have a material impact on the Company's consolidated financial statements; however, the new standard will change the classification of certain items on the Company's consolidated balance sheets, statements of operations and statements of cash flows in future periods.
Defined Benefit Plan Disclosures — In August 2018, the FASB issued ASU No. 2018-14, Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans ("ASU No. 2018-14"). ASU No. 2018-14, which is part of the FASB's broader disclosure framework project, modifies and supplements the current U.S. GAAP annual disclosure requirements for employers that sponsor defined benefit pension plans. ASU No. 2018-14 is effective for Gartner in 2020. ASU No. 2018-14 must be adopted on a retroactive basis and applied to each comparative period presented in an entity's financial statements. The adoption of ASU No. 2018-14 is currently not expected to have a material impact on the Company's financial statement disclosures.
Fair Value Measurement Disclosures — In August 2018, the FASB issued ASU No. 2018-13, Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement ("ASU No. 2018-13"). ASU No. 2018-13, which is part of the FASB's broader disclosure framework project, modifies and supplements the current U.S. GAAP disclosure requirements pertaining to fair value measurements, with an emphasis on Level 3 disclosures of the valuation hierarchy. Gartner adopted ASU No. 2018-13 on January 1, 2020. We have concluded that the adoption of ASU No. 2018-13 will not have a material impact on the Company's consolidated financial statements.
Goodwill Impairment— In January 2017, the FASB issued ASU No. 2017-04, "Intangibles—Goodwill and Other - Simplifying the Test for Goodwill Impairment" ("ASU No. 2017-04"). ASU No. 2017-04 simplifies the determination of the amount of goodwill to be potentially charged off by eliminating Step 2 of the current goodwill impairment test.test under current U.S. GAAP. Gartner adopted ASU No. 2017-04 is effective for Gartner on January 1, 2020. We have concluded that the adoption of ASU No. 2017-04 will not have a material impact on the Company's consolidated financial statements.
Financial Instrument Credit Losses —In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments—Credit Losses" ("Losses ("ASU No. 2016-13"). ASU No. 2016-13 amends the current financial instrument impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables. Gartner adopted ASU No. 2016-13 on January 1, 2020. We have concluded that the adoption of ASU No. 2016-13 will not have a material impact on the Company's consolidated financial statements; however, certain enhanced disclosures required by the standard will be provided in the Company's Form 10-Q filing for the quarterly period ending March 31, 2020.
Accounting standard effective in 2021
Simplifying the Accounting for Income Taxes — In December 2019, the FASB issued ASU No. 2019-12, Income Taxes—Simplifying the Accounting for Income Taxes ("ASU No. 2019-12"). ASU No. 2019-12 provides new guidance to simplify the accounting for income taxes in certain areas, changes the accounting for select income tax transactions and makes minor ASC improvements. ASU No. 2019-12 is effective for Gartner on January 1, 2020, with early2021, including interim periods in the year of adoption. Early adoption is permitted. The method of adoption varies depending on the component of the new rule that is being adopted. We are currently evaluating the potential impact of ASU No. 2016-132019-12 on our consolidated financial statements.
The FASB also continues to work on a number of other significant accounting standards which if issued could materially impact the Company's accounting policies and disclosures in future periods. However, since these standards have not yet been issued, the effective dates and potential impact are unknown.
2 — ACQUISITIONS AND DIVESTITUREDIVESTITURES
Acquisitions
Year Ended December 31, 2019
On October 1, 2019, the Company acquired 100% of the outstanding membership interests of TOPO Research LLC ("TOPO"), a privately-held company based in Redwood City, California, for $25.0 million. TOPO is a subscription-based research and advisory business. The acquisition of TOPO expanded our market presence, product offerings and other business opportunities.
For cash flow reporting purposes, the Company accountspaid $23.7 million in cash for business acquisitions in accordanceTOPO after considering the cash acquired with the acquisition method of accounting as prescribed by FASB ASC Topic 805, Business Combinations. The acquisition method of accounting requiresbusiness and certain other purchase price adjustments at closing. In addition to the purchase price, the Company may also be required to recordpay up to $6.5 million in cash in the net assets and liabilities acquiredfuture based on their estimated fair valuesthe continuing employment of certain key employees. Such amount will be recognized as compensation expense over two years and will be reported in Acquisition and integration charges in the Consolidated Statements of Operations.
As of December 31, 2019, the allocation of the purchase price for the TOPO acquisition date,is preliminary with any excessrespect to certain tax matters and the finalization of working capital adjustments. The table below summarizes the consideration transferred overpreliminary purchase price allocation based on the estimated fair value of the net assets acquired including identifiable intangible assets, to be recorded to goodwill. Under the acquisition method,and liabilities assumed (in thousands).
|
| | | | |
| Assets: | | |
| Cash | | $ | 1,281 |
|
| Fees receivable | | 1,402 |
|
| Prepaid expenses and other assets | | 166 |
|
| Goodwill (1) | | 19,293 |
|
| Finite-lived intangible assets (2) | | 5,250 |
|
| Total assets acquired | | 27,392 |
|
| Total liabilities assumed (primarily deferred revenues) | | 2,417 |
|
| Net assets acquired | | $ | 24,975 |
|
| |
| (1) | We believe that the recorded goodwill is supported by the anticipated synergies resulting from the acquisition. All of the recorded goodwill is expected to be deductible for tax purposes. |
| |
| (2) | The acquired finite-lived intangible assets primarily consisted of customer relationships and content, which are being amortized over 6 years and 1.5 years, respectively. To determine the fair values of the acquired intangible assets, we primarily relied on income valuation methodologies, in particular, discounted cash flow models. |
The operating results of the acquired companiesTOPO business and the related goodwill are being reported as part of the Company's Research and Conferences segments. The operating results of TOPO have been included in the Company's consolidated financial statements beginning onsince the date of acquisition. Theacquisition; however, such operating results were not material to the Company's consolidated operating results and segment results. Had the Company completedacquired TOPO in prior periods, the following business acquisitions:impact on the Company's operating results would not have been material and, as a result, pro forma financial information for prior periods has not been presented herein.
During 2019, the Company also paid $2.3 million of restricted cash for deferred consideration from a 2017 acquisition.
For the year ended
Year Ended December 31, 2017:2018
Although the Company did not complete any business acquisitions during 2018, it paid $15.9 million of restricted cash during that year for deferred consideration from a 2017 acquisition.
Year Ended December 31, 2017
CEB Inc. ("CEB")
On April 5, 2017, the Company acquired 100% of the outstanding capital stock of CEB for an aggregate purchase price of $3.5 billion. The consideration transferred by Gartner included approximately $2.7 billion in cash and $818.7 million inGartner common shares with a fair value of Gartner common shares.$818.7 million. CEB was a publicly-heldpublicly-traded company headquartered in Arlington, Virginia with approximately 4,900 employees. CEB's primary business was to serve as a leading provider of subscription-based, best practice research and analysis focusing on human resources, sales, finance, IT and legal. CEB served executives and professionals at corporate and middle market institutions in over 70 countries.
L2
L2, Inc. ("L2")
On March 9, 2017, the Company acquired 100% of the outstanding capital stock of L2, a privately-held firmcompany based in New York City with 150 employees, for an aggregate purchase price of $134.2 million. L2 is a subscription-based research business that benchmarks the digital performance of brands.
Total Consideration Transferredconsideration transferred
The following table below summarizes the aggregate consideration paidtransferred for thesethe Company's acquisitions during 2017 (in thousands):.
| | | Aggregate consideration (1): | CEB | | L2 | | Total | CEB | | L2 | | Total |
| Cash paid at close (2), (3) | $ | 2,687,704 |
| | $ | 134,199 |
| | $ | 2,821,903 |
| $ | 2,687,704 |
| | $ | 134,199 |
| | $ | 2,821,903 |
|
| Additional cash paid (2) | 12,465 |
| | — | | 12,465 |
| 12,465 |
| | — | | 12,465 |
|
| Fair value of Gartner equity (4) | 818,660 |
| | — | | 818,660 |
| 818,660 |
| | — | | 818,660 |
|
Total (5) | $ | 3,518,829 |
| | $ | 134,199 |
| | $ | 3,653,028 |
| $ | 3,518,829 |
| | $ | 134,199 |
| | $ | 3,653,028 |
|
| |
| (1) | Includes the total consideration transferred for 100% of the outstanding capital stock of the acquired businesses. |
| |
| (2) | The cash paid at close represents the gross contractual amount paid. The Company paid thean additional $12.5 million in cash induring the third quarter of 2017. Net of cash acquired from these businesses and for cash flow reporting purposes, the Company paid a total of $2.63approximately $2.64 billion in cash.cash for acquisitions in 2017. |
| |
| (3) | The Company borrowed a total of approximately $2.8 billion in conjunction with the CEB acquisition (see Note 76 — Debt for additional information). |
| |
| (4) | Consists of the fair value of (i) Gartner common stock issued (see Note 7 — Stockholders' Equity for additional information) and (ii) stock-based compensation replacement awards. |
| |
(5) | As part of the consideration for the CEB acquisition, the Company issued approximately 7.4 million shares of its common stock at a fair value of $109.65 per common share. The Company may also be required to pay up tofair value of the Company's common stock was determined based on an additional $20.8 million in cash for L2 which is contingentaverage of the high and low prices of the common stock as reported by the New York Stock Exchange on April 5, 2017, the achievementdate of certain employment conditions by several key employees. This amount is being recognized as compensation expense over approximately three years.the acquisition. |
Preliminary Allocation of Purchase Price
The following table below summarizes the preliminary allocation of the aggregate purchase price for the CEB and L2 acquisitions to the fair value of the assets acquired and liabilities assumed for the acquisitions of L2 and CEB (in thousands):.
| | | | CEB (3) | | L2 (4) | | Total | CEB (3) | | L2 (4) | | Total |
| Assets: | | | | | | | | | | |
| Cash | $ | 194,706 |
| | $ | 4,852 |
| | $ | 199,558 |
| $ | 194,706 |
| | $ | 4,852 |
| | $ | 199,558 |
|
| Fees receivable | 175,440 |
| | 8,277 |
| | 183,717 |
| 175,440 |
| | 8,277 |
| | 183,717 |
|
| Prepaid expenses and other current assets | 53,610 |
| | 1,167 |
| | 54,777 |
| 53,610 |
| | 1,167 |
| | 54,777 |
|
| Property, equipment and leasehold improvements | 51,399 |
| | 663 |
| | 52,062 |
| 51,399 |
| | 663 |
| | 52,062 |
|
Goodwill (1) | 2,349,589 |
| | 108,202 |
| | 2,457,791 |
| 2,349,589 |
| | 108,202 |
| | 2,457,791 |
|
Finite-lived intangible assets (2) | 1,584,300 |
| | 15,890 |
| | 1,600,190 |
| 1,584,300 |
| | 15,890 |
| | 1,600,190 |
|
| Other assets | 66,818 |
| | 13,067 |
| | 79,885 |
| 66,818 |
| | 13,067 |
| | 79,885 |
|
| Total assets | $ | 4,475,862 |
| | $ | 152,118 |
| | $ | 4,627,980 |
| 4,475,862 |
| | 152,118 |
| | 4,627,980 |
|
| Liabilities: | | | | |
| | | | |
|
| Accounts payable and accrued liabilities | $ | 142,134 |
| | $ | 3,050 |
| | $ | 145,184 |
| 142,134 |
| | 3,050 |
| | 145,184 |
|
| Deferred revenues (current) | 246,472 |
| | 13,200 |
| | 259,672 |
| 246,472 |
| | 13,200 |
| | 259,672 |
|
| Other liabilities | 568,427 |
| | 1,669 |
| | 570,096 |
| 568,427 |
| | 1,669 |
| | 570,096 |
|
| Total liabilities | $ | 957,033 |
| | $ | 17,919 |
| | $ | 974,952 |
| 957,033 |
| | 17,919 |
| | 974,952 |
|
| Net assets acquired | $ | 3,518,829 |
| | $ | 134,199 |
| | $ | 3,653,028 |
| $ | 3,518,829 |
| | $ | 134,199 |
| | $ | 3,653,028 |
|
| |
| (1) | The Company believes that the goodwill resulting from the CEB and L2 acquisitions is supportable based on synergies that were anticipated synergies.prior to the respective closing dates. For CEB, among the factors contributing to the anticipated synergies arewere a broader market presence, expanded product offerings and market opportunities, and an acceleration of CEB's growth by leveraging Gartner's global infrastructure and best practices in sales productivity and other areas. None of the recorded goodwill is expected to be deductible for tax purposes. The Company recorded certain measurement period adjustments to the CEB preliminary purchase price allocation during 2017, primarily related to tenant improvement incentives and tax liabilities. These adjustments resulted in a net increase to recorded goodwill of approximately $32.0 million. As of December 31, 2017, the allocation of the purchase price for the L2 and CEB acquisitions are preliminary with respect to certain tax matters and contingencies. The Company will resolve these remaining matters and complete the allocation of the purchase price by the end of the accounting measurement period for the respective acquisition. |
| |
| (2) | All of the acquired intangible assets arewere finite-lived. The determination of the fair valuevalues of the finite-livedsuch intangible assets required management judgment and the consideration of a number of factors. In determining the fair values, management primarily relied on income valuation methodologies, in particular, discounted cash flow models. The use of discounted cash flow models required the use of certain estimates, significant among themincluding projected cash flows related to the particular asset;asset being evaluated; the useful lives of the particularaffected assets; the selection of royalty and discount rates used in the models; and certain published industry benchmark data. InWhen establishing the estimated useful lives of the finite-lived intangible assets, the Company relied on both internally-generated data for similar assets as well as certain published industry benchmark data. We believe that the values we have assigned to the finite-lived intangible assets are both reasonable and supportable. |
| |
| (3) | The Company's consolidated financial statements include the operating results of CEB beginning on April 5, 2017, the date of acquisition. CEB's operating results and the related goodwill are beinghave been reported as part of the Company's Research, Events,Conferences and Talent Assessment & Other segments. Had the Company acquired CEB in prior periods, the impact toon the Company's operating results would have been material, and as a resultmaterial. If the followingCompany had acquired CEB on January 1, 2016, the pro forma consolidated financial information is presented as if CEB had been acquired byresults for 2017 would have approximated the Company on January 1, 2016amounts shown in the table below (in thousands, except per share amounts):data). |
|
| | | | |
| Pro forma total revenue | | $ | 3,726,470 |
|
| Pro forma net income | | 150,167 |
|
| Pro forma basic and diluted income per share | | $ | 1.66 |
|
|
| | | | | | | | |
| | | Twelve Months Ended |
| | | December 31, |
| | | 2017 | | 2016 |
| Pro forma total revenue | | $ | 3,726,470 |
| | $ | 3,183,070 |
|
| Pro forma net income (loss) | | 150,167 |
| | (241,423 | ) |
| Pro forma basic and diluted income (loss) per share | | $ | 1.66 |
| | $ | (2.68 | ) |
The pro forma results have been prepared in accordance with U.S. GAAP and include the following pro forma adjustments:
(a) An increase in interest expense and amortization of debt issuance costs related to the financing of the CEB acquisition. Note 56 — Debt provides further information regarding the Company's borrowings related to the CEB acquisition;acquisition.
(b) A change in revenue as a result of the required fair value adjustment to deferred revenue; and
revenue.
(c) An adjustment for additional depreciation and amortization expense as a result of the preliminary purchase price allocation for finite-lived intangible assets and property, equipment and leasehold improvements.
| |
| (4) | The Company's consolidated financial statements include the operating results of L2 beginning on March 9, 2017, the acquisition date. L2's operating results were not material to the Company's consolidated operating and segment results for 2017. Had the Company acquired L2 in prior periods, the impact to the Company's operating results would not have been material, and as a result pro forma financial information for L2 for prior periods has not been presented.date of acquisition. L2's operating results and the related goodwill are being reported as part of the Company's Research segment. For 2017, L2's operating results were not material to the Company's consolidated operating results and segment results. Had the Company acquired L2 in prior periods, the impact on the Company's operating results would not have been material and, as a result, pro forma prior period financial information for L2 has not been presented herein. |
Acquisition and Integration Charges
The Company recognized $9.5 million, $107.2 million and $158.5 million of acquisitionAcquisition and integration charges induring 2019, 2018 and 2017, compared to $42.6 million in 2016. Therespectively. Acquisition and integration charges reflect additional charges during 2017 primarily consisted of highercosts and expenses resulting from our acquisitions and include, among other items, professional fees, severance and stock-based compensation charges. During 2018 and 2017, the charges included $58.3 million and accruals for$13.1 million of exit costs for certain acquisition-related office space that the Company does not intend to occupy in Arlington, Virginia that was related to the CEB acquisition.Company did not occupy. The followingCompany recorded no exit costs for facilities during 2019.
The table below presents a summary of the activity related to this spaceour accrual for the year ended December 31,exit costs at all of our facilities during 2018 and 2017 (in thousands): (1).
|
| | | |
| Liability balance at December 31, 2016 | $ | — |
|
| Charges and adjustments | 13,087 |
|
| Payments | (126 | ) |
| Liability balance at December 31, 2017 | $ | 12,961 |
|
|
| | | | | | | |
| | 2018 | | 2017 |
| Liability balance at beginning of the year | $ | 12,961 |
| | $ | — |
|
| Charges and adjustments, net (2) | 69,790 |
| | 13,087 |
|
| Payments, net of $2,515 in sublease rent during 2018 | (26,087 | ) | | (126 | ) |
| Liability balance at end of the year (3) | $ | 56,664 |
| | $ | 12,961 |
|
| |
| (1) | With the adoption of ASU No. 2016-02 on January 1, 2019, the accrual for exit costs was reclassified to offset the Company's right-of-use assets and the present value of our remaining lease payments was recorded as an operating lease liability. Moreover, there were no new exit cost activities during 2019. Note 1 — Business and Significant Accounting Policies and Note 7 — Leases provide additional information regarding the Company's leases and the adoption of ASU No. 2016-02. |
| |
| (2) | During 2018, the Company recognized $7.5 million of expense for changes in the original estimates of its exit cost obligations. The corresponding amount for 2017 was a benefit of $10.1 million. |
| |
| (3) | Through December 31, 2018, in the aggregate, we had expensed $82.9 million and had net cash outlays of $26.2 million related to the exit cost activities at all of our facilities. |
Divestitures
During 2018, the year ended December 31, 2016:Company completed the divestitures of all 3 of the non-core businesses comprising its Other segment, each of which were acquired in the CEB acquisition. Revenue from those divested operations was approximately $97.3 million and $165.7 million in 2018 and 2017, respectively, while the gross contribution was $60.5 million and $86.5 million, respectively. The Company used the cash proceeds from these divestitures to pay down debt.
Additional information regarding the Other segment divestitures is provided below.
CEB Challenger training business
On November 9, 2016,August 31, 2018, the Company acquired 100% of the outstanding capital stock of Machina Research Limited ("Machina"), a privately-held firm based in London with 16 employees. The Company paidsold its CEB Challenger training business for $119.1 million and realized approximately $4.5$116.0 million in cash, at close. Machina provides clients with subscription-based research that provides strategic insightwhich is net of working capital adjustments and market intelligence in areas such as IOT ("Internetcertain closing costs. The Company recorded a pretax gain on the sale of things").approximately $8.3 million.
CEB Workforce Survey and Analytics business
On June 28, 2016,May 1, 2018, the Company acquired 100% of the outstanding capital stock of Newco 5CL Limited (which operates under the trade name "SCM World"), a privately-held firm based in London with 60 employees,sold its CEB Workforce Survey and Analytics business for $34.2$28.0 million and realized approximately $26.4 million in cash, paid at close. SCM Worldwhich is a leading cross-industry peer network and learning community providing subscription-based research and conferences for supply chain executives. Netnet of cash acquired with the business and for cash flow reporting purposes, the Company paid approximately $27.9 million in cash for SCM World. The acquisition of SCM World also included an earn-out provision. The fair value of the earn-out was recorded on the acquisition date as part of the cost of the acquisition and was subsequently adjusted with a charge against earnings.
certain closing costs. The Company recorded $32.4 milliona pretax gain on the sale of goodwill and $5.9 million of amortizable intangible assets for these two acquisitions and an immaterial amount of other assets on a net basis. The operating results and the related goodwill are reported as part of the Company's Research and Events segments. The Company also recorded an additional $1.9 million of additional goodwill in 2016 related to a prior year acquisition.approximately $8.8 million.
For the year ended December 31, 2015:
The Company acquired 100% of the outstanding shares of Nubera eBusiness S.L., and Capterra, Inc., during 2015. Each of these businesses assist clients with selecting business software. The aggregate purchase price was $206.9 in cash. Net of cash acquired with the businesses and for cash flow reporting purposes the Company paid $196.2 million in cash. The Company recorded $79.6 million and $138.1 million of amortizable intangible assets and goodwill, respectively, and $10.8 million in liabilities on a net basis for these acquisitions. The operating results and the related goodwill are reported as part of the Company's Research segment.
Planned divestiture of the CEB Talent Assessment business
On February 6,April 3, 2018, the Company announced that it had reached a definitive agreement to sellsold its CEB Talent Assessment business for $403.0 million and realized approximately $400.0 million.$375.8 million in cash from the sale, which is net of cash transferred with the business and certain closing costs. The agreement wasCompany recorded a pretax gain of approximately $15.5 million on the resultsale.
Other asset sales
During 2018, the Company also received $8.6 million in cash proceeds as well as other consideration and recorded a net pretax gain of approximately $12.8 million from the sale of certain non-core assets originally acquired in the CEB transaction. These amounts include the sale of a previously announced process to evaluate strategic alternatives for the business. The purchase price is subject to typical adjustments for, among other things, the working capital of the business. The transaction is expected to close in the first half of 2018 and is subject to customary closing conditions and certain approvals.small Research segment product called Metrics That Matter on October 31, 2018.
3 — GOODWILL AND INTANGIBLE ASSETS
Goodwill.The CEB Talent Assessment business was acquiredtable below presents changes to the carrying amount of goodwill by Gartner as part ofsegment during the CEB acquisition in 2017 and is a significant portion of the Talent Assessment & Other segment. During thetwo-year period from the CEB acquisition date toended December 31, 2017, the CEB Talent Assessment business contributed approximately $126.1 million of revenue and incurred a pre-tax loss of approximately $19.3 million. Effective with its designation as held-for-sale on October 4, 2017, we discontinued recording depreciation and2019 (in thousands).
|
| | | | | | | | | | | | | | | | | | | |
| | Research | | Conferences | | Consulting | | Other | | Total |
| Balance at December 31, 2017 (1) | $ | 2,619,677 |
| | $ | 187,920 |
| | $ | 97,798 |
| | $ | 81,899 |
| | $ | 2,987,294 |
|
| Divestitures (2) | (2,500 | ) | | — |
| | — |
| | (90,078 | ) | | (92,578 | ) |
| Foreign currency translation impact and other (3) | 21,241 |
| | (266 | ) | | (734 | ) | | 8,179 |
| | 28,420 |
|
| Balance at December 31, 2018 | 2,638,418 |
| | 187,654 |
| | 97,064 |
| | — |
| | 2,923,136 |
|
| Additions due to an acquisition (4) | 17,557 |
| | 1,736 |
| | — |
| | — |
| | 19,293 |
|
| Foreign currency translation impact | (4,915 | ) | | 251 |
| | (39 | ) | | — |
| | (4,703 | ) |
| Balance at December 31, 2019 | $ | 2,651,060 |
| | $ | 189,641 |
| | $ | 97,025 |
| | $ | — |
| | $ | 2,937,726 |
|
amortization on the property, equipment and leasehold improvements | |
| (1) | The Company does not have any accumulated goodwill impairment losses. The goodwill balance at December 31, 2017 excludes certain amounts related to held-for-sale operations. |
| |
| (2) | Represents amounts related to divested businesses. See Note 2 — Acquisitions and Divestitures for additional information. |
| |
| (3) | Includes the foreign currency translation impact and certain measurement period adjustments related to the acquisition of CEB. See Note 2 — Acquisitions and Divestitures for additional information. |
| |
| (4) | The 2019 additions are due to the acquisition of TOPO. See Note 2 – Acquisitions and Divestitures for additional information. |
Finite-lived intangible assets. Changes in finite-lived intangible assets of this business as required underduring the accounting rules. The Company also separately classified the related assets and liabilities of this business as held-for-sale in itstwo-year period ended December 31, 2017 Consolidated Balance Sheet.2019 are presented in the tables below (in thousands).
|
| | | | | | | | | | | | | | | | | | | | |
| December 31, 2019 | | Customer
Relationships | | Software | | Content | | Other | | Total |
| Gross cost at December 31, 2018 | | $ | 1,131,656 |
| | $ | 110,701 |
| | $ | 98,842 |
| | $ | 51,662 |
| | $ | 1,392,861 |
|
| Additions due to an acquisition (1) | | 3,600 |
| | — |
| | 1,200 |
| | 450 |
| | 5,250 |
|
| Intangible assets fully amortized | | — |
| | — |
| | (85,900 | ) | | (21,358 | ) | | (107,258 | ) |
| Foreign currency translation impact | | 9,853 |
| | 332 |
| | (2 | ) | | 84 |
| | 10,267 |
|
| Gross cost | | 1,145,109 |
| | 111,033 |
| | 14,140 |
| | 30,838 |
| | 1,301,120 |
|
| Accumulated amortization (2) | | (283,369 | ) | | (61,564 | ) | | (11,225 | ) | | (19,875 | ) | | (376,033 | ) |
| Balance at December 31, 2019 | | $ | 861,740 |
| | $ | 49,469 |
| | $ | 2,915 |
| | $ | 10,963 |
| | $ | 925,087 |
|
|
| | | | | | | | | | | | | | | | | | | | |
| December 31, 2018 | | Customer
Relationships | | Software | | Content | | Other | | Total |
| Gross cost at December 31, 2017 (3) | | $ | 1,200,316 |
| | $ | 123,424 |
| | $ | 104,313 |
| | $ | 54,929 |
| | $ | 1,482,982 |
|
| Intangible assets fully amortized | | (303 | ) | | (11,715 | ) | | (669 | ) | | (3,311 | ) | | (15,998 | ) |
| Divestitures (4) | | (45,175 | ) | | (321 | ) | | (473 | ) | | (160 | ) | | (46,129 | ) |
| Foreign currency translation impact and other (5) | | (23,182 | ) | | (687 | ) | | (4,329 | ) | | 204 |
| | (27,994 | ) |
| Gross cost | | 1,131,656 |
| | 110,701 |
| | 98,842 |
| | 51,662 |
| | 1,392,861 |
|
| Accumulated amortization (2) | | (184,918 | ) | | (38,901 | ) | | (92,717 | ) | | (33,760 | ) | | (350,296 | ) |
| Balance at December 31, 2018 | | $ | 946,738 |
| | $ | 71,800 |
| | $ | 6,125 |
| | $ | 17,902 |
| | $ | 1,042,565 |
|
| |
| (1) | The 2019 additions are due to the acquisition of TOPO. See Note 2 – Acquisitions and Divestitures for additional information. |
| |
| (2) | Finite-lived intangible assets are amortized using the straight-line method over the following periods: Customer relationships—4 to 13 years; Software—3 to 7 years; Content—1.5 to 4 years; and Other —2 to 11 years. |
| |
| (3) | Excludes certain amounts related to held-for-sale operations. |
| |
| (4) | Represents amounts related to divested businesses. See Note 2 — Acquisitions and Divestitures for additional information. |
| |
| (5) | Includes the foreign currency translation impact and certain other adjustments. |
Amortization expense related to finite-lived intangible assets was $129.7 million, $187.0 million and $176.3 million in 2019, 2018 and 2017, respectively. The principal components ofestimated future amortization expense by year for finite-lived intangible assets is presented in the held-for-saletable below (in thousands).
|
| | | |
| 2020 | $ | 126,081 |
|
| 2021 | 105,007 |
|
| 2022 | 95,194 |
|
| 2023 | 95,179 |
|
| 2024 | 89,863 |
|
| 2025 and thereafter | 413,763 |
|
| | $ | 925,087 |
|
4 — OTHER ASSETS
The Company's other assets and liabilities at December 31, 2017 for this business are summarized in the table below (in thousands):.
|
| | | | | | | |
| | December 31, |
| | 2019 | | 2018 |
| Benefit plan-related assets | $ | 84,600 |
| | $ | 75,653 |
|
| Non-current deferred tax assets | 79,618 |
| | 34,494 |
|
| Other | 58,027 |
| | 46,222 |
|
| Total other assets | $ | 222,245 |
| | $ | 156,369 |
|
|
| | | |
| Cash and cash equivalents | $ | 10,000 |
|
| Fees receivable, net | 50,928 |
|
| Goodwill | 212,994 |
|
| Intangible assets, net | 250,472 |
|
Other assets, including property, equipment and leasehold improvements, net
| 18,571 |
|
| Total assets held-for-sale | $ | 542,965 |
|
| | |
| Accounts payable and accrued liabilities | $ | 32,388 |
|
| Deferred revenues | 61,450 |
|
| Deferred tax liabilities | 47,404 |
|
| Other liabilities | 4,603 |
|
| Total liabilities held-for-sale | $ | 145,845 |
|
The sale of the business has been structured as a sale of the shares of the affected subsidiaries with the corresponding deferred taxes being transferred to the buyer upon consummation of the sale. As such, the Company made an accounting policy election to classify the deferred taxes associated with the individual assets and liabilities that are part of the transaction as held-for-sale.
3 — OTHER ASSETS
Other assets consist of the following (in thousands):
|
| | | | | | | |
| | December 31, |
| | 2017 | | 2016 |
| Benefit plan-related assets | $ | 97,525 |
| | $ | 45,958 |
|
| Non-current deferred tax assets | 31,067 |
| | 27,275 |
|
| Other | 65,150 |
| | 14,046 |
|
| Total other assets | $ | 193,742 |
| | $ | 87,279 |
|
45 — ACCOUNTS PAYABLE AND ACCRUED AND OTHER LIABILITIES
The Company's Accounts payable and accrued liabilities consist ofare summarized in the followingtable below (in thousands):.
|
| | | | | | | |
| | December 31, |
| | 2019 | | 2018 |
| Accounts payable | $ | 32,995 |
| | $ | 37,508 |
|
| Payroll and employee benefits payable | 165,449 |
| | 143,803 |
|
| Severance and retention bonus payable | 24,281 |
| | 28,292 |
|
| Bonus payable | 192,100 |
| | 170,719 |
|
| Commissions payable | 142,499 |
| | 126,844 |
|
| Taxes payable | 7,878 |
| | 19,725 |
|
| Current portion of operating lease liabilities (1) | 76,516 |
| | — |
|
| Other accrued liabilities | 147,078 |
| | 183,222 |
|
| Total accounts payable and accrued liabilities | $ | 788,796 |
| | $ | 710,113 |
|
|
| | | | | | | |
| | December 31, |
| | 2017 | | 2016 |
| Accounts payable | $ | 49,000 |
| | $ | 41,009 |
|
| Payroll and employee benefits payable | 120,278 |
| | 87,821 |
|
| Severance and retention bonus payable | 44,685 |
| | 22,425 |
|
| Bonus payable | 162,710 |
| | 105,549 |
|
| Commissions payable | 108,969 |
| | 68,273 |
|
| Taxes payable | 46,758 |
| | 20,378 |
|
| Other accrued liabilities | 134,421 |
| | 95,316 |
|
| Total accounts payable and accrued liabilities | $ | 666,821 |
| | $ | 440,771 |
|
| |
| (1) | Note 1 — Business and Significant Accounting Policies and Note 7 — Leases provide additional information regarding the Company's leases and certain changes in lease accounting effective January 1, 2019. |
The Company's Other liabilities consist ofare summarized in the followingtable below (in thousands):.
|
| | | | | | | |
| | December 31, |
| | 2019 | | 2018 |
| Non-current deferred revenues | $ | 24,409 |
| | $ | 21,194 |
|
| Long-term taxes payable | 63,565 |
| | 66,304 |
|
| Benefit plan-related liabilities | 108,615 |
| | 96,033 |
|
| Lease-related matters prior to the adoption of ASU No. 2016-02 (1) | — |
| | 165,374 |
|
| Non-current deferred tax liabilities | 189,814 |
| | 214,687 |
|
| Other, including fair value of interest rate swap contracts | 93,343 |
| | 50,081 |
|
| Total other liabilities | $ | 479,746 |
| | $ | 613,673 |
|
|
| | | | | | | |
| | December 31, |
| | 2017 | | 2016 |
| Non-current deferred revenue | $ | 16,205 |
| | $ | 11,289 |
|
| Long-term taxes payable | 66,386 |
| | 19,737 |
|
| Benefit plan-related liabilities | 118,868 |
| | 67,747 |
|
| Lease-related matters | 115,840 |
| | 38,042 |
|
Non-current deferred tax liabilities
| 206,338 |
| | 22,520 |
|
| Other | 54,362 |
| | 22,482 |
|
| Total other liabilities | $ | 577,999 |
| | $ | 181,817 |
|
| |
| (1) | With the adoption of ASU No. 2016-02 on January 1, 2019, the accrual for lease-related matters was reclassified to offset the Company's right-of-use assets and the present value of our remaining lease payments was recorded as an operating lease liability. Note 1 — Business and Significant Accounting Policies and Note 7 — Leases provide additional information regarding the Company's leases and the adoption of ASU No. 2016-02. |
56 — DEBT
2016 Credit Agreement
The Company entered into a term loan and revolving credit facility on June 17, 2016 (the "2016 Credit Agreement"). As discussed below, the 2016 Credit Agreement was amended three times during 2017 in conjunctionconnection with the acquisition of CEB. As of December 31, 2017, theThe 2016 Credit Agreement, providesas amended, provided for a $1.5 billion Term loan A facility, a $500.0 million Term loan B facility and a $1.2 billion revolving credit facility. The 2016 Credit Agreement contains certain customary restrictive loan covenants, including, among others, financial covenants that apply a maximum leverage ratio and a minimum interest expense coverage ratio, and covenants limiting Gartner’s ability to incur indebtedness, grant liens, make acquisitions, merge, dispose of assets, pay dividends, repurchase stock, make investments and enter into certain transactions with affiliates. The Company was in full compliance with the covenants as of December 31, 2017.2019.
TheDuring 2017, the Company borrowed a total of approximately $2.8 billion for the CEB acquisition. The Company borrowed $1.675 billion under the 2016 Credit Agreement, which consisted of $900.0 million under an increased Term loan A facility, $500.0 million under a new Term loan B facility and $275.0 million on itsan existing revolving credit facility. The $1.675 billion drawn under the 2016 Credit Agreement, along with the funds raised through the issuance of $800.0 million Senior Notes due 2025 and a $300.0 million 364-day Bridge Credit Facility, discussed below, were used to fund the CEB acquisition and related costs. As discussed below, theThe funds borrowed under the 364-day Bridge Credit Facility were completely repaid during 2017.2017 and the borrowings under the Term loan B facility were completely repaid during 2018.
On January 20, 2017, the Company entered into a first amendment to the 2016 Credit Agreement, which was entered into to permit the acquisition of CEB and the incurrence of additional debt to finance, in part, the acquisition and repay certain debt of CEB, and to modify certain covenants. On March 20, 2017, the Company entered into a second amendment to the 2016 Credit Agreement. The second amendment was also entered into in connection with the acquisition of CEB and was executed primarily to extend the maturity date of the Term loan A facility and the revolving credit facility through March 20, 2022 and to revise the interest rate and amortization schedule. On April 5, 2017, in conjunction with the closing of the CEB acquisition, the Company entered into a third amendment to the 2016 Credit Agreement, with its lenders which increased the aggregate principal amount of the existing Term loan A facility by $900.0 million and added the Term loan B facility in an aggregate principal amount of $500.0 million.
The Term loan A facility will beis being repaid in 16 consecutive quarterly installments that commenced on June 30, 2017, plus a final payment to be made on March 20, 2022. The additional amount drawn under the Term loan A facility has the same maturity date and is subject to the same interest, repayment terms, amortization schedules, representations and warranties, affirmative and negative covenants and events of default as the amounts outstanding under such facility prior to entry by the Company into the Incremental Amendment. The revolving credit facility may be borrowed, repaid and re-borrowed through March 20, 2022, at which time all then-outstanding amounts must be repaid. Amounts borrowed under the Term loan A facility and the revolving credit facility bear interest at a rate equal to, at the Company's option, either:
(i) the greatest of: (x) the Administrative Agent’s prime rate; (y) the average rate oncalculated by the New York Federal Reserve Board of New York rateBank for federal funds transactions plus 1/2 of 1%; and (z) the eurodollar rate (adjusted for statutory reserves) plus 1%, in each case plus a margin equal to between 0.125% and 1.50%, depending on Gartner’s consolidated leverage ratio as of the end of the four consecutive fiscal quarters most recently ended; or
(ii) the eurodollar rate (adjusted for statutory reserves) plus a margin equal to between 1.125% and 2.50%, depending on Gartner’s consolidated leverage ratio as of the end of the four consecutive fiscal quarters most recently ended.
During 2018, the Company repaid the entire $496.3 million that was outstanding under the Term loan B facility. The Term loan B facility contains representations and warranties, affirmative and negative covenants and events of default that are the same as the Term loan A facility and revolving credit facility, except that a breach of financial maintenance covenants will not result in an event of default under the Term loan B facility unless the lenders under the revolving credit facility and Term loan A facility have accelerated the revolving loans and Term loan A loans and terminated their commitments thereunder. Additionally, the Term loan B facility includes mandatory prepayment requirements relatedwas scheduled to asset sales (subject to reinvestment), debt incurrence (other than permitted debt) and excess cash flow, subject to certain limitations described therein. The Term loan B facility will mature on April 5, 2024 and the amounts outstanding thereunder will bearbore interest at a rate per annum equal to, at the option of Gartner, (i) adjusted LIBOR plus 2.00% or (ii) an alternate base rate plus 1.00%.
364-day Bridge Credit Facility
On April 5, 2017, in conjunction with the acquisition of CEB, the Company entered into a senior unsecured 364-day Bridge Credit Facility in an aggregate principal amount of $300.0 million, which was immediately drawn down to fund a portion of the purchase price associated with the CEB acquisition. The Company repaid the entire $300.0 million of the 364-day Bridge Credit Facility during 2017.
Senior Notes
On March 30, 2017, in conjunction with the acquisition of CEB, the Company issued $800.0 million aggregate principal amount of 5.125% Senior Notes due 2025 (the “Senior Notes”). The proceeds of the Senior Notes were also used to fund a portion of the purchase price associated with the CEB acquisition.
The Senior Notes were issued at an issue price of 100.00%100.0% and bear interest at a fixed rate of 5.125% per annum. Interest on the Senior Notes is payable on April 1 and October 1 of each year. The Senior Notes will mature on April 1, 2025. The Company may redeem some or all of the Senior Notes at any time on or after April 1, 2020 for cash at the redemption prices set forth in the Note Indenture, plus accrued and unpaid interest to, but not including, the redemption date. Prior to April 1, 2020, the Company may redeem up to 40.0%40% of the aggregate principal amount of the Senior Notes with the proceeds of certain equity offerings at a redemption price of 105.125% plus accrued and unpaid interest to, but not including, the redemption date. In addition, the Company may redeem some or all of the Senior Notes prior to April 1, 2020 at a redemption price of 100% of the principal amount of the Senior Notes plus accrued and unpaid interest to, but not including, the redemption date, plus a “make-whole” premium. If the Company experiences specificcertain kinds of changechanges of control, it will be required to offer to purchase the Senior Notes at a price equal to 101% of the principal amount thereof plus accrued and unpaid interest.
The Senior Notes are the Company’s general unsecured senior obligations, and are effectively subordinated to all of the Company’s existing and future secured indebtedness to the extent of the value of the collateral securing such indebtedness, structurally subordinated to all existing and future indebtedness and other liabilities of the Company’s non-guarantor subsidiaries, equal in right of payment to all of the Company’s and the Company’s guarantor subsidiaries’ existing and future senior indebtedness and senior in right of payment to all of the Company’s future subordinated indebtedness, if any.
Outstanding Borrowings - December 31, 2017
The following table below summarizes the Company’s total outstanding borrowings as of the dates indicated (in thousands):.
| | | | | Balance
December 31, | | Balance
December 31, | | December 31, |
| Description: | | 2017 | | 2016 | |
| Description | | | 2019 | | 2018 |
| 2016 Credit Agreement - Term loan A facility (1) | | $ | 1,429,312 |
| | $ | 585,000 |
| | $ | 1,252,969 |
| | $ | 1,355,062 |
|
| 2016 Credit Agreement - Term loan B facility (1) | | 496,250 |
| | — |
| |
| 2016 Credit Agreement - Revolving credit facility (1), (2) | | 595,000 |
| | 115,000 |
| | 148,000 |
| | 155,000 |
|
| Senior notes (3) | | 800,000 |
| | — |
| | 800,000 |
| | 800,000 |
|
| Other (4) | | 2,500 |
| | 2,500 |
| | 6,545 |
| | 2,030 |
|
| Principal amount outstanding (5), (6) | | 3,323,062 |
| | $ | 702,500 |
| | 2,207,514 |
| | 2,312,092 |
|
| Less: deferred financing fees (7) | | (44,217 | ) | | (8,109 | ) | | (23,908 | ) | | (30,405 | ) |
| Net balance sheet carrying amount | | $ | 3,278,845 |
| | $ | 694,391 |
| | $ | 2,183,606 |
| | $ | 2,281,687 |
|
| |
| (1) | The contractual annualized interest rate as of December 31, 20172019 on the Term loan A facility and B facilities was 3.57%, which consisted of a floating Eurodollar base rate of 1.57% plus a margin of 2.00%. The contractual annualized interest rate on the revolving credit facility was 4.07%3.30%, which consisted of a floating eurodollar base rate of 1.57%1.80% plus a margin of 2.50%1.50%. However, the Company has interest rate swap contracts whichthat effectively convert the floating eurodollar base rates on a portion of theoutstanding amounts outstanding to a fixed base rate. |
| |
| (2) | The Company had $558.0 millionapproximately $1.0 billion of available borrowing capacity on the revolver (not including the expansion feature) as of December 31, 2017.2019. |
| |
| (3) | Consists of an $800.0800.0 million principal amount of Senior Notes outstanding. The Senior Notes paybear interest at a fixed rate of 5.125% and have an eight year maturity.mature on April 1, 2025. |
| |
| (4) | Consists of a $2.5 million2 State of Connecticut economic development loan withloans as of December 31, 2019. One of the loans originated in 2012, has a 3.0%10-year maturity and the outstanding balance of $1.5 million as of December 31, 2019 bears interest at a fixed rate of interest. The3.00%. In connection with an expansion project at its Stamford, Connecticut headquarters, the Company borrowed $5.0 million during 2019 under a financial assistance program offered by the State of Connecticut. This second loan was originated in 2012 and has a 10 year maturity.10-year maturity and bears interest at a fixed rate of 1.75%. Principal and interest payments are deferred for the first seven years. The loan has a provision whereby some or all of the $5.0 million principal may be forgiven if the Company meets certain employment targets in the State of Connecticut during the first five years andof the loanloan. Both of these loans may be repaid at any pointtime by the Company without penalty. |
| |
| (5) | The weighted average annual interesteffective rate on the Company's outstanding debt as of December 31, 2017 was 3.91%,for 2019, including the effecteffects of its interest rate swaps discussed below.below, was 4.11%. |
| |
| (6) | The contractual due dates of principal amounts by year onfor the Company's outstanding debt outstanding as of December 31, 2017 are2019 were as follows: $80.0 million in 2018; $107.6 million in 2019; $144.7$139.7 million in 2020; $42.6$37.6 million in 2021; $1.68$1.2 billion in 2022; $800.0 million in 2025 and approximately $1.27 billion$5.0 million thereafter. In January 2018 the Company repaid $255.0 million of outstandings on the revolver which were not contractually due until 2022. |
| |
| (7) | The deferredDeferred financing fees are being amortized to Interest expense net over the term of the respectiverelated debt obligation. The Company wrote off approximately $6.9 million of deferred financing fees in 2018 related to the repayment of the Term loan B facility. During 2017, the Company paid $51.2 million in additionalfor deferred financing fees and recorded a charge of approximately $6.1 million for the write-off of deferred financing fees related to thea prior financing arrangement. |
Interest Rate Swaps
As of December 31, 2017,2019, the Company had4 fixed-for-floating interest rate swap contracts. The swaps havecontracts with a total notional value of $1.4 billion andthat mature in 2022.through 2025. The Company designates the swaps as accounting hedges of the forecasted interest payments on $1.4 billion of the Company’s variable rateits variable-rate borrowings. The Company pays base fixed rates on these swaps ranging from 1.54%2.13% to 2.13%3.04% and in return receives a floating eurodollar base rate on $1.4 billion of 30-day notional borrowings.
The Company accounts for theits interest rate swapsswap contracts as cash flow hedges in accordance with FASB ASC Topic 815. SinceBecause the swaps hedge forecasted interest payments, changes in the fair valuevalues of the swaps are recorded in accumulated other comprehensive income (loss), a component of stockholders' equity, as long as the swaps continue to be highly effective hedges of the designated interest rate risk. Any ineffective portion of a change in the fair value of the hedgesa hedge is recorded in earnings. All of the Company's interest rate swaps were considered highly effective hedges of the forecasted interest payments as of both December 31, 2017.2019 and 2018. The interest rate swaps had a positivenet negative unrealized fair valuevalues (liabilities) of $3.4$64.8 million at December 31, 2017 and a negative fair value of $2.3$10.7 million as of December 31, 2016. These2019 and 2018, respectively. Such amounts were deferred and classifiedrecorded in accumulatedAccumulated other comprehensive income (loss),loss, net of tax effect. See Note 14 — Fair Value Disclosures for the determination of the fair values of Company's interest rate swaps.
7 — LEASES
As discussed in Note 1 — Business and Significant Accounting Policies, the Company adopted ASU No. 2016-02 on January 1, 2019 using a modified retrospective approach. We elected to use an optional transition method available under ASU No. 2016-02 to record the required cumulative effect adjustments to the opening balance sheet in the period of adoption rather than in the earliest comparative period presented. As such, the Company's historical consolidated financial statements have not been restated.
Under ASC Topic 840, which was the U.S. GAAP lease accounting standard before ASU No. 2016-02, lease arrangements that met certain criteria were considered operating leases and were not recorded on an entity's balance sheet. Prior to January 1, 2019 and through December 31, 2019, all of the Company’s lease arrangements were accounted for as operating leases. The adoption of ASU No. 2016-02 on January 1, 2019 had a material impact on the Company’s consolidated balance sheet due to the recognition of right-of-use assets of $651.9 million and related lease liabilities of $851.3 million. The Company’s adoption of ASU No. 2016-02 resulted in a net increase of $638.7 million in each of Total Assets and Total Liabilities. The adoption of the new lease standard did not affect Stockholders’ Equity.
In connection with our adoption of ASU No. 2016-02, we elected to use certain practical expedients under the new lease standard and made other elections that impact the Company's lease accounting. We elected to use these practical expedients in connection with the adoption of ASU No. 2016-02 because, among other things, they simplified the adoption of the new lease standard, streamlined our internal processes and minimized the associated costs. The critical practical expedients and accounting policy elections used by the Company for all classes of leases accounted for under ASU No. 2016-02 were as follows:
Existing contracts were not reassessed to determine if they contained leases.
Existing leases were not reassessed to determine if their classification should be changed.
Initial direct costs for existing leases were not reassessed.
Lease components and nonlease components (e.g., common area maintenance charges, etc.) for each lease arrangement were accounted for as a single lease component for purposes of the recognition and measurement requirements of ASU No. 2016-02.
The incremental borrowing rate used for the purpose of measuring each of our lease liabilities was derived by reference to the related lease’s remaining minimum payments and remaining lease term on the date of adopting the new lease standard. We used incremental borrowing rates because we were unable to determine the implicit interest rates in our leases.
6 — COMMITMENTS AND CONTINGENCIESLeasing Activities
Contractual Lease Commitments.The Company’s leasing activities are primarily for facilities under cancelable and non-cancelable lease agreements expiring during 2020 and through 2038. These facilities support our executive and administrative activities, research and consulting, sales, systems support, operations, and other functions. The Company also has leases various facilities, computer andfor office equipment furniture, and other assets, under non-cancelablewhich are not significant. Certain of the Company's lease agreements include (i) renewal options to extend the lease term for up to ten years and/or (ii) options to terminate the agreement within one year. Additionally, certain of the Company’s lease agreements provide standard recurring escalations of lease payments for, among other things, increases in a lessor’s maintenance costs and taxes. Under some lease agreements, the Company may be entitled to allowances, free rent, lessor-financed tenant improvements and other incentives. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Prior to January 1, 2019, the Company recognized lease expense in accordance with ASC Topic 840. Because both ASU No. 2016-02 and ASC Topic 840 generally recognize operating lease agreements expiring betweenexpense on a straight-line basis over the term of the lease arrangement and the Company only has operating lease arrangements, the lease expense recognition patterns under the two accounting methodologies during 2019, 2018 and 2032. The future minimum annual cash payments under these2017 were substantively the same.
Except for lease arrangements pertaining to facilities, all other operating lease agreementsactivity is not material. As such, operating leases for office equipment and other assets (collectively, the “Other Leases”) are: (i) not recognized and measured under the relevant provisions of ASU No. 2016-02; (ii) excluded from the right-of-use assets and related lease liabilities on the Consolidated Balance Sheet as of December 31, 20172019; and (iii) excluded from the quantitative disclosures provided below, other than the disclosures under the heading "Lease Disclosures Under ASC Topic 840." The Other Leases are accounted for similar to the guidance for operating leases under ASC Topic 840, which generally recognizes lease expense on a straight-line basis over the term of the lease arrangement. As a result, the impact of excluding the Other Leases from the requirements of ASU No. 2016-02 is not significant.
The Company subleases certain office space that it does not intend to occupy. Such sublease arrangements expire during 2020 and through 2032 and primarily relate to facilities in Arlington, Virginia. Certain of the Company’s sublease agreements: (i) include renewal and termination options; (ii) provide for customary escalations of lease payments in the normal course of business; and (iii) grant the subtenant certain allowances, free rent, Gartner-financed tenant improvements and other incentives.
Lease Accounting under ASU No. 2016-02
Under ASU No. 2016-02, a lease is a contract or an agreement, or a part of another arrangement, between two or more parties that, at its inception, creates enforceable rights and obligations that conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration.
Right-of-use assets represent a right to use an underlying asset for the lease term and the related lease liability represents an obligation to make lease payments pursuant to the contractual terms of the lease agreement. Right-of-use assets and lease liabilities are initially recognized on the lease commencement date based on the present value of the lease payments over the lease term. For all of our facilities leases, we account for both lease components and nonlease components (e.g., common area maintenance charges, etc.) as a single lease component when determining the present value of our lease payments. Variable lease payments that are not dependent on an index or a rate are excluded from the determination of our right-of-use assets and lease liabilities and such payments are recognized as expense in the period when the related obligation is incurred.
The Company’s lease agreements do not provide implicit interest rates. Instead, the Company uses an incremental borrowing rate determined on the lease commencement date to calculate the present value of future lease payments. The incremental borrowing rate is calculated for each individual lease and represents the rate of interest that the Company would have to pay to borrow on a collateralized basis (in the currency that the lease is denominated) over a similar term an amount equal to the lease payments in a similar economic environment. Right-of-use assets also include any initial direct costs incurred by the Company and lease payments made to a lessor on or before the related lease commencement date, less any lease incentives received directly from the lessor.
Certain of the Company’s facility lease agreements include options to extend or terminate the lease. When it is reasonably certain that the Company will exercise a renewal or termination option, the present value of the lease payments for the affected lease is adjusted accordingly. Leases with a term of twelve months or less are accounted for in the same manner as long-term lease arrangements, including any related disclosures. Lease expense for operating leases is generally recognized on a straight-line basis over the lease term, unless the related right-of-use asset was previously impaired.
All of our existing sublease arrangements have been classified as follows (inoperating leases with sublease income recognized on a straight-line basis over the term of the sublease arrangement. To measure the Company’s periodic sublease income, we elected to use a practical expedient under ASU No. 2016-02 to aggregate nonlease components with the related lease components when (i) the timing and pattern of transfer for the nonlease components and the related lease components are the same and (ii) the lease components, if accounted for separately, would be classified as an operating lease. This practical expedient applies to all of our existing sublease arrangements.
When our projected lease cost for the term of a sublease exceeds our anticipated sublease income for that same period, we treat that circumstance as an indicator that the carrying amount of the related right-of-use assetmay not be fully recoverable. In those situations, we perform an impairment analysis and, if indicated, we record a charge against earnings to reduce the right-of-use asset to the amount deemed to be recoverable in the future. There were no right-of-use asset impairments during 2019.
On the Consolidated Balance Sheet as of December 31, 2019, right-of-use assets are classified and reported in Operating lease right-of-use assets, and the related lease liabilities are included in Accounts payable and accrued liabilities (current) and Operating lease liabilities (long-term). On the Consolidated Statement of Cash Flows for 2019, the reduction in the carrying amount of right-of-use assets is presented separately and the change in operating lease liabilities is included under Accounts payable and accrued and other liabilities in the reconciliation of net income to cash provided by operating activities.
Lease Disclosures Under ASU No. 2016-02
All of the Company’s leasing and subleasing activity for 2019 is recognized in Selling, general and administrative expense in the Consolidated Statements of Operations. The table below presents the Company’s net lease cost and certain other information related to our leasing activities as of and for the year ended December 31, 2019 (dollars in thousands): .
|
| | | |
| Description | |
| Year Ended December 31, 2019: | |
| Operating lease cost (1) | $ | 144,727 |
|
| Variable lease cost (2) | 16,404 |
|
| Sublease income | (38,901 | ) |
| Total lease cost, net (3) | $ | 122,230 |
|
| | |
| Cash paid for amounts included in the measurement of operating lease liabilities | $ | 135,799 |
|
| Cash receipts from sublease arrangements | $ | 34,441 |
|
| Right-of-use assets obtained in exchange for new operating lease liabilities | $ | 136,997 |
|
| | |
| As of December 31, 2019: | |
| Weighted average remaining lease term for operating leases (in years) | 10.2 |
|
| Weighted average discount rate for operating leases | 6.7 | % |
| |
| (1) | Included in operating lease cost was $43.2 million of costs for subleasing activities during 2019. |
| |
| (2) | These amounts are primarily variable lease and nonlease costs that were not fixed at the lease commencement date or are dependent on something other than an index or a rate. |
| |
| (3) | The Company did not capitalize any operating lease costs during 2019. |
|
| | | |
| Year ended December 31, | |
|
| 2018 | $ | 129,570 |
|
| 2019 | 121,543 |
|
| 2020 | 113,612 |
|
| 2021 | 106,371 |
|
| 2022 | 97,225 |
|
| Thereafter | 727,405 |
|
| Total minimum lease payments (1) | $ | 1,295,726 |
|
As of December 31, 2019, the (i) maturities of operating lease liabilities under non-cancelable arrangements and (ii) estimated future sublease cash receipts from non-cancelable arrangements were as follows (in thousands):
|
| | | | | | | | |
| | | Operating | | Sublease |
| | | Lease | | Cash |
| Period ending December 31, | | Payments | | Receipts |
| 2020 | | $ | 134,579 |
| | $ | 39,941 |
|
| 2021 | | 134,707 |
| | 44,382 |
|
| 2022 | | 129,741 |
| | 45,582 |
|
| 2023 | | 126,435 |
| | 46,520 |
|
| 2024 | | 114,948 |
| | 40,643 |
|
| Thereafter | | 643,129 |
| | 143,547 |
|
| Total future minimum operating lease payments and estimated sublease cash receipts (1) | | 1,283,539 |
| | $ | 360,615 |
|
| Imputed interest | | (374,490 | ) | | |
| Total operating lease liabilities per the Consolidated Balance Sheet | | $ | 909,049 |
| | |
| |
| (1) | Approximately 82% of the operating lease payments pertain to properties in the United States. |
The table below indicates where the discounted operating lease payments from the above table are classified in the Consolidated Balance Sheet as of December 31, 2019 (in thousands).
|
| | | | |
| Description | | |
| Accounts payable and accrued liabilities | | $ | 76,516 |
|
| Operating lease liabilities | | 832,533 |
|
| Total operating lease liabilities per the Consolidated Balance Sheet | | $ | 909,049 |
|
As of December 31, 2019, the Company had additional operating leases for facilities that have not yet commenced. These operating leases, which aggregated $50.2 million of undiscounted lease payments, are scheduled to commence during 2020 and 2021 with lease terms of up to ten years.
Lease Disclosures Under ASC Topic 840
Based on the Company's selected method of adoption for ASU No. 2016-02, the disclosures presented below from ASC Topic 840 are required herein.
As of December 31, 2018, future minimum annual cash payments under non-cancelable operating lease agreements for facilities, office equipment and other assets, which expired in 2019 and through 2038, were as follows (in thousands):
|
| | | |
| Year ended or ending December 31, | |
|
| 2019 | $ | 130,991 |
|
| 2020 | 121,802 |
|
| 2021 | 118,945 |
|
| 2022 | 111,117 |
|
| 2023 | 106,113 |
|
| Thereafter | 689,360 |
|
| Total minimum lease payments (1) | $ | 1,278,328 |
|
(1) Excludes approximately $284.0$372.0 million of sublease income.
Legal Matters.The Company is involvedCompany's operating lease expense under ASC Topic 840 for its facilities, office equipment and other assets was $93.5 million and $87.9 million in legal proceedings2018 and litigation arising in2017, respectively. The cost of such operating leases, including any contractual rent increases, rent concessions and landlord incentives, was recognized ratably over 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, cash flows, or results of operations when resolved in a future period.
Indemnifications. 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 naturelife of the Company’s obligations and the unique facts of each particularrelated lease agreement. Historically, payments made by us under these agreements have not been material. As of December 31, 2017, the Company did not have any material payment obligations under any such indemnification agreements.
78 — STOCKHOLDERS’ EQUITY
Common stock. Holders of Gartner’s Common Stock,common stock, par value $.00050.0005 per share, (“Common Stock”) are entitled to one1 vote per share on all matters to be voted by stockholders. The Company does not currently pay cash dividends on its Common Stock.common stock. Also, our 2016 Credit Agreement contains a negative covenant whichthat may limit our ability to pay dividends. The following table below summarizes transactions relating to our Common Stockthe Company's common stock for the three years ended December 31, 2017: 2019.
|
| | | | | |
| | Issued Shares | | Treasury Stock Shares |
| Balance at December 31, 2014 | 156,234,415 |
| | 68,713,890 |
|
| Issuances under stock plans | — |
| | (1,003,746 | ) |
| Purchases for treasury (1) | — |
| | 6,186,101 |
|
| Balance at December 31, 2015 | 156,234,415 |
| | 73,896,245 |
|
| Issuances under stock plans | — |
| | (923,696 | ) |
| Purchases for treasury (1) | — |
| | 610,623 |
|
| Balance at December 31, 2016 | 156,234,415 |
| | 73,583,172 |
|
| Issued in connection with the acquisition of CEB | 7,367,652 |
| | — |
|
| Issuances under stock plans | — |
| | (1,186,150 | ) |
| Purchases for treasury (1) | — |
| | 382,183 |
|
| Balance at December 31, 2017 | 163,602,067 |
| | 72,779,205 |
|
|
| | | | | |
| | Issued Shares | | Treasury Stock Shares |
| Balance at December 31, 2016 | 156,234,415 |
| | 73,583,172 |
|
| Issued in connection with the acquisition of CEB (1) | 7,367,652 |
| | — |
|
| Issuances under stock plans | — |
| | (1,186,150 | ) |
| Purchases for treasury (2) | — |
| | 382,183 |
|
| Balance at December 31, 2017 | 163,602,067 |
| | 72,779,205 |
|
| Issuances under stock plans | — |
| | (933,246 | ) |
| Purchases for treasury (2), (3) | — |
| | 2,054,018 |
|
| Balance at December 31, 2018 | 163,602,067 |
| | 73,899,977 |
|
| Issuances under stock plans | — |
| | (825,115 | ) |
| Purchases for treasury (2), (3) | — |
| | 1,369,426 |
|
| Balance at December 31, 2019 | 163,602,067 |
| | 74,444,288 |
|
| |
| (1) | Note 2 — Acquisitions and Divestitures provides additional information regarding the CEB acquisition. |
| |
| (2) | The Company used a total of $41.3$199.0 million, $59.0$260.8 million and $509.0$41.3 million in cash for share repurchases induring 2019, 2018 and 2017, 2016, and 2015, respectively. |
| |
| (3) | The number of shares repurchased in 2018 included shares repurchased in December 2018 that settled in January 2019. Additionally, the shares repurchased during 2019 included shares repurchased in December 2019 that settled in January 2020. |
Share Issuance Related to the Acquisition of CEB. On April 5, 2017, the Company issued 7.4 million of its common shares at a fair value of $109.65 per common share as part of the consideration for the CEB acquisition. Note 2 — Acquisitions and Divestiture provides additional information regarding the CEB acquisition. The fair value of the Company's common stock was determined based on an average of the high and low prices of the common stock as reported by the New York Stock Exchange on April 5, 2017, the date of the acquisition.
Share repurchase authorization. The Company has a $1.2 billion board approved authorization to repurchase the Company'sits common stock, of which $1.1$0.7 billion remained available as of December 31, 2017.2019. The Company may repurchase its common stock from time to timetime-to-time in amounts, and at prices and in the manner that 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 (which may include repurchase plans designed to comply with Rule 10b5-1 of the Securities Exchange Act of 1934, as amended), accelerated share repurchases, private transactions or other transactions and will be funded fromby cash on hand and borrowings under the Company’s credit arrangement.borrowings.
Accumulated Other Comprehensive Income (Loss), Net. net ("AOCI/L")
The following tables disclosebelow provide information about the changes in Accumulated Other Comprehensive Income (Loss) ("AOCL/I"), a component of equity,AOCI/L by component and the related amounts reclassified out of AOCL/IAOCI/L to income during the years indicated (net of tax, in thousands) (1):.
2017Year Ended December 31, 2019
|
| | | | | | | | | | | | | | | |
| | Interest Rate Swaps | | Defined Benefit Pension Plans | | Foreign Currency Translation Adjustments | | Total |
| Balance - December 31, 2016 | $ | (1,409 | ) | | $ | (5,797 | ) | | $ | (42,477 | ) | | $ | (49,683 | ) |
| Changes during the period: | | | | | | | |
| Change in AOCL/I before reclassifications to income | (1,492 | ) | | — |
| | 47,363 |
| | 45,871 |
|
| Reclassifications from AOCL/I to income during the period (2), (3) | 5,384 |
| | (64 | ) | | — |
| | 5,320 |
|
| Other comprehensive income (loss) for the period | 3,892 |
| | (64 | ) | | 47,363 |
| | 51,191 |
|
| Balance - December 31, 2017 | $ | 2,483 |
| | $ | (5,861 | ) | | $ | 4,886 |
| | $ | 1,508 |
|
|
| | | | | | | | | | | | | | | |
| | Interest Rate Swaps | | Defined Benefit Pension Plans | | Foreign Currency Translation Adjustments | | Total |
| Balance - December 31, 2018 | $ | (7,770 | ) | | $ | (5,738 | ) | | $ | (26,359 | ) | | $ | (39,867 | ) |
| Other comprehensive income (loss) activity during the year: | | | | | | | |
| Change in AOCI/L before reclassifications to income | (36,949 | ) | | (3,011 | ) | | 4,169 |
| | (35,791 | ) |
| Reclassifications from AOCI/L to income (2), (3) | (2,445 | ) | | 165 |
| | — |
| | (2,280 | ) |
| Other comprehensive income (loss) for the year | (39,394 | ) | | (2,846 | ) | | 4,169 |
| | (38,071 | ) |
| Balance - December 31, 2019 | $ | (47,164 | ) | | $ | (8,584 | ) | | $ | (22,190 | ) | | $ | (77,938 | ) |
2016Year Ended December 31, 2018
|
| | | | | | | | | | | | | | | |
| | Interest Rate Swaps | | Defined Benefit Pension Plans | | Foreign Currency Translation Adjustments | | Total |
| Balance - December 31, 2015 | $ | (3,079 | ) | | $ | (4,832 | ) | | $ | (36,491 | ) | | $ | (44,402 | ) |
| Changes during the period: | | | | | | | |
| Change in AOCL/I before reclassifications to income | (2,902 | ) | | (1,113 | ) | | (5,986 | ) | | (10,001 | ) |
| Reclassifications from AOCL/I to income during the period (2), (3) | 4,572 |
| | 148 |
| | — |
| | 4,720 |
|
| Other comprehensive income (loss) for the period | 1,670 |
| | (965 | ) | | (5,986 | ) | | (5,281 | ) |
| Balance - December 31, 2016 | $ | (1,409 | ) | | $ | (5,797 | ) | | $ | (42,477 | ) | | $ | (49,683 | ) |
|
| | | | | | | | | | | | | | | |
| | Interest Rate Swaps | | Defined Benefit Pension Plans | | Foreign Currency Translation Adjustments | | Total |
| Balance - December 31, 2017 | $ | 2,483 |
| | $ | (5,861 | ) | | $ | 4,886 |
| | $ | 1,508 |
|
| Adoption of ASU No. 2018-02 (4) | 591 |
| | — |
| | — |
| | 591 |
|
| Other comprehensive income (loss) activity during the year: | | | | | | | |
| Change in AOCI/L before reclassifications to income | (9,447 | ) | | — |
| | 29,066 |
| | 19,619 |
|
| Reclassifications from AOCI/L to income (2), (3), (5) | (1,397 | ) | | 123 |
| | (60,311 | ) | | (61,585 | ) |
| Other comprehensive income (loss) for the year | (10,844 | ) | | 123 |
| | (31,245 | ) | | (41,966 | ) |
| Balance - December 31, 2018 | $ | (7,770 | ) | | $ | (5,738 | ) | | $ | (26,359 | ) | | $ | (39,867 | ) |
(1) Amounts in parentheses represent debits (deferred losses).
(2) The reclassifications related to interest rate swaps (cash flow hedges) were recorded in Interest expense, net of tax effect. See Note 116 – Debt and Note 13 – Derivatives and Hedging for information regarding the cash flow hedges.
(3) The reclassifications related to defined benefit pension plans were primarily recorded in Selling, general and administrative expense, net of tax effect. See Note 1315 – Employee Benefits for information regarding the Company’s defined benefit pension plans.
(4) See Note 1 – Business and Significant Accounting Policies for additional information regarding the Company's adoption of ASU No. 2018-02.
(5) The reclassification related to foreign currency translation adjustments in 2018 was recorded in (Loss) gain from divested operations. See Note 2 – Acquisitions and Divestitures for information regarding our divestitures in 2018.
89 — REVENUE AND RELATED MATTERS
As discussed in Note 1 — Business and Significant Accounting Policies, the Company adopted ASU No. 2014-09 on January 1, 2018. ASU No. 2014-09 is intended to clarify the principles for recognizing revenue by removing inconsistencies and weaknesses in previously existing revenue recognition rules; provide a more robust framework for addressing revenue recognition issues; improve comparability of revenue recognition practices across entities, industries, jurisdictions and capital markets; and provide more useful information to users of financial statements through improved disclosures.
The adoption of ASU No. 2014-09 did not have a material impact on the Company's consolidated financial statements. However, the new accounting standard requires significantly expanded disclosures around the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers, which disclosures are provided below. Additionally, the Company's accounting policies have been updated to reflect the adoption of ASU No. 2014-09.
Our Business and Revenues
Gartner delivers its products and services globally through 3 business segments: Research, Conferences and Consulting. Our revenues from those business segments are discussed below.
Research
Research provides trusted, objective insights and advice on the mission-critical priorities of leaders across all functional areas of an enterprise through reports, briefings, proprietary tools, access to our research experts, peer networking services and membership programs that enable our clients to drive organizational performance.
Research revenues are mainly derived from subscription contracts for research products, representing approximately 90% of the segment’s revenue. The related revenues are deferred and recognized ratably over the applicable contract term (i.e., as we provide services over the contract period). Fees derived from assisting organizations in selecting the right business software for their needs are recognized at a point in time (i.e., when the lead is provided to the vendor).
The Company enters into subscription contracts for research products that generally are for twelve-month periods or longer. Approximately 80% to 85% of our annual and multi-year Research subscription contracts provide for billing of the first full service period upon signing. In subsequent years, multi-year subscription contracts are normally billed prior to the contract’s anniversary date. Our other Research subscription contracts are usually invoiced in advance, commencing with the contract signing, on (i) a quarterly, monthly or other recurring basis or (ii) in accordance with a customized invoicing schedule. Research contracts are generally non-cancelable and non-refundable, except for government contracts that may have cancellation or fiscal funding clauses, which have not historically resulted in material cancellations. It is our policy to record the amount of a subscription contract that is billable as a fee receivable at the time the contract is signed with a corresponding amount as deferred revenue because the contract represents a legally enforceable claim.
Conferences
Conferences provides business professionals across an organization the opportunity to learn, share and network. From our Gartner Symposium/Xpo series, to industry-leading conferences focused on specific business roles and topics, to peer-driven sessions, our offerings enable attendees to experience the best of Gartner insight and advice live.
We earn revenues from both the attendees and exhibitors at our conferences and meetings. Attendees are generally invoiced for the full attendance fee upon their completion of an online registration form or their signing of a contract, while exhibitors typically make several individual payments commencing with the signing of a contract. We collect almost all of the invoiced amounts in advance of the related activity, resulting in the recording of deferred revenue. We recognize both the attendee and exhibitor revenue as we satisfy our related performance obligations (i.e., when the related activity is held).
The Company defers certain costs directly related to specific conferences and meetings and expenses those costs in the period during which the related activity occurs. The Company's policy is to defer only those costs that are incremental and directly attributable to a specific activity, primarily prepaid site and production services costs. Other costs of organizing and producing our conference activities, primarily Company personnel and non-conference specific expenses, are expensed in the period incurred.
Consulting
Consulting combines the power of Gartner market-leading research with custom analysis and on-the-ground support to help chief information officers and other senior executives driving technology-related strategic initiatives move confidently from insight to action.
Consulting revenues, primarily derived from custom consulting and measurement services, are principally generated from fixed fee or time and materials engagements. Revenues from fixed fee engagements are recognized as we work to satisfy our performance obligations, while revenues from time and materials engagements are recognized as work is delivered and/or services are provided. In both of these circumstances, we satisfy our performance obligations and control of the services are passed to our customers over time (i.e., during the duration of the contract or consulting engagement). On a contract-by-contract basis, we typically use actual labor hours incurred compared to total expected labor hours to measure the Company’s performance in respect of our fixed fee engagements. If our labor and other costs on an individual contract are expected to exceed the total contract value or the contract’s funded ceiling amount, the Company reflects an adjustment to the contract’s overall profitability in the period determined. Revenues related to contract optimization engagements are contingent in nature and are only recognized at the point in time when all of the conditions related to their payment have been satisfied.
Consulting customers are invoiced based on the specific terms and conditions in their underlying contracts. We typically invoice our Consulting customers after we have satisfied some or all of the related performance obligations and the related revenue has been recognized. We record fees receivable for amounts that are billed or billable. We also record contract assets, which represent amounts for which we have recognized revenue but lack the unconditional right to payment as of the balance sheet date due to our required continued performance under the relevant contract, progress billing milestones or other billing-related restrictions.
General and Overview of ASU No. 2014-09 Adoption
ASU No. 2014-09 requires a five-step evaluative process that consists of the following:
| |
| (1) | Identifying the contract with the customer; |
| |
| (2) | Identifying the performance obligations in the contract; |
| |
| (3) | Determining the transaction price for the contract; |
| |
| (4) | Allocating the transaction price to the performance obligations in the contract; and |
| |
| (5) | Recognizing revenue when (or as) performance obligations are satisfied. |
The Company adopted ASU No. 2014-09 using the modified retrospective method of adoption. Under that approach, the cumulative effect of applying the new accounting standard is recorded on the date of initial application, with no restatement of the comparative prior periods presented. The Company's adoption of ASU No. 2014-09 did not result in a cumulative effect adjustment to its Accumulated earnings. However, the adoption of the new accounting standard required certain changes in the presentation of the Company’s consolidated balance sheet, including the reclassification of a refund liability, which aggregated $6.2 million on January 1, 2018, from the allowance for fees receivable to Accounts payable and accrued liabilities.
Related to our adoption of ASU No. 2014-09, we elected to (i) apply the provisions of the new accounting standard only to contracts that were not completed at the date of initial application and (ii) utilize a practical expedient whereby we reflected the aggregate effect of all contract modifications that occurred prior to January 1, 2018 (rather than retrospectively restating the affected contracts) when identifying our satisfied and unsatisfied performance obligations, determining the transaction prices with our customers and allocating such transaction prices to our satisfied and unsatisfied performance obligations. These two elections had no financial impact.
Prior to January 1, 2018, the Company recognized revenue in accordance with then-existing U.S. GAAP and SEC Staff Accounting Bulletin No. 104, Revenue Recognition (collectively, “Prior GAAP”). Under both ASU No. 2014-09 and Prior GAAP, revenue can only be recognized when all of the required criteria are met. Although there were certain changes to the Company’s revenue recognition policies and procedures effective January 1, 2018 with the adoption of ASU No. 2014-09, there were no material differences between the pattern and timing of revenue recognition under ASU No. 2014-09 and Prior GAAP.
ASU No. 2014-09 requires that we assess at inception all of the promises in a customer contract to determine if a promise is a separate performance obligation. To identify our performance obligations, we consider all of the services promised in a customer contract, regardless of whether they are explicitly stated or implied by customary business practices. If we conclude that a service is separately identifiable and distinct from the other offerings in a contract, we account for it as a separate performance obligation.
If a customer contract has more than one performance obligation, then the total contract consideration is allocated among the separate deliverables based on their stand-alone selling prices, which are determined based on the prices at which the Company discretely sells the stand-alone services. If a contract includes a discount or other pricing concession, the transaction price is allocated among the performance obligations on a proportionate basis using the relative stand-alone selling prices of the individual deliverables being transferred to the customer, unless the discount or other pricing concession can be ascribed to specifically identifiable performance obligations.
The contracts with our customers delineate the final terms and conditions of the underlying arrangements, including product descriptions, subscription periods, deliverables, quantities and the price of each service purchased. Since the transaction price of almost all of our customer contracts is typically agreed upon upfront and generally does not fluctuate during the duration of the contract, variable consideration is insignificant. The Company may engage in certain financing transactions with its customers but those arrangements have been limited in number and not material.
The Consolidated Statements of Operations present revenue net of any sales or value-added taxes that we collect from customers and remit to government authorities.
Disaggregated Revenue
Our disaggregated revenue by reportable segment is presented in the tables below for the years indicated (in thousands).
By Primary Geographic Market(1), (2)
Year Ended December 31, 2019
|
| | | | | | | | | | | | |
| Primary Geographic Market | Research | Conferences | Consulting | Total |
| United States and Canada | $ | 2,199,008 |
| $ | 295,857 |
| $ | 239,625 |
| $ | 2,734,490 |
|
| Europe, Middle East and Africa | 751,267 |
| 122,591 |
| 122,146 |
| 996,004 |
|
| Other International | 424,273 |
| 58,421 |
| 32,133 |
| 514,827 |
|
| Total revenues | $ | 3,374,548 |
| $ | 476,869 |
| $ | 393,904 |
| $ | 4,245,321 |
|
Year Ended December 31, 2018
|
| | | | | | | | | | | | | | | |
| Primary Geographic Market | Research | Conferences | Consulting | Other | Total |
| United States and Canada | $ | 1,994,016 |
| $ | 256,219 |
| $ | 205,874 |
| $ | 58,843 |
| $ | 2,514,952 |
|
| Europe, Middle East and Africa | 737,129 |
| 105,909 |
| 119,258 |
| 38,194 |
| 1,000,490 |
|
| Other International | 374,619 |
| 48,333 |
| 28,535 |
| 8,525 |
| 460,012 |
|
| Total revenues | $ | 3,105,764 |
| $ | 410,461 |
| $ | 353,667 |
| $ | 105,562 |
| $ | 3,975,454 |
|
Year Ended December 31, 2017
|
| | | | | | | | | | | | | | | |
| Primary Geographic Market | Research | Conferences | Consulting | Other | Total |
| United States and Canada | $ | 1,600,847 |
| $ | 210,698 |
| $ | 188,022 |
| $ | 92,799 |
| $ | 2,092,366 |
|
| Europe, Middle East and Africa | 597,943 |
| 86,567 |
| 111,792 |
| 59,119 |
| 855,421 |
|
| Other International | 272,490 |
| 40,638 |
| 27,847 |
| 22,732 |
| 363,707 |
|
| Total revenues | $ | 2,471,280 |
| $ | 337,903 |
| $ | 327,661 |
| $ | 174,650 |
| $ | 3,311,494 |
|
| |
| (1) | Revenue is reported based on where the sale is fulfilled. |
| |
| (2) | During 2018, the Company divested all of the non-core businesses that comprised its Other segment and moved a small residual product from the Other segment into the Research business and, as a result, no operating activity has been recorded in the Other segment in 2019. Note 2 — Acquisitions and Divestitures provides additional information regarding the Company's 2018 divestitures. |
The Company’s revenue is generated primarily through direct sales to clients by domestic and international sales forces and a network of independent international sales agents. Most of the Company’s products and services are provided on an integrated worldwide basis and, because of this integrated delivery approach, it is not practical to precisely separate our revenue by geographic location. Accordingly, revenue information presented in the above tables is based on internal allocations, which involve certain management estimates and judgments.
By Timing of Revenue Recognition (1)
Year Ended December 31, 2019
|
| | | | | | | | | | | | |
| Timing of Revenue Recognition | Research | Conferences | Consulting | Total |
| Transferred over time (2) | $ | 3,083,936 |
| $ | — |
| $ | 316,042 |
| $ | 3,399,978 |
|
| Transferred at a point in time (3) | 290,612 |
| 476,869 |
| 77,862 |
| 845,343 |
|
| Total revenues | $ | 3,374,548 |
| $ | 476,869 |
| $ | 393,904 |
| $ | 4,245,321 |
|
Year Ended December 31, 2018
|
| | | | | | | | | | | | | | | |
| Timing of Revenue Recognition | Research | Conferences | Consulting | Other | Total |
| Transferred over time (2) | $ | 2,851,176 |
| $ | — |
| $ | 294,397 |
| $ | 86,667 |
| $ | 3,232,240 |
|
| Transferred at a point in time (3) | 254,588 |
| 410,461 |
| 59,270 |
| 18,895 |
| 743,214 |
|
| Total revenues | $ | 3,105,764 |
| $ | 410,461 |
| $ | 353,667 |
| $ | 105,562 |
| $ | 3,975,454 |
|
Year Ended December 31, 2017
|
| | | | | | | | | | | | | | | |
| Timing of Revenue Recognition | Research | Conferences | Consulting | Other | Total |
| Transferred over time (2) | $ | 2,275,377 |
| $ | — |
| $ | 269,720 |
| $ | 141,331 |
| $ | 2,686,428 |
|
| Transferred at a point in time (3) | 195,903 |
| 337,903 |
| 57,941 |
| 33,319 |
| 625,066 |
|
| Total revenues | $ | 2,471,280 |
| $ | 337,903 |
| $ | 327,661 |
| $ | 174,650 |
| $ | 3,311,494 |
|
| |
| (1) | During 2018, the Company divested all of the non-core businesses that comprised its Other segment and moved a small residual product from the Other segment into the Research business and, as a result, no operating activity has been recorded in the Other segment in 2019. Note 2 — Acquisitions and Divestitures provides additional information regarding the Company's 2018 divestitures. |
| |
| (2) | Research revenues were recognized in connection with performance obligations that were satisfied over time using a time-elapsed output method to measure progress. Consulting revenues were recognized over time using labor hours as an input measurement basis. During 2018 and 2017, Other revenues were recognized using either a time-elapsed output method, performance-based milestone approach or labor hours, depending on the nature of the underlying customer contract. |
| |
| (3) | The revenues in this category were recognized in connection with performance obligations that were satisfied at the point in time that the contractual deliverables were provided to the customer. |
Determining a measure of progress for performance obligations that are satisfied over time and when control transfers for performance obligations that are satisfied at a point in time requires us to make judgments that affect the timing of when revenue is recognized. A key factor in this determination is when the customer can direct the use of, and can obtain substantially all of the benefits from, the deliverable.
For performance obligations recognized in accordance with a time-elapsed output method, the Company’s efforts are expended consistently throughout the contractual period and the Company transfers control evenly by providing stand-ready services. For performance obligations satisfied under our Consulting fixed fee and time and materials engagements, we believe that labor hours are the best measure of depicting the Company’s progress because labor output corresponds directly to the value of the Company’s performance to date as control is transferred. In our Other segment, we selected a method to assess the completion of our performance obligations that best aligned with the specific characteristics of the individual customer contract. We believe that these methods to measure progress are (i) reasonable and supportable and (ii) provide a faithful depiction of when we transfer products and services to our customers.
For customer contracts that are greater than one year in duration, the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied (or partially unsatisfied) as of December 31, 2019 was approximately $3.2 billion. The Company expects to recognize $1,942.6 million, $1,028.6 million and $220.0 million of this revenue (most of which pertains to Research) during the year ending December 31, 2020, the year ending December 31, 2021 and thereafter, respectively. The Company applies a practical expedient allowed in ASU No. 2014-09 and, accordingly, it does not disclose such performance obligation information for customer contracts that have original durations of one year or less. Our performance obligations for contracts meeting this ASU No. 2014-09 disclosure exclusion primarily include: (i) stand-ready services under Research subscription contracts; (ii) holding conferences and meetings where attendees and exhibitors can participate; and (iii) providing customized Consulting solutions for clients under fixed fee and time and materials engagements. The remaining duration of these performance obligations is generally less than one year, which aligns with the period that the parties have enforceable rights and obligations under the affected contracts.
Customer Contract Assets and Liabilities
The payment terms and conditions in our customer contracts vary. In some cases, customers prepay and, in other cases, after we conduct a credit evaluation, payment may be due in arrears. Because the timing of the delivery of our services typically differs from the timing of customer payments, the Company recognizes either a contract asset (we perform either fully or partially under
the contract but a contingency remains) or a contract liability (upfront customer payments precede our performance, resulting in deferred revenue). Amounts recorded as contract assets are reclassified to fees receivable when all of the outstanding conditions have been resolved and our right to payment becomes unconditional. Contracts with payments due in arrears are also recognized as fees receivable. As our contractual performance obligations are satisfied, the Company correspondingly relieves its contract liabilities and records the associated revenue.
The table below provides information regarding certain of the Company’s balance sheet accounts that pertain to its contracts with customers (in thousands).
|
| | | | | | | |
| | December 31, |
| | 2019 | | 2018 |
| Assets: | | | |
| Fees receivable, gross (1) | $ | 1,334,012 |
| | $ | 1,262,818 |
|
| | | | |
| Contract assets recorded in Prepaid expenses and other current assets (2) | $ | 21,350 |
| | $ | 26,119 |
|
| | | | |
| Contract liabilities: | | | |
| Deferred revenues (current liability) (3) | $ | 1,928,020 |
| | $ | 1,745,244 |
|
| Non-current deferred revenues recorded in Other liabilities (3) | 24,409 |
| | 21,194 |
|
| Total contract liabilities | $ | 1,952,429 |
| | $ | 1,766,438 |
|
| | | | |
| |
| (1) | Fees receivable represent an unconditional right of payment from our customers and include both billed and unbilled amounts. |
| |
| (2) | Contract assets represent recognized revenue for which we do not have an unconditional right to payment as of the balance sheet date because the project may be subject to a progress billing milestone or some other billing restriction. |
| |
| (3) | Deferred revenues represent amounts (i) for which the Company has received an upfront customer payment or (ii) that pertain to recognized fees receivable. Both situations occur before the completion of our performance obligation(s). |
The Company recognized revenue of $1,436.9 million and $1,287.8 million during 2019 and 2018, respectively, that was attributable to deferred revenues that were recorded at the beginning of each such year. Those amounts primarily consisted of (i) Research revenues and, in 2018, Other revenues that were recognized ratably as control of the goods or services passed to the customer and (ii) Conferences revenue pertaining to conferences and meetings that occurred during the reporting periods. During 2019 and 2018, the Company did not record any material impairments related to its contract assets. The Company does not typically recognize revenue from performance obligations satisfied in prior periods.
Revenue Reserve
The Company maintains a revenue reserve for amounts deemed to be uncollectible for reasons other than bad debt. The revenue reserve is classified as part of Accounts payable and accrued liabilities on the Consolidated Balance Sheet. Provisions to the revenue reserve are recorded as adjustments to revenue.
When determining the amount of the revenue reserve, the Company uses an expected-value method that is based on current estimates and a portfolio of data from its historical experience. Due to the common characteristics and similar attributes of our customers and contracts, which provide relevant and predictive evidence about our projected future liability, an expected-value method is reasonable and appropriate. However, the determination of the revenue reserve is inherently judgmental and requires the use of certain estimates. Changes in estimates are recorded in the period that they are identified. As of December 31, 2019 and 2018, the revenue reserve balance was $7.8 million and $7.4 million, respectively, and adjustments to the account in both 2019 and 2018 were not significant.
Costs of Obtaining and Fulfilling a Customer Contract
When the Company concludes that a liability should be recognized for the costs of obtaining a customer contract and determines how such liability should be measured, certain commissions are capitalized as a recoverable direct incremental cost of obtaining the underlying contract. No other amounts are capitalized as a cost of obtaining or fulfilling a customer contract because no expenditures have been identified that meet the requisite capitalization criteria. For Research, Consulting and Other, we amortize deferred commissions on a systematic basis that aligns with the transfer to our customers of the services to which the commissions relate. For Conferences, deferred commissions are expensed during the period when the related conference or meeting occurs.
During 2019, 2018 and 2017, deferred commission amortization expense was $369.5 million, $304.8 million and $230.5 million, respectively, and was included in Selling, general and administrative expense in the Consolidated Statements of Operations. The Company classifies Deferred commissions as a current asset on the Consolidated Balance Sheets at both December 31, 2019 and 2018 because those costs were, or will be, amortized over the twelve months following the respective balance sheet dates. The Company did not record any material impairments of its deferred commissions during the three-year period ended December 31, 2019.
10 — STOCK-BASED COMPENSATION
The Company grants stock-based compensation awards as an incentive for employees and directors to contribute to the Company’s long-term success. The Company currently awards stock-settled stock appreciation rights, service-based and performance-based restricted stock units, and common stock equivalents. AtAs of December 31, 2017,2019, the Company had 5.74.5 million shares of its common stock, par value $.0005$0.0005 per share, (the "Common Stock") available for stock-based compensation awards under its 2014 Long-Term Incentive Plan.
The Company accounts for stock-based compensation awards in accordance with FASB ASC Topics 505 and 718 and SEC Staff Accounting Bulletins No. 107 and No. 110. Stock-based compensation expense is based on the fair value of the award on the date of grant. The Company recognizes stock-based compensation expense over the period that the related service is performed, which is generally the same as the vesting period of the underlying award. Currently, the Company issues treasury shares upon the exercise, release or settlement of stock-based compensation awards.
Determining the appropriate fair value model and calculating the fair value of stock-based compensation awards requires the use of certain complex and subjective assumptions, including the expected life of a stock-based compensation award and Common Stock price volatility. In addition, determining the appropriate periodic stock-based compensation expense requires management to estimate the likelihood of the achievement of certain performance targets. The assumptions used in calculating the fair values of stock-based compensation awards and the related periodic expense represent management’s best estimates, which involve inherent uncertainties and the application of judgment. As a result, if circumstances 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-based compensation expense could be materially different from what has been recorded in the current period.year.
Stock-Based Compensation Expense
The Company recognizedtables below summarize the followingCompany's stock-based compensation expense by award type and expense category line item during the years ended December 31 (in millions):.
|
| | | | | | | | | | | | |
| Award type | | 2019 | | 2018 | | 2017 |
| Stock appreciation rights | | $ | 6.7 |
| | $ | 6.3 |
| | $ | 5.6 |
|
| Restricted stock units | | 61.6 |
| | 59.2 |
| | 72.6 |
|
| Common stock equivalents | | 0.7 |
| | 0.7 |
| | 0.7 |
|
| Total (1) | | $ | 69.0 |
| | $ | 66.2 |
| | $ | 78.9 |
|
|
| | | | | | | | | | | | |
| Award type | | 2017 | | 2016 | | 2015 |
| Stock appreciation rights | | $ | 5.6 |
| | $ | 5.6 |
| | $ | 5.7 |
|
| Restricted stock units | | 72.6 |
| | 40.4 |
| | 39.8 |
|
| Common stock equivalents | | 0.7 |
| | 0.7 |
| | 0.6 |
|
| Total (1) | | $ | 78.9 |
| | $ | 46.7 |
| | $ | 46.1 |
|
|
| | | | | | | | | | | | |
| Expense category line item | | 2019 | | 2018 | | 2017 |
| Cost of services and product development | | $ | 29.1 |
| | $ | 28.1 |
| | $ | 25.8 |
|
| Selling, general and administrative | | 39.4 |
| | 36.2 |
| | 35.5 |
|
| Acquisition and integration charges (2) | | 0.5 |
| | 1.9 |
| | 17.6 |
|
| Total (1) | | $ | 69.0 |
| | $ | 66.2 |
| | $ | 78.9 |
|
|
| | | | | | | | | | | | |
| Expense category line item | | 2017 | | 2016 | | 2015 |
| Cost of services and product development | | $ | 25.8 |
| | $ | 21.9 |
| | $ | 20.6 |
|
| Selling, general and administrative | | 35.5 |
| | 24.8 |
| | 25.5 |
|
| Acquisition and integration charges (2) | | 17.6 |
| | — |
| | — |
|
| Total (1) | | $ | 78.9 |
| | $ | 46.7 |
| | $ | 46.1 |
|
| |
| (1) | Includes charges of $22.9$21.5 million, $19.4 million and $20.1$22.9 million during 2017, 20162019, 2018 and 2015,2017, respectively, for awards to retirement-eligible employees. Those awards vest on an accelerated basis. |
| |
| (2) | These charges are primarily the result of (i) the acceleration of the vesting of certain restricted stock units related to the CEB acquisition.acquisition and (ii) restricted stock units granted in connection with the CEB integration process. |
As of December 31, 2017,2019, the Company had $79.9$84.9 million of total unrecognized stock-based compensation cost, which is expected to be expensed over the remaining weighted average service period of approximately 2.42.3 years.
Stock-Based Compensation Awards
The disclosures presented below provide information regarding the Company’s stock-based compensation awards, all of which have been classified as equity awards in accordance with FASB ASC Topic 505.
Stock Appreciation Rights
Stock-settled stock appreciation rights ("SARs") permit the holder to participate in the appreciation of the value of the Common Stock. After the applicable vesting criteria have been satisfied, SARs are settled in shares of Common Stock upon exercise by the employee. SARs vest ratably over a four-year service period and expire seven years from the date of grant. The fair value of a SARs award is recognized as compensation expense on a straight-line basis over four years. SARs have only been awarded to the Company’s executive officers.
When SARs are exercised, the number of shares of Common Stock issued is calculated as follows: (1) the total proceeds from the exercise of the SARs award (calculated as the closing price of the Common Stock as reported on the New York Stock Exchange on the date of exercise less the exercise price of the SARs award, multiplied by the number of SARs exercised) is divided by (2) the closing price of the Common Stock on the date of exercise. TheUpon exercise, the Company withholds a portion of the shares of the Common Stock issued upon exercise to satisfy statutory tax withholding requirements. SARs recipients do not have any stockholder rights until the shares of Common Stock are issued in respect of the award, which is subject to the prior satisfaction of the vesting and other criteria relating to such grants.
The following table below summarizes changes in SARs outstanding during the year ended December 31, 2017: 2019.
| | | | Stock Appreciation Rights ("SARs") (in millions) | | Per Share Weighted Average Exercise Price | | Per Share Weighted Average Grant Date Fair Value | | Weighted Average Remaining Contractual Term (Years) | Stock Appreciation Rights ("SARs") (in millions) | | Per Share Weighted Average Exercise Price | | Per Share Weighted Average Grant Date Fair Value | | Weighted Average Remaining Contractual Term (Years) |
| Outstanding at December 31, 2016 | 1.3 |
| | $ | 66.22 |
| | $ | 15.77 |
| | 4.40 years | |
| Outstanding at December 31, 2018 | | 1.2 |
| | $ | 89.45 |
| | $ | 19.88 |
| | 4.33 |
| Granted | 0.3 |
| | 99.07 |
| | 22.02 |
| | 6.10 years | 0.3 |
| | 143.23 |
| | 32.62 |
| | 6.11 |
| Forfeited | (0.1 | ) | | 85.28 |
| | 10.49 |
| | n/a | (0.1 | ) | | 118.31 |
| | 26.52 |
| | n/a |
| Exercised | (0.3 | ) | | 52.72 |
| | 14.85 |
| | n/a | (0.2 | ) | | 73.64 |
| | 16.92 |
| | n/a |
| Outstanding at December 31, 2017 (1) (2) | 1.2 |
| | $ | 76.73 |
| | $ | 17.35 |
| | 4.28 years | |
| Vested and exercisable at December 31, 2017 (2) | 0.5 |
| | $ | 65.67 |
| | $ | 15.69 |
| | 3.22 years | |
| Outstanding at December 31, 2019 (1) (2) | | 1.2 |
| | $ | 104.05 |
| | $ | 23.18 |
| | 4.21 |
| Vested and exercisable at December 31, 2019 (2) | | 0.5 |
| | $ | 85.79 |
| | $ | 18.87 |
| | 3.13 |
n/a = not applicable
| |
| (1) | As of December 31, 2017,2019, 0.7 million of the total SARs outstanding were unvested. The Company expects that substantially all of those unvested awards will vest in future periods. |
| |
| (2) | As of December 31, 2017,2019, the total SARs outstanding had an intrinsic value of $55.0$58.9 million. On such date, SARs vested and exercisable had an intrinsic value of $30.2$37.1 million. |
The fair value of a SARs award is 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:
| | | | 2017 | | 2016 | | 2015 | 2019 | | 2018 | | 2017 |
| Expected dividend yield (1) | — | % | | — | % | | — | % | — | % | | — | % | | — | % |
| Expected stock price volatility (2) | 22 | % | | 22 | % | | 24 | % | 21 | % | | 21 | % | | 22 | % |
| Risk-free interest rate (3) | 1.8 | % | | 1.1 | % | | 1.5 | % | 2.5 | % | | 2.5 | % | | 1.8 | % |
| Expected life in years (4) | 4.53 |
| | 4.39 |
| | 4.41 |
| 4.59 |
| | 4.52 |
| | 4.53 |
|
| |
| (1) | The expected dividend yield assumption was based on both the Company's historical and anticipated dividend payouts. Historically, the Company 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 the Common Stock. |
| |
| (3) | The risk-free interest rate was 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 represents the Company’s estimate of the weighted average period of time the SARs are expected to be outstanding (that is, the period between the service inception date and the expected exercise date). |
Restricted Stock Units
Restricted stock units ("RSUs") give the awardee the right to receive shares of Common Stock when the vesting conditions are met and certain restrictions lapse. Each RSU that vests entitles the awardee to one share of Common Stock. 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 the shares are released. The fair value of an RSU award is determined on the date of grant based on the closing price of the Common Stock as reported on the New York Stock Exchange on that date. Service-based RSUs vest ratably over four years and are expensed on a straight-line basis over the vesting period. Performance-based RSUs are subject to the satisfaction of both performance and service conditions, vest ratably over four years and are expensed on an accelerated basis over the vesting period.
The following table below summarizes the changes in RSUs outstanding during the year ended December 31, 2017: 2019.
|
| | | | | | |
| | Restricted Stock Units ("RSUs") (in millions) | | Per Share Weighted Average Grant Date Fair Value |
| Outstanding at December 31, 2016 | 1.3 |
| | $ | 73.19 |
|
| Granted (1) (2) | 1.1 |
| | 105.55 |
|
| Vested and released | (0.8 | ) | | 79.60 |
|
| Forfeited | (0.1 | ) | | 91.03 |
|
| Outstanding at December 31, 2017 (3) (4) | 1.5 |
| | $ | 91.47 |
|
|
| | | | | | |
| | Restricted Stock Units ("RSUs") (in millions) | | Per Share Weighted Average Grant Date Fair Value |
| Outstanding at December 31, 2018 | 1.4 |
| | $ | 101.75 |
|
| Granted (1) | 0.5 |
| | 139.86 |
|
| Vested and released | (0.5 | ) | | 97.33 |
|
| Forfeited | (0.1 | ) | | 116.79 |
|
| Outstanding at December 31, 2019 (2) (3) | 1.3 |
| | $ | 118.89 |
|
| |
| (1) | The 1.10.5 million of RSUs granted during 20172019 consisted of 0.2 million of performance-based RSUs awarded to executives and 0.90.3 million of service-based RSUs awarded to executives, non-executive employees and non-management board members. The 0.2performance-based awards include RSUs in final settlement of 2018 grants and approximately 0.1 million of performance-based RSUs representsrepresenting the target amount of the grant for the year, which2019 that is tied to thean increase |
in heritage Gartner’s total contract value for 2017. Total contract value for this determination represents the value attributable to all of heritage Gartner’s subscription-related revenue contracts. The final number of performance-based RSUs awarded could range in Gartner’s total contract value for such year. The number of performance-based RSUs for 2019 that could have been earned ranged from 0% to 200% of the target amount. The actual increase in heritage Gartner’s contract value for 2017 as measured on December 31, 2017 yielded approximately 186% of the target amount. The incremental awards based on the actual achievement under the 2017 grant will be issued in 2018.
| |
(2) | Includes 0.6 million of RSUs awarded to employees that joined Gartner as a result of the CEB acquisition.target amount. The actual increase in Gartner’s total contract value for 2019 as measured on December 31, 2019 yielded approximately 142% of the target amount. The incremental awards based on the actual achievement under the 2019 grant will be issued in 2020. |
| |
(3)(2) | The Company expects that substantially all of the RSUs outstanding will vest in future periods. |
| |
(4)(3) | As of December 31, 2017,2019, the weighted average remaining contractual term of the RSUs outstanding was approximately 1.21.1 years. |
Common Stock Equivalents
Common stock equivalents ("CSEs") are convertible into Common Stock. Each CSE entitles the holder to one share of Common Stock. Members of our Board of Directors receive their directors’ fees in CSEs unless they opt to receive up to 50% of those fees in cash. Generally, CSEs have no defined term and are converted into shares of Common Stock when service as a director terminates unless the director has elected an accelerated release. The fair value of a CSE award is determined on the date of grant based on the closing price of the Common Stock as reported on the New York Stock Exchange on that date. CSEs vest immediately and, as a result, they are recorded as expense on the date of grant.
The following table below summarizes the changes in CSEs outstanding during the year ended December 31, 2017: 2019.
|
| | | | | | |
| | Common Stock Equivalents ("CSEs") | | Per Share Weighted Average Grant Date Fair Value |
| Outstanding at December 31, 2018 | 109,780 |
| | $ | 24.96 |
|
| Granted | 4,521 |
| | 153.43 |
|
| Converted to shares of Common Stock upon grant | (2,960 | ) | | 144.88 |
|
| Outstanding at December 31, 2019 | 111,341 |
| | $ | 26.99 |
|
|
| | | | | | |
| | Common Stock Equivalents ("CSEs") | | Per Share Weighted Average Grant Date Fair Value |
| Outstanding at December 31, 2016 | 107,338 |
| | $ | 20.74 |
|
| Granted | 5,852 |
| | 120.28 |
|
| Converted to shares of Common Stock upon grant | (3,177 | ) | | 119.10 |
|
| Outstanding at December 31, 2017 | 110,013 |
| | $ | 23.19 |
|
Employee Stock Purchase Plan
The Company has an employee stock purchase plan (the “ESP Plan”) under whichwherein eligible employees are permitted to purchase shares of Common Stock through payroll deductions, which may not exceed 10% of an employee’s compensation, or $23,750 in any calendar year, at a price equal to 95% of the closing price of the Common Stock as reported on the New York Stock Exchange at the end of each offering period. As of December 31, 2017,2019, the Company had 0.80.6 million shares available for purchase under the ESP Plan. The ESP Plan is considered non-compensatory under FASB ASC Topic 718 and, as a result, the Company does not record stock-based compensation expense for employee share purchases. The Company received $11.7$17.6 million, $9.3$14.7 million and $7.5$11.7 million in cash from employee share purchases under the ESP Plan during 2019, 2018 and 2017, 2016 and 2015, respectively.
911 — COMPUTATION OF EARNINGS PER SHARE
Basic earnings per share (“EPS”) is computed by dividing net income by the weighted average number of shares of Common Stock outstanding forduring the period. Diluted EPS reflects the potential dilution of securities that could share in earnings. When the impact of common sharestock equivalents is anti-dilutive, they are excluded from the calculation.
The following table below sets forth the reconciliationcalculation of the basic and diluted earningsincome per share computations for the years ended December 31 (in thousands, except per share amounts):data).
|
| | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| Numerator: | | | | | |
| Net income used for calculating basic and diluted earnings per common share | $ | 3,279 |
| | $ | 193,582 |
| | $ | 175,635 |
|
Denominator: (1) | |
| | |
| | |
|
| Weighted average number of common shares used in the calculation of basic earnings per share | 88,466 |
| | 82,571 |
| | 83,852 |
|
| Common share equivalents associated with stock-based compensation plans | 1,324 |
| | 1,249 |
| | 1,204 |
|
| Shares used in the calculation of diluted earnings per share | 89,790 |
| | 83,820 |
| | 85,056 |
|
Earnings per share: (2) | |
| | |
| | |
|
| Basic | $ | 0.04 |
| | $ | 2.34 |
| | $ | 2.09 |
|
| Diluted | $ | 0.04 |
| | $ | 2.31 |
| | $ | 2.06 |
|
|
| | | | | | | | | | | |
| | 2019 | | 2018 | | 2017 |
| Numerator: | | | | | |
| Net income used for calculating basic and diluted income per common share | $ | 233,290 |
| | $ | 122,456 |
| | $ | 3,279 |
|
| Denominator: | |
| | |
| | |
|
| Weighted average common shares used in the calculation of basic income per share | 89,817 |
| | 90,827 |
| | 88,466 |
|
| Common stock equivalents associated with stock-based compensation plans | 1,154 |
| | 1,295 |
| | 1,324 |
|
| Shares used in the calculation of diluted income per share | 90,971 |
| | 92,122 |
| | 89,790 |
|
Income per share (1): | |
| | |
| | |
|
| Basic | $ | 2.60 |
| | $ | 1.35 |
| | $ | 0.04 |
|
| Diluted | $ | 2.56 |
| | $ | 1.33 |
| | $ | 0.04 |
|
| |
| (1) | Both basic and diluted income per share for 2019 included a tax benefit of approximately $0.42 per share related to an intercompany sale of certain intellectual property. Additionally, both basic and diluted income per share for 2017 included a tax benefit of approximately $0.66 per share related to the U.S. Tax Cuts and Jobs Act of 2017. Note 12 — Income Taxes provides information about the Company's income taxes. |
The table below presents the number of common stock equivalents that were not included in the computations of diluted income per share in the above table because the effect would have been anti-dilutive. During years with net income, the common stock equivalents were anti-dilutive because their exercise prices were greater than the average market price of a share of Common Stock during such year.
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2019 | | 2018 | | 2017 |
| Anti-dilutive common stock equivalents (in millions) (a) | 0.2 |
| | — |
| | 0.3 |
|
| Average market price per share of Common Stock during the year | $ | 148.38 |
| | $ | 135.60 |
| | $ | 116.09 |
|
| |
(1) | The Company repurchased 0.4 million, 0.6 million and 6.2 million shares of its Common Stock in 2017, 2016 and 2015, respectively. |
| |
(2) | Both basic and diluted earnings per share for 2017 include a one-time benefit of approximately $0.66 per share related to the Tax Cuts and Jobs Act of 2017. Note 10 — Income Taxes provides information related to the Tax Cuts and Jobs Act of 2017. |
(a) The following table presents the number of anti-dilutive common sharestock equivalents thatfor 2018 were not included in the computation of diluted EPS in the table above because the effect would have been anti-dilutive. During periods with net income, these common share equivalents were anti-dilutive because their exercise price was greater than the average market value of a share of Common Stock during the period.minimal.
|
| | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| Anti-dilutive common share equivalents as of December 31 (in millions): | 0.3 |
| | 0.2 |
| | 0.3 |
|
| Average market price per share of Common Stock during the year | $ | 116.09 |
| | $ | 92.58 |
| | $ | 86.02 |
|
10
12 — INCOME TAXES
The followingBelow is a summary of the components of the Company's income (loss) income before income taxes for the years ended December 31 (in thousands): .
|
| | | | | | | | | | | |
| | 2019 | | 2018 | | 2017 |
| U.S. | $ | 115,543 |
| | $ | 34,159 |
| | $ | (135,757 | ) |
| Non-U.S. | 160,196 |
| | 146,962 |
| | 7,940 |
|
| Income (loss) before income taxes | $ | 275,739 |
| | $ | 181,121 |
| | $ | (127,817 | ) |
|
| | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| U.S. | $ | (135,757 | ) | | $ | 182,178 |
| | $ | 165,848 |
|
| Non-U.S. | 7,940 |
| | 106,253 |
| | 106,363 |
|
| (Loss) income before income taxes | $ | (127,817 | ) | | $ | 288,431 |
| | $ | 272,211 |
|
The components of the expense (benefit) for income taxes on the above income consists of(loss) are summarized in the following componentstable below (in thousands):
.
|
| | | | | | | | | | | |
| | 2019 | | 2018 | | 2017 |
| Current tax expense: | |
| | |
| | |
|
| U.S. federal | $ | 30,208 |
| | $ | 2,817 |
| | $ | 48,339 |
|
| State and local | 11,630 |
| | 6,969 |
| | 434 |
|
| Foreign | 53,105 |
| | 45,042 |
| | 38,602 |
|
| Total current | 94,943 |
| | 54,828 |
| | 87,375 |
|
| Deferred tax (benefit) expense: | |
| | |
| | |
|
| U.S. federal | (16,389 | ) | | 12,462 |
| | (176,046 | ) |
| State and local | (6,897 | ) | | 1,258 |
| | (14,363 | ) |
| Foreign | (48,186 | ) | | (13,795 | ) | | (25,898 | ) |
| Total deferred | (71,472 | ) | | (75 | ) | | (216,307 | ) |
| Total current and deferred | 23,471 |
| | 54,753 |
| | (128,932 | ) |
| Benefit (expense) relating to interest rate swaps used to increase (decrease) equity | 17,666 |
| | 3,840 |
| | (2,477 | ) |
| Benefit from stock transactions with employees used to increase equity | 54 |
| | 58 |
| | 46 |
|
| Benefit relating to defined-benefit pension adjustments used to increase equity | 1,258 |
| | 14 |
| | 267 |
|
| Total tax expense (benefit) | $ | 42,449 |
| | $ | 58,665 |
| | $ | (131,096 | ) |
|
| | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| Current tax expense: | |
| | |
| | |
|
| U.S. federal | $ | 48,339 |
| | $ | 58,616 |
| | $ | 48,801 |
|
| State and local | 434 |
| | 11,292 |
| | 10,300 |
|
| Foreign | 38,602 |
| | 27,536 |
| | 23,225 |
|
| Total current | 87,375 |
| | 97,444 |
| | 82,326 |
|
| Deferred tax (benefit) expense: | |
| | |
| | |
|
| U.S. federal | (176,046 | ) | | (61 | ) | | (884 | ) |
| State and local | (14,363 | ) | | (349 | ) | | (702 | ) |
| Foreign | (25,898 | ) | | (1,626 | ) | | 1,550 |
|
| Total deferred | (216,307 | ) | | (2,036 | ) | | (36 | ) |
| Total current and deferred | (128,932 | ) | | 95,408 |
| | 82,290 |
|
| Benefit (expense) relating to interest rate swaps used to increase (decrease) equity | (2,477 | ) | | (1,113 | ) | | 893 |
|
| Benefit from stock transactions with employees used to increase equity | 46 |
| | 52 |
| | 13,960 |
|
| Benefit (expense) relating to defined-benefit pension adjustments used to increase (decrease) equity | 267 |
| | 502 |
| | (567 | ) |
| Total tax (benefit) expense | $ | (131,096 | ) | | $ | 94,849 |
| | $ | 96,576 |
|
Long-termThe components of long-term deferred tax assets and liabilities(liabilities) are comprised ofsummarized in the followingtable below (in thousands):
.
|
| | | | | | | |
| | December 31, |
| | 2019 | | 2018 |
| Accrued liabilities | $ | 67,577 |
| | $ | 96,292 |
|
| Operating leases | 54,860 |
| | — |
|
| Loss and credit carryforwards | 14,372 |
| | 14,830 |
|
| Assets relating to equity compensation | 16,842 |
| | 19,653 |
|
| Other assets | 20,364 |
| | 14,092 |
|
| Gross deferred tax assets | 174,015 |
| | 144,867 |
|
| Property, equipment and leasehold improvements | (15,137 | ) | | (3,421 | ) |
| Intangible assets | (212,498 | ) | | (263,548 | ) |
| Prepaid expenses | (49,221 | ) | | (41,926 | ) |
| Other liabilities | (5,799 | ) | | (12,100 | ) |
| Gross deferred tax liabilities | (282,655 | ) | | (320,995 | ) |
| Valuation allowance | (1,556 | ) | | (4,066 | ) |
| Net deferred tax liabilities | $ | (110,196 | ) | | $ | (180,194 | ) |
|
| | | | | | | |
| | December 31, |
| | 2017 | | 2016 |
| Accrued liabilities | $ | 80,557 |
| | $ | 62,439 |
|
| Loss and credit carryforwards | 59,502 |
| | 7,766 |
|
| Assets relating to equity compensation | 24,874 |
| | 25,569 |
|
| Other assets | 30,236 |
| | 6,652 |
|
| Gross deferred tax assets | 195,169 |
| | 102,426 |
|
| Property, equipment, and leasehold improvements | (962 | ) | | (11,796 | ) |
| Intangible assets | (372,542 | ) | | (43,548 | ) |
| Prepaid expenses | (35,126 | ) | | (32,971 | ) |
| Other liabilities | (6,584 | ) | | (7,925 | ) |
| Gross deferred tax liabilities | (415,214 | ) | | (96,240 | ) |
| Valuation allowance | (3,192 | ) | | (1,431 | ) |
| Net deferred tax (liabilities) assets | $ | (223,237 | ) | | $ | 4,755 |
|
Net deferred tax assets and net deferred tax liabilities were $30.5$79.6 million and $253.7$189.8 million as of December 31, 20172019, respectively, and $27.3$34.5 million and $22.5$214.7 million as of December 31, 2016,2018, respectively. These amounts are primarily reported in Other assets and Other liabilities in the Consolidated Balance Sheets. Management has concluded it is more likely than not that the reversal of deferred tax liabilities and results of future operations will generate sufficient taxable income to realize the deferred tax assets, net of the valuation allowance at December 31, 2017.2019.
The valuation allowances of $3.2$1.6 million and $4.1 million as of December 31, 20172019 and $1.4 million as of 2016,2018, respectively, primarily relaterelated to state credit carryovers and net operating losses whichthat are not likely to be realized.
As of December 31, 2017,2019, the Company had state and local tax net operating loss carryforwards of $91.5$26.3 million, of which $0.9$0.1 million expireexpires within one to five years, and $19.9$0.3 million expireexpires within six to fifteen years and $70.7$25.9 million expireexpires within sixteen to twenty years. The Company also had state tax credits of $2.0$5.3 million, a majority of which will expire in five to six years. As of December 31, 2017,2019, the Company had non-U.S. net operating loss carryforwards of $16.0$27.6 million, of which $0.5$0.4 million expireexpires over the next 20 years and $15.5$27.2 million can be carried forward indefinitely. In addition, the Company also had foreign tax credit carryforwards of $59.0 million, all of which will expire at the end of 2027. These amounts have been reduced for associated unrecognized tax benefits, consistent with FASB ASU No. 2013-11.2013-11, "Income Taxes—Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists."
As of December 31, 2017,The items comprising the Company recorded deferred tax assets for federal and state unrealized capital losses of $62.9 million resulting from held-for-sale accounting for the CEB Talent Assessment business.
The differences between the U.S. federal statutory income tax rate and the Company’s effective tax rate on income before income taxes for the years ended December 31 follow: are summarized in the table below.
|
| | | | | | | | |
| | 2019 | | 2018 | | 2017 |
| Statutory tax rate | 21.0 | % | | 21.0 | % | | 35.0 | % |
| State income taxes, net of federal benefit | 1.5 |
| | — |
| | 3.6 |
|
| Effect of non-U.S. operations | 2.7 |
| | (10.7 | ) | | 5.9 |
|
| Intercompany sale of intellectual property | (13.8 | ) | | — |
| | — |
|
| Change in the reserve for tax contingencies | 4.7 |
| | 15.7 |
| | (2.8 | ) |
| Law changes | — |
| | (1.3 | ) | | 41.8 |
|
| Stock-based compensation expense | (3.9 | ) | | (5.3 | ) | | 11.0 |
|
| Nondeductible acquisition costs | — |
| | 0.9 |
| | (7.9 | ) |
| Nondeductible meals and entertainment costs | 1.7 |
| | 2.7 |
| | (3.5 | ) |
| Gains/Losses on divested operations and held-for-sale assets | — |
| | 12.2 |
| | 13.1 |
|
| Limitation on executive compensation | 2.4 |
| | 2.7 |
| | (0.1 | ) |
| Global intangible low-taxed income, net of foreign tax credits | 1.9 |
| | 0.1 |
| | — |
|
| Foreign-derived intangible income | (1.0 | ) | | (2.0 | ) | | — |
|
| Change in the valuation allowance | (0.9 | ) | | 0.5 |
| | 3.0 |
|
| Goodwill | — |
| | (3.8 | ) | | — |
|
| Other items, net | (0.9 | ) | | (0.3 | ) | | 3.5 |
|
| Effective tax rate | 15.4 | % | | 32.4 | % | | 102.6 | % |
|
| | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| Statutory tax rate | 35.0 | % | | 35.0 | % | | 35.0 | % |
| State income taxes, net of federal benefit | 3.6 |
| | 2.4 |
| | 3.5 |
|
| Effect of non-U.S. operations | 5.9 |
| | (6.1 | ) | | (6.9 | ) |
| Record (release) reserve for tax contingencies | (2.8 | ) | | 3.2 |
| | 1.7 |
|
| Law changes | 41.8 |
| | — |
| | (0.2 | ) |
| Excess tax benefits from stock based compensation | 11.0 |
| | (3.8 | ) | | — |
|
| Nondeductible acquisition costs | (7.9 | ) | | 2.6 |
| | 0.8 |
|
| Nondeductible meals and entertainment costs | (3.5 | ) | | 1.1 |
| | 1.1 |
|
| Capital loss | 13.1 |
| | — |
| | — |
|
| Record (release) valuation allowance | 3.0 |
| | (0.2 | ) | | 0.5 |
|
| Other items, net | 3.4 |
| | (1.3 | ) | | — |
|
| Effective tax rate | 102.6 | % | | 32.9 | % | | 35.5 | % |
In April 2019, we completed an intercompany sale of certain intellectual property. As a result, the Company recorded a net tax benefit of approximately $38.1 million in 2019, which represents the benefits of future tax deductions for amortization of the assets in the acquiring jurisdiction. Our tax planning related to our intellectual property is ongoing and may result in tax rate volatility in the future.
In connection with the Company’s adoption of ASU No. 2016-02 on January 1, 2019, operating leases were recorded on the Consolidated Balance Sheet as of December 31, 2019, including the recognition of operating lease liabilities and corresponding right-of-use assets. The corresponding deferred tax assets and deferred tax liabilities were also recorded. The net deferred tax impact was zero. Note 1 — Business and Significant Accounting Policies and Note 7 — Leases provide additional information regarding the Company's leases and the adoption of ASU No. 2016-02.
The U.S. Tax Cuts and Jobs Act (“the Act”of 2017 (the "Act”) was enacted on December 22, 2017. Among other things, the Act reducesreduced the U.S. federal corporation tax rate from 35% to 21%, requiresrequired companies to pay a one-time transition tax on accumulated deferred foreign income (“ADFI”) of foreign subsidiaries that were previously tax deferred and createscreated a new tax on global intangible low-taxed income (“GILTI”) attributable to foreign subsidiaries. As of December 31, 2017, we have not completed our accounting for the tax effects of enactment of the Act because all of the necessary information is not currently available, prepared or analyzed. As such, the amount we have recorded are provisional estimates and as permitted by SEC per Staff Accounting Bulletin No. 118, we will continue to assess the enactment of the Act and may record additional provisional amount or adjustments to provisional amounts during fiscal year 2018. We expect to complete the accounting for these impacts of tax reform by the fourth quarter of 2018 as we complete our analysis and receive additional guidance from the Internal Revenue Service pertaining to the Act.
We remeasured U.S. deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21% and recorded a provisional amount which. We reduced our income tax expense by $13.8 million and $123.2 million. However, we are still finalizing purchase accountingmillion in 2018 and 2017, respectively, for the acquisition of CEB, analyzing certain aspects of the Act and refining our deferred tax calculations, which could affect the measurement of these balances or give rise to new deferred tax amounts.this item.
The tax on ADFI is based on our total post-1986 earnings and profits ("E&P") of our foreign subsidiaries that were previously deferred from USU.S. income taxes. We recorded aincreased income tax expense by $5.5 million, $8.4 million and $63.6 million provisional amountin 2019, 2018 and 2017, respectively, for this one-time transition tax liability. The Company utilized significant foreign tax credits and net operating loss carryovers to reduce the transition tax liability resultingand the remaining tax balance was paid in an increasefull during 2019.
The Act also created a new tax on GILTI attributable to foreign subsidiaries. Companies have the option to account for the GILTI tax as a period cost in income tax expense of $63.6 million. We have not yet completed our calculationthe period incurred, or to recognize deferred taxes for temporary differences, including outside basis differences expected to reverse as a result of the GILTI provisions. The Company has elected to account for the GILTI tax on ADFI given pendingas a period cost in the period incurred.
regulatory guidanceAs of December 31, 2019 and the need to obtain, prepare and analyze various information relevant to calculation including, but not limited to, our post-1986 E&P, foreign taxes and amounts held in cash or other specified assets on various measurement dates.
As disclosed in Note 1 - Business and Significant Accounting Policies,2018, the Company adopted FASB ASU No. 2016-09 in 2016. The effect of the adoption reduced the provision for income taxes by $12.9 million and $10.0 million for the years ended December 31, 2017 and 2016, respectively.
In July 2015, the United States Tax Court (the “Court”) issued an opinion relating to the treatment of stock-based compensation expense in an inter-company cost-sharing arrangement. In its opinion, the Court held that affiliated companies may exclude stock-based compensation expense from their cost-sharing arrangement. The Internal Revenue Service is appealing the decision. Because of uncertainty related to the final resolution of this litigation and the recognition of potential benefits to the Company, the Company has not recorded any financial statement benefit associated with this decision. The Company will monitor developments related to this case and the potential impact of those developments on the Company’s consolidated financial statements
As of December 31, 2017 and December 31, 2016, the Company had gross unrecognized tax benefits of $60.3$102.8 million and $37.1$90.3 million, respectively. The increase is primarily attributabledue to pre-acquisition unrecognized tax benefits of CEB for positions taken with respect to intercompany transactions and state income tax positions.transactions. The gross unrecognized tax benefits as ofat December 31, 20172019 related primarily to transfer pricing on intercompany transactions, calculations of taxable E&P and related foreign tax credits, the exclusion of stock-based compensation expense from the Company’s cost sharing agreement, utilization of certain tax attributes, state income tax positions,and the ability to realize certain refund claims, and intercompany transactions.claims. It is reasonably possible that gross unrecognized tax benefits will be decreaseddecrease by $6.3approximately $9.7 million within the next 12twelve months due to the anticipated closure of audits and the expiration of certain statutes of limitation.
Included in the balance of gross unrecognized tax benefits at December 31, 20172019 are potential benefits of $57.1$97.5 million that, if recognized, would reduce theour effective tax rate on income from continuing operations. Also included in the balance of gross unrecognized tax benefits as ofat December 31, 20172019 are potential benefits of $3.2$5.3 million that, if recognized, would result in adjustments to other tax accounts, primarily deferred taxes.
The followingtable below is a reconciliation of the beginning and ending amountamounts of gross unrecognized tax benefits, excluding interest and penalties, for the years ended December 31 (in thousands):
.
|
| | | | | | | |
| | 2019 | | 2018 |
| Beginning balance | $ | 90,349 |
| | $ | 60,269 |
|
| Additions based on tax positions related to the current year | 32,072 |
| | 27,371 |
|
| Additions for tax positions of prior years | 8,564 |
| | 14,691 |
|
| Reductions for tax positions of prior years | (16,942 | ) | | (3,939 | ) |
| Reductions for expiration of statutes | (7,481 | ) | | (6,293 | ) |
| Settlements | (3,867 | ) | | (472 | ) |
| Change in foreign currency exchange rates | 75 |
| | (1,278 | ) |
| Ending balance | $ | 102,770 |
| | $ | 90,349 |
|
|
| | | | | | | |
| | 2017 | | 2016 |
| Beginning balance | $ | 37,099 |
| | $ | 25,911 |
|
| Additions based on tax positions related to the current year | 10,883 |
| | 7,086 |
|
| Additions for tax positions of prior years | 24,299 |
| | 6,443 |
|
| Reductions for tax positions of prior years | (10,613 | ) | | (496 | ) |
| Reductions for expiration of statutes | (1,368 | ) | | (1,006 | ) |
| Settlements | (1,769 | ) | | (544 | ) |
| Change in foreign currency exchange rates | 1,738 |
| | (295 | ) |
| Ending balance | $ | 60,269 |
| | $ | 37,099 |
|
The Company accrues interest and penalties related to gross unrecognized tax benefits in its income tax provision. As of December 31, 20172019 and 2016,2018, the Company had $6.4$8.3 million and $4.3$6.7 million, respectively, of accrued interest and penalties related to gross unrecognized tax benefits. These amounts are in addition to the gross unrecognized tax benefits disclosed above. The total amount of interest and penalties recognized in the income tax provision for both the years ended December 31, 2017during 2019 and December 31, 20162018 was $0.9 million.$1.7 million and $0.7 million, respectively.
The number of years with open statutes of limitation varies depending on the tax jurisdiction. The Company’s statutes are open with respect to the U.S. federal jurisdiction for 20142016 and forward, and India for 2003 and forward. For other major taxing jurisdictions, including the U.S. states, the United Kingdom, Canada, Japan, France and Ireland, the Company's statutes vary and are open as far back as 2012.2010.
Under U.S. GAAP, rules, no provision for income taxes that may result from the remittance of earnings held overseas is required if the Company has the ability and intent to indefinitely reinvest such funds overseas. While our current plans do not demonstrate a need to repatriate accumulated undistributed foreign earnings to fund our U.S. operations or otherwise satisfy the liquidity needs of our U.S. operations, the Company has not asserted its intention to indefinitely reinvest certain accumulated undistributed foreign earnings of CEB. As a result of tax planning, approximately $12.0 million of deferred tax liability previously recorded in purchase
accounting for the estimated tax that could result from the remittance of these earnings was reversed in the current quarter and related goodwill reduced. The Company continues to assert its intention to reinvest all other accumulated undistributed foreign earnings in ourits non-U.S. operations, except in instances in whichwhere the repatriation of those earnings would result in minimal additional tax. Consequently, the Company has not recognized income tax expense that would result from the remittance of thesethose earnings. The accumulated undistributed earnings of non-U.S. subsidiaries were
approximately $194.0$142.0 million as of December 31, 2017.2019. As a result of the ACT,Act, the income tax that would be payable if such earnings were not indefinitely invested is estimated at this time to be minimal.
1113 — DERIVATIVES AND HEDGING
The Company enters into a limited number of derivative contracts to mitigate the cash flow risk associated with changes in interest rates on variable ratevariable-rate debt and changes in foreign exchange rates on forecasted foreign currency transactions. The Company accounts for its outstanding derivative contracts in accordance with FASB ASC Topic No. 815, which requires all derivatives, including derivatives designated as accounting hedges, to be recorded on the balance sheet at fair value. The following tables below provide information regarding the Company’s outstanding derivativesderivative contracts as of the dates indicated (in thousands, except for number of outstanding contracts):.
|
| | | | | | | | | | | | | | | | | |
| Derivative Contract Type | | Number of Contracts | |
Notional Amounts | | Fair Value Asset (Liability), Net (3) | | Balance Sheet Line Item | |
Unrealized Loss Recorded in AOCI/L |
| Interest rate swaps (1) | | 4 |
| | $ | 1,400,000 |
| | $ | (64,831 | ) | | Other liabilities | | $ | (47,164 | ) |
| Foreign currency forwards (2) | | 176 |
| | 604,858 |
| | 59 |
| | Other current assets | | — |
|
| Total | | 180 |
| | $ | 2,004,858 |
| | $ | (64,772 | ) | | | | $ | (47,164 | ) |
| | | Derivative Contract Type | | Number of Outstanding Contracts | |
Notional Amounts | | Fair Value Asset (Liability) (3) | | Balance Sheet Line Item | |
Unrealized Gain Recorded in OCI | | Number of Contracts | |
Notional Amounts | | Fair Value Asset (Liability), Net (3) | | Balance Sheet Line Item | |
Unrealized Loss Recorded in AOCI/L |
| Interest rate swaps (1) | | 5 |
| | $ | 1,400,000 |
| | $ | 3,412 |
| | Other assets | | $ | 2,483 |
| | 7 |
| | $ | 2,100,000 |
| | $ | (10,681 | ) | | Other liabilities | | $ | (7,770 | ) |
| Foreign currency forwards (2) | | 137 |
| | 686,764 |
| | 448 |
| | Other current assets | | — |
| | 135 |
| | 927,375 |
| | (1,942 | ) | | Accrued liabilities | | — |
|
| Total | | 142 |
| | $ | 2,086,764 |
| | $ | 3,860 |
| | | | $ | 2,483 |
| | 142 |
| | $ | 3,027,375 |
| | $ | (12,623 | ) | | | | $ | (7,770 | ) |
|
| | | | | | | | | | | | | | | | | |
| Derivative Contract Type | | Number of Outstanding Contracts | |
Notional Amounts | | Fair Value Asset (Liability) (3) | | Balance Sheet Line Item | |
Unrealized Loss Recored in OCI
|
| Interest rate swaps (1) | | 3 |
| | $ | 700,000 |
| | $ | (2,349 | ) | | Other liabilities | | $ | (1,409 | ) |
| Foreign currency forwards (2) | | 84 |
| | 86,946 |
| | (320 | ) | | Accrued liabilities | | — |
|
| Total | | 87 |
| | $ | 786,946 |
| | $ | (2,669 | ) | | | | $ | (1,409 | ) |
| |
| (1) | The interest rate swaps have been designated and are accounted for as cash flow hedges of the forecasted interest payments on borrowings. As a result, changes in the fair valuevalues of the swaps are deferred and are recorded in AOCL/I,AOCI/L, net of tax effect (seeeffect. Note 56 — Debt forprovides additional information).information regarding the Company's interest rate swap contracts. |
| |
| (2) | The Company has foreign exchange transaction risk sincebecause it typically enters into transactions in the normal course of business that are denominated in foreign currencies that differ from the local functional currency. The Company enters into short-term foreign currency forward exchange contracts to mitigate the cash flow risk associated with changes in foreign currency rates on forecasted foreign currency transactions. These contracts are accounted for at fair value with realized and unrealized gains and losses recognized in Other income, net sincebecause the Company does not designate these contracts as hedges for accounting purposes. All of the outstanding foreign currency forward exchange contracts at December 31, 20172019 matured by the end ofbefore January 2018.31, 2020. |
| |
| (3) | See Note 1214 — Fair Value Disclosures for the determination of the fair valuevalues of these instruments. |
At December 31, 2017,2019, all of the Company’s derivative counterparties were investment grade financial institutions. The Company did not have any collateral arrangements with its derivative counterparties and none of the derivative contracts contained credit-risk related contingent features. The following table below provides information regarding amounts recognized in the Consolidated Statements of Operations for derivative contracts for the years ended December 31 (in millions): thousands).
|
| | | | | | | | | | | | |
| Amount recorded in: | | 2017 | | 2016 | | 2015 |
| Interest expense (1) | | $ | 7.9 |
| | $ | 7.6 |
| | $ | 8.5 |
|
| Other (gain) loss, net (2) | | (0.8 | ) | | 0.3 |
| | 0.1 |
|
| Total expense | | $ | 7.1 |
| | $ | 7.9 |
| | $ | 8.6 |
|
|
| | | | | | | | | | | | |
| Amount Recorded In | | 2019 | | 2018 | | 2017 |
| Interest (income) expense, net (1) | | $ | (3,361 | ) | | $ | (1,920 | ) | | $ | 7,870 |
|
| Other expense (income), net (2) | | 2,488 |
| | 10,365 |
| | (801 | ) |
| Total (income) expense, net | | $ | (873 | ) | | $ | 8,445 |
| | $ | 7,069 |
|
| |
| (1) | Consists of interest (income) expense from interest rate swap contracts. |
| |
| (2) | Consists of net realized and unrealized gains and losses on foreign currency forward contracts. |
14 — FAIR VALUE DISCLOSURES
The Company’s financial instruments include cash equivalents, fees receivable from customers, accounts payable and accrualsaccrued liabilities, all of which are normally short-term in nature. The Company believes that the carrying amounts of these financial instruments reasonably approximate their fair valuevalues due to their short-term nature. The Company’s financial instruments also include its outstanding variable-rate borrowings under the 2016 Credit Agreement. The Company believes that the carrying amountamounts of its variable-rate borrowings reasonably approximatesapproximate their fair valuevalues because the raterates of interest on those borrowings reflectsreflect current market rates of interest for similar instruments with comparable maturities.
The Company enters into a limited number of derivatives transactions but does not enter into repurchase agreements, securities lending transactions or master netting arrangements. Receivables or payables that result from derivatives transactions are recorded gross in the Company’s Consolidated Balance Sheets.
FASB ASC Topic 820 provides a framework for the measurement of fair value and a valuation hierarchy based uponon the transparency of inputs used in the valuation of assets and liabilities. Classification within the valuation hierarchy is based uponon the lowest level of input that is significant to the resulting fair value measurement. The valuation hierarchy contains three levels. Level 1 measurements consist of quoted prices in active markets for identical assets or liabilities. Level 2 measurements include significant other observable inputs such as quoted prices for similar assets or liabilities in active markets; identical assets or liabilities in inactive markets; observable inputs such as interest rates and yield curves; and other market-corroborated inputs. Level 3 measurements include significant unobservable inputs such as internally-created valuation models. The Company does not currently utilize Level 3 valuation inputs to remeasure any of its assets or liabilities. However, Level 3 inputs may be used by the Company in its required annual impairment review of recorded goodwill. Information regarding the periodic assessment of the Company’s goodwill is included in Note 1 — Business and Significant Accounting Policies. The Company does not typically transfer assets or liabilities between different levels of the fair valuevaluation hierarchy.
The following table below presents the fair value of certain financial assets and liabilities (in thousands):.
| | | | | Fair Value | | Fair Value | | December 31, |
| Description: | | December 31,
2017 | | December 31,
2016 | |
| Description | | | 2019 | | 2018 |
| Assets: | | |
| | |
| | |
| | |
|
| Values based on Level 1 inputs: | | | | | | | | |
| Deferred compensation plan assets (1) | | $ | 29,108 |
| | $ | 10,252 |
| | $ | 2,277 |
| | $ | 8,956 |
|
| Total Level 1 inputs | | 29,108 |
| | 10,252 |
| | 2,277 |
| | 8,956 |
|
| Values based on Level 2 inputs: | | | | | | | | |
| Deferred compensation plan assets (1) | | 59,017 |
| | 27,847 |
| | 73,419 |
| | 57,690 |
|
| Foreign currency forward contracts (2) | | 2,053 |
| | 165 |
| | 1,558 |
| | 1,318 |
|
Interest rate swap contracts (3)
| | 3,412 |
| | — |
| |
| Total Level 2 inputs | | 64,482 |
| | 28,012 |
| | 74,977 |
| | 59,008 |
|
| Total Assets | | $ | 93,590 |
| | $ | 38,264 |
| | $ | 77,254 |
| | $ | 67,964 |
|
| Liabilities: | | |
| | |
| | |
| | |
|
| Values based on Level 2 inputs: | | | | | | | | |
| Deferred compensation plan liabilities (1) | | $ | 89,900 |
| | $ | 43,075 |
| | $ | 79,556 |
| | $ | 68,570 |
|
| Foreign currency forward contracts (2) | | 1,605 |
| | 485 |
| | 1,499 |
| | 3,260 |
|
| Interest rate swap contracts (3) | | — |
| | 2,349 |
| | 64,831 |
| | 10,681 |
|
| Senior Notes due 2025 (4) | | 837,560 |
| | — |
| | 835,384 |
| | 776,160 |
|
| Total Level 2 inputs | | $ | 929,065 |
| | $ | 45,909 |
| | 981,270 |
| | 858,671 |
|
| Total Liabilities | | $ | 929,065 |
| | $ | 45,909 |
| | $ | 981,270 |
| | $ | 858,671 |
|
| |
| (1) | The Company has a deferred compensation plan for the benefit of certain highly compensated officers, managers and other key employees (see Note 1315 — Employee Benefits). The assets consist of investments in money market andfunds, mutual funds and company-owned life insurance contracts. The money market funds consist of cash equivalents while the mutual fund investments consist of publicly-traded and quoted equity shares. The Company considers the fair valuevalues of these assets to be based on Level 1 inputs, and thesesuch assets had a fair valuevalues of $29.1$2.3 million and $10.3$9.0 million as of December 31, 20172019 and 2016,2018, respectively. The carrying amountamounts of the life insurance contracts equalsequal their cash surrender value.values. Cash surrender value represents the estimated amount that the Company would receive upon termination of thea contract, which approximates fair value. The Company considers the life insurance contracts to be valued based on a Level 2 input, and these assets had a fair value of $59.0 million and $27.8 million at December 31, 2017 and 2016, respectively. The related deferred compensation plan liabilities are recorded at fair value, or the estimated amount needed to settle the liability, which the Company considers to be a Level 2 input. |
value. The Company considers life insurance contracts to be valued based on Level 2 inputs, and such assets had fair values of $73.4 million and $57.7 million at December 31, 2019 and 2018, respectively. The related deferred compensation plan liabilities are recorded at fair value, or the estimated amount needed to settle the liability, which the Company considers to be a Level 2 input.
| |
| (2) | The Company enters into foreign currency forward exchange contracts to hedge the effects of adverse fluctuations in foreign currency exchange rates (see Note 1113 — Derivatives and Hedging). Valuation of the foreign currency forwardthese contracts is based on observable foreign currency exchange rates in active markets, which the Company considers to be a Level 2 input. |
| |
| (3) | The Company has interest rate swap contracts whichthat hedge the risk of variability from interest payments on its borrowings (see Note 56 — Debt). The fair valuevalues of theinterest rate swaps isare based on mark-to-market valuations prepared by a third-party broker. TheThose valuations are based on observable interest rates from recently executed market transactions and other observable market data, which the Company considers to be Level 2 inputs. The Company independently corroborates the reasonableness of the valuations prepared by the third-party broker through the use ofby using an electronic quotation service. |
| |
| (4) | As discussed in Note 56 — Debt, the Company issuedhas $800.0 million of principal amount fixed-rate Senior Notes due 2025 on March 30, 2017.in 2025. The estimated fair value of the notes was derived from quoted market prices provided by an independent dealer, which the Company considers to be a Level 2 input. The carrying amount of the Senior Notes was $785.0 million as of December 31, 2019. |
1315 — EMPLOYEE BENEFITS
Defined contribution plan.plans. The Company has savings and investment plans (the “401k“401(k) Plans”) covering substantially all U.S. employees. Company contributions are based uponon the level of employee contributions, up to a maximum of 4% of an employee’s eligible salary, subject to an annual maximum. For 2017,2019, the maximum Company match was $7,200. Amounts expensed in connection with the 401k401(k) Plans totaled $44.1 million, $36.7 million and $29.8 million $22.9 millionin 2019, 2018 and $20.0 million in 2017, 2016 and 2015, respectively.
Deferred compensation plan.plans. The Company has supplemental deferred compensation plans for the benefit of certain highly compensated officers, managers and other key employees. The plans' investment assets are recorded at fair value in Other assets on the Consolidated Balance Sheets at fair value.Sheets. The value of thesethose assets was $88.1$75.7 million and $38.1$66.6 million at December 31, 20172019 and 2016,2018, respectively (see Note 1214 — Fair Value Disclosures for fair value information). The correspondingrelated deferred compensation liability,plan liabilities, which was $89.9were $79.6 million and $43.1$68.6 million at December 31, 20172019 and 2016,2018, respectively, isare carried at fair value and isare adjusted with a corresponding charge or credit to compensation expense to reflect the fair value of the amount owed to the employees and is classifiedemployees. Deferred compensation plan liabilities are recorded in Other liabilities on the Consolidated Balance Sheets. Compensation expense recognized for all of the Company's deferred compensation plans was $0.6 million, $1.7 million and $0.4 million $0.1 millionin 2019, 2018 and $0.5 million in 2017, 2016 and 2015, respectively.
Defined benefit pension plans. The Company has defined benefit pension plans inat several of its international locations. Benefits earned and paid under thesethose plans are generally based on years of service and level of employee compensation. The Company's vested benefit obligation is the actuarial present value of the vested benefits to which an employee is entitled based on the employee's expected date of separation or retirement. The Company's defined benefit pension plans are accounted for in accordance with FASB ASC Topics No. 715 and 960. The following aretable below presents the components of the Company's defined benefit pension plan expense for the years ended December 31 (in thousands): .
|
| | | | | | | | | | | |
| | 2019 | | 2018 | | 2017 |
| Service cost | $ | 3,659 |
| | $ | 3,145 |
| | $ | 2,820 |
|
| Interest cost | 851 |
| | 840 |
| | 765 |
|
| Expected return on plan assets | (517 | ) | | (475 | ) | | (360 | ) |
| Recognition of actuarial loss | 237 |
| | 340 |
| | 350 |
|
| Total defined benefit pension plan expense | $ | 4,230 |
| | $ | 3,850 |
| | $ | 3,575 |
|
|
| | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| Service cost | $ | 2,820 |
| | $ | 2,780 |
| | $ | 2,620 |
|
| Interest cost | 765 |
| | 850 |
| | 790 |
|
| Expected return on plan assets | (360 | ) | | (375 | ) | | (345 | ) |
| Recognition of actuarial loss | 350 |
| | 200 |
| | 300 |
|
| Recognition of termination benefits | — |
| | — |
| | 85 |
|
| Total defined benefit pension plan expense (1) | $ | 3,575 |
| | $ | 3,455 |
| | $ | 3,450 |
|
| |
(1) | Pension expense is classified in SG&A in the Consolidated Statements of Operations. |
The following aretable below presents the key assumptions used in the computation of pension expense for the years ended December 31:31. | | | | 2017 | | 2016 | | 2015 | 2019 | | 2018 | | 2017 |
| Weighted average discount rate (1) | 1.78 | % | | 1.78 | % | | 2.19 | % | 1.28 | % | | 1.81 | % | | 1.78 | % |
| Expected return on plan assets | | 2.54 | % | | 2.45 | % | | 2.22 | % |
| Average compensation increase | 2.66 | % | | 2.67 | % | | 2.66 | % | 2.58 | % | | 2.58 | % | | 2.66 | % |
| |
| (1) | Discount rates are typically determined by utilizingusing the yields on long-term corporate or government bonds in the relevant country with a duration consistent with the expected term of the underlying pension obligations. |
The following table below provides information related toregarding changes in the projected benefit obligation of the Company's defined benefit pension plans for the years ended December 31 (in thousands): .
| | | | 2017 | | 2016 | | 2015 | 2019 | | 2018 | | 2017 |
| Projected benefit obligation at beginning of year | $ | 38,400 |
| | $ | 35,870 |
| | $ | 38,115 |
| $ | 44,890 |
| | $ | 45,450 |
| | $ | 38,400 |
|
| Service cost | 2,820 |
| | 2,780 |
| | 2,620 |
| 3,659 |
| | 3,145 |
| | 2,820 |
|
| Interest cost | 765 |
| | 850 |
| | 790 |
| 851 |
| | 840 |
| | 765 |
|
Actuarial loss (gain) due to assumption changes and plan experience | 690 |
| | 1,480 |
| | (1,190 | ) | 4,524 |
| | (430 | ) | | 690 |
|
| Additions and contractual termination benefits | (860 | ) | | — |
| | 85 |
| |
| Benefits paid (1) | (920 | ) | | (1,640 | ) | | (775 | ) | |
| Contractual termination benefits | | — |
| | (950 | ) | | — |
|
| Benefits payments (2) | | (830 | ) | | (1,400 | ) | | (1,780 | ) |
| Foreign currency impact | 4,555 |
| | (940 | ) | | (3,775 | ) | (591 | ) | | (1,765 | ) | | 4,555 |
|
Projected benefit obligation at end of year (2)(3) | $ | 45,450 |
| | $ | 38,400 |
| | $ | 35,870 |
| $ | 52,503 |
| | $ | 44,890 |
| | $ | 45,450 |
|
| |
| (1) | The actuarial loss in 2019 was primarily due to a reduction in our weighted average discount rate assumption. |
| |
| (2) | The Company projects the following benefit payments will be made in future years directly to plan participants: $1.3participants as follows: $1.6 million in 2018;2020; $1.7 million in 2021; $1.7 million in 2022; $2.2 million in 2019; $1.52023; $2.2 million in 2020, $1.5 million in 2021, $1.6 million in 2022;2024; and $10.5$13.6 million in total in the five years thereafter. |
| |
(2)(3) | Measured as of December 31. |
The following table providestables below provide information regarding the funded status of the Company's defined benefit pension plans and the related amounts recorded in the Company’s Consolidated Balance Sheets as of December 31 (in31(in thousands): .
| | | Funded status of the plans: | 2017 | | 2016 | | 2015 | |
| Funded status of the plans | | 2019 | | 2018 | | 2017 |
| Projected benefit obligation | $ | 45,450 |
| | $ | 38,400 |
| | $ | 35,870 |
| $ | 52,503 |
| | $ | 44,890 |
| | $ | 45,450 |
|
| Pension plan assets at fair value (1) | (18,475 | ) | | (14,465 | ) | | (13,190 | ) | (23,444 | ) | | (19,460 | ) | | (18,475 | ) |
| Funded status – shortfall (2) | $ | 26,975 |
| | $ | 23,935 |
| | $ | 22,680 |
| $ | 29,059 |
| | $ | 25,430 |
| | $ | 26,975 |
|
|
| | | | | | | | | | | |
| Amounts recorded in the Consolidated Balance Sheets for the plans: | | | | | |
| Other liabilities — accrued pension obligation (2) | $ | 26,975 |
| | $ | 23,935 |
| | $ | 22,680 |
|
| Stockholders’ equity — deferred actuarial loss (3) | $ | (5,861 | ) | | $ | (5,797 | ) | | $ | (4,832 | ) |
|
| | | | | | | | | | | |
| Amounts recorded in the Consolidated Balance Sheets for the plans | | | | | |
| Other liabilities – accrued pension obligation (2) | $ | 29,059 |
| | $ | 25,430 |
| | $ | 26,975 |
|
| Stockholders’ equity – deferred actuarial loss (3) | $ | (8,584 | ) | | $ | (5,738 | ) | | $ | (5,861 | ) |
| |
| (1) | The pension plan assets are held by third-party trustees and are invested in a diversified portfolio of equities, high qualityhigh-quality government and corporate bonds, and other investments. The assets are primarily valued based on Level 1 and Level 2 inputs under the fair value hierarchy in FASB ASC Topic No. 820, with the majority of the invested assets considered to be of low-to-medium investment risk. The Company projects a future long-term rate of return on these plan assets of 2.22%2.04%, which it believes is reasonable based on the composition of the assets and both current and projected market conditions. For the year ended December 31, 2017, the Company contributed $2.4 million to these plans, and benefits paid to participants were $1.8 million. Additional information regarding pension plan asset activity is provided below. |
| |
| (2) | The Funded status -– shortfall represents the amount of the projected benefit obligation that the Company has not funded with a third-party trustee. This amount is a liabilityThese liabilities of the Company and isare recorded in Other liabilities on the Company’s Consolidated Balance Sheets. |
| |
| (3) | The deferred actuarial loss as of December 31, 20172019 is recorded in AOCL/IAOCI/L and will be reclassified out of AOCL/IAOCI/L and recognized as pension expense over approximately 1314 years, subject to certain limitations set forth in FASB ASC Topic No. 715. The impact of this amortizationthereof on pension expense in 2018 is projected to result inbe approximately $0.3$0.5 million of additional expense.expense in 2020. The amortization of deferred actuarial losses from AOCL/IAOCI/L to pension expense in each of the three years ended December 31, 2019, 2018 and 2017 was immaterial. |
The table below provides a rollforward of the Company's defined benefit pension plans assets for the years ended December 31 (in thousands).
|
| | | | | | | | | | | |
| | 2019 | | 2018 | | 2017 |
| Pension plan assets at the beginning of the year | $ | 19,460 |
| | $ | 18,475 |
| | $ | 14,465 |
|
| Company contributions | 4,405 |
| | 4,478 |
| | 3,438 |
|
| Benefit payments | (830 | ) | | (1,400 | ) | | (1,780 | ) |
| Actual return on plan assets | 714 |
| | (164 | ) | | 547 |
|
| Contractual termination benefits | — |
| | (950 | ) | | — |
|
| Foreign currency impact | (305 | ) | | (979 | ) | | 1,805 |
|
| Pension plan assets at the end of the year | $ | 23,444 |
| | $ | 19,460 |
| | $ | 18,475 |
|
The Company also maintainshas a reinsurance asset arrangement with a large international insurance company whose purposethat is intended to provide funding forfund benefit payments for one of theits plans. The reinsurance asset is not a pension plan asset but is an asset of the Company. At December 31, 20172019 and 2016,2018, the reinsurance asset was recorded at its cash surrender value of $9.1$8.9 million and $7.8$9.0 million, respectively, and is classifiedrecorded in Other assets on the Company's Consolidated Balance Sheets. The Company believes thethat cash surrender value approximates fair value and is equivalent to a Level 2 input under the FASB’s fair value frameworkhierarchy in FASB ASC Topic No. 820.
1416 — SEGMENT INFORMATION
As a result of the CEB acquisition on April 5, 2017, the Company began reporting its results across four business segments reflecting its enlarged scale and breadth of advisory services aligned to the mission-critical priorities of virtually all functional business leaders across every industry and size of enterprise worldwide.
Our products and services are delivered through four3 segments – Research, Conferences and Consulting, Events and Talent Assessment & Other, as follows:described below.
| |
| • | Research provides trusted, objective insights and advice on the mission-critical priorities of leaders across all functional areas of an enterprise through reports, briefings, proprietary tools, access to our research experts, peer networking services and membership programs that enable our clients to drive organizational performance. |
| |
| • | Conferences provides business professionals across an organization the opportunity to learn, share and network. From our Gartner Symposium/Xpo series, to industry-leading conferences focused on specific business roles and topics, to peer-driven sessions, our offerings enable attendees to experience the best of Gartner insight and advice live. |
Research provides trusted, objective insights and advice on the mission-critical priorities of leaders across all functional areas of the enterprise through research and other reports, briefings, proprietary tools, access to our analysts, peer networking services and membership programs that enable our clients to make better decisions. Gartner's traditional strengths in IT, marketing and supply chain research were enhanced in 2017 with Gartner's acquisition of CEB, Inc., which added CEB's best practice and talent management research insights across a range of business functions, to include human resources, sales, legal and finance.
| |
| • | Consulting combines the power of Gartner market-leading research with custom analysis and on-the-ground support to help chief information officers and other senior executives driving technology-related strategic initiatives move confidently from insight to action. |
Consulting provides customized solutions to unique client needs through on-site, day-to-day support, as well as proprietary tools for measuring and improving IT performance with a focus on cost, performance, efficiency and quality.
Events provides business professionals across the organization the opportunity to learn, share and network. From our flagship CIO event Gartner Symposium/ITxpo, to industry-leading conferences focused on specific business roles and topics, to member-driven sessions, our events enable attendees to experience the best of Gartner insight and advice live.
Talent Assessment & Other helps organizations assess, engage, manage and improve talent. This is accomplished through knowledge and skills assessments, training programs, workshops, and survey and questionnaire services.
The Company evaluates segment performance and allocates resources based on gross contribution margin. Gross contribution, as presented in the table below, is defined as operating income or loss excluding certain Cost of services and product development expenses, Selling, general and administrative expenses, Depreciation, Amortization of intangibles, and Acquisition and integration charges. Certain bonus and fringe benefit costs included in consolidated Cost of services and product development are not allocated to segment expense. The accounting policies used by the reportable segments are the same as those used by the Company. There are no intersegment revenues. The Company does not identify or allocate assets, including capital expenditures, by reportable segment. Accordingly, assets are not reported by segment because the information is not available by segment and is not reviewed in the evaluation of segment performance or in making decisions inregarding the allocation of resources.
The Company earns revenue from clients in many countries. Other than the United States, there is no individual country in whichwhere revenues from external clients represent 10% or more of the Company’s consolidated revenues. Additionally, no single client accounted for 10% or more of total revenuethe Company’s consolidated revenues and the loss of a single client, in management’s opinion, would not have a material adverse effect on revenues.
The following tables below present operating information about the Company’s reportable segments for the periods indicatedyears ended December 31 (in thousands):.
| | | | Research | | Consulting | | Events | | Talent Assessment & Other | | Consolidated | Research | | Conferences | | Consulting | | Consolidated |
2017 (1) | |
| | |
| | |
| | | | |
| |
| Revenues | $ | 2,471,280 |
| | $ | 327,661 |
| | $ | 337,903 |
| | 174,650 |
| | $ | 3,311,494 |
| |
| Gross contribution | 1,653,014 |
| | 93,643 |
| | 163,480 |
| | 90,249 |
| | 2,000,386 |
| |
| Corporate and other expenses | |
| | |
| | |
| | | | (2,006,715 | ) | |
| Operating (loss) | |
| | |
| | |
| | | | $ | (6,329 | ) | |
| | | | | | | | | | | |
| | Research | | Consulting | | Events | | Talent Assessment & Other | | Consolidated | |
2016 (1) | |
| | |
| | |
| | | | |
| |
| 2019 | | |
| | |
| | |
| | |
| Revenues | $ | 1,857,001 |
| | $ | 318,934 |
| | $ | 268,605 |
| | — |
| | $ | 2,444,540 |
| $ | 3,374,548 |
| | $ | 476,869 |
| | $ | 393,904 |
| | $ | 4,245,321 |
|
| Gross contribution | 1,285,611 |
| | 89,734 |
| | 136,655 |
| | — |
| | 1,512,000 |
| 2,351,720 |
| | 241,757 |
| | 118,450 |
| | 2,711,927 |
|
| Corporate and other expenses | |
| | |
| | |
| | | | (1,206,859 | ) | |
| | |
| | |
| | (2,341,840 | ) |
| Operating income | |
| | |
| | |
| | | | $ | 305,141 |
| |
| | |
| | |
| | $ | 370,087 |
|
| | | | | | | | | | | |
| | Research | | Consulting | | Events | | Talent Assessment & Other | | Consolidated | |
2015 (1) | |
| | |
| | |
| | | | |
| |
| Revenues | $ | 1,614,904 |
| | $ | 296,317 |
| | $ | 251,835 |
| | — |
| | $ | 2,163,056 |
| |
| Gross contribution | 1,117,534 |
| | 86,486 |
| | 130,527 |
| | — |
| | 1,334,547 |
| |
| Corporate and other expenses | |
| | |
| | |
| | | | (1,046,550 | ) | |
| Operating income | |
| | |
| | |
| | | | $ | 287,997 |
| |
|
| | | | | | | | | | | | | | | | | | | |
| | Research | | Conferences | | Consulting | | Other (1) | | Consolidated |
| 2018 | |
| | |
| | |
| | | | |
|
| Revenues | $ | 3,105,764 |
| | $ | 410,461 |
| | $ | 353,667 |
| | $ | 105,562 |
| | $ | 3,975,454 |
|
| Gross contribution | 2,144,097 |
| | 207,260 |
| | 102,541 |
| | 65,075 |
| | 2,518,973 |
|
| Corporate and other expenses | |
| | |
| | |
| | | | (2,259,258 | ) |
| Operating income | |
| | |
| | |
| | | | $ | 259,715 |
|
| | | | | | | | | | |
| | Research | | Conferences | | Consulting | | Other (1) | | Consolidated |
| 2017 | |
| | |
| | |
| | | | |
|
| Revenues | $ | 2,471,280 |
| | $ | 337,903 |
| | $ | 327,661 |
| | $ | 174,650 |
| | $ | 3,311,494 |
|
| Gross contribution | 1,653,014 |
| | 163,480 |
| | 93,643 |
| | 90,249 |
| | 2,000,386 |
|
| Corporate and other expenses | |
| | |
| | |
| | | | (2,006,715 | ) |
| Operating loss | |
| | |
| | |
| | | | $ | (6,329 | ) |
| |
| (1) | During 2018, the Company divested all of the non-core businesses that comprised its Other segment and moved a small residual product from the Other segment into the Research business and, as a result, no operating activity has been recorded in the Other segment in 2019. Note 2 — Acquisitions and Divestitures provides additional information regarding the Company's 2018 divestitures. |
(1) In 2017 the Company began reporting the results of its Strategic Advisory Services ("SAS") business in Research whereas previously the SAS business was reported with Consulting. Although the impact of the reclassification was not significant, the operating results of the SAS business for 2016 and 2015 were reclassified from Consulting to Research to be comparable with the current year presentation.
The following table below provides a reconciliation of total segment gross contribution to net income for the years ended December 31 (in thousands):.
| | | | | 2017 | | 2016 | | 2015 | | 2019 | | 2018 | | 2017 |
| Total segment gross contribution | | $ | 2,000,386 |
| | $ | 1,512,000 |
| | $ | 1,334,547 |
| | $ | 2,711,927 |
| | $ | 2,518,973 |
| | $ | 2,000,386 |
|
| Costs and expenses: | | | | | | | | | | | | |
| Cost of services and product development - unallocated (1) | | 9,090 |
| | 13,108 |
| | 10,567 |
| | 17,174 |
| | 12,319 |
| | 9,090 |
|
| Selling, general and administrative | | 1,599,004 |
| | 1,089,184 |
| | 962,677 |
| | 2,103,424 |
| | 1,884,141 |
| | 1,599,004 |
|
| Depreciation and amortization | | 240,171 |
| | 61,969 |
| | 47,131 |
| | 211,779 |
| | 255,601 |
| | 240,171 |
|
| Acquisition and integration charges | | 158,450 |
| | 42,598 |
| | 26,175 |
| | 9,463 |
| | 107,197 |
| | 158,450 |
|
| Operating (loss) income | | (6,329 | ) | | 305,141 |
| | 287,997 |
| |
| Operating income (loss) | | | 370,087 |
| | 259,715 |
| | (6,329 | ) |
| Interest expense and other, net | | 121,488 |
| | 16,710 |
| | 15,786 |
| | (92,273 | ) | | (124,041 | ) | | (121,488 | ) |
| (Benefit) provision for income taxes | | (131,096 | ) | | 94,849 |
| | 96,576 |
| |
| (Loss) gain from divested operations | | | (2,075 | ) | | 45,447 |
| | — |
|
| Provision (benefit) for income taxes | | | 42,449 |
| | 58,665 |
| | (131,096 | ) |
| Net income | | $ | 3,279 |
| | $ | 193,582 |
| | $ | 175,635 |
| | $ | 233,290 |
| | $ | 122,456 |
| | $ | 3,279 |
|
| |
| (1) | The unallocated amounts consist of certain bonus and related fringe costs recorded in consolidated Cost of services and product development expense that are not allocated to segment expense. The Company's policy is to only allocate bonus and related fringe chargesbonuses to segments for up toat 100% of thea segment employee's target bonus. Amounts above or below 100% are absorbed by corporate. |
The Company’s revenues are generated primarily through direct sales to clients
Disaggregated revenue information by domesticreportable segment for the three years ended December 31, 2019 is presented in Note 9 — Revenue and international sales forces and a network of independent international sales agents. Most of the Company’s products and services are provided on an integrated worldwide basis and, because of this integrated delivery, it is not practical to precisely separate our revenues by geographic location. Accordingly, the separation set forth in the table below is based upon internal allocations, which involve certain management estimates and judgments. Revenues in the table are reported based on where the sale is fulfilled; “Other International” revenues are those attributable to all areas located outside of the United States and Canada, as well as Europe, Middle East and Africa.
SummarizedRelated Matters. Long-lived asset information by geographic location as of and for the years ended December 31 followsis summarized in the table below (in thousands): .
| | | | 2017 | | 2016 | | 2015 | 2019 | | 2018 | | 2017 |
| Revenues: | |
| | |
| | |
| |
| United States and Canada | $ | 2,037,111 |
| | $ | 1,519,748 |
| | $ | 1,347,676 |
| |
| Europe, Middle East and Africa | 850,352 |
| | 616,721 |
| | 557,165 |
| |
| Other International | 424,031 |
| | 308,071 |
| | 258,215 |
| |
| Total revenues | $ | 3,311,494 |
| | $ | 2,444,540 |
| | $ | 2,163,056 |
| |
| | | | | | | |
| Long-lived assets: (1) | |
| | |
| | |
| |
| Long-lived assets (1): | | |
| | |
| | |
|
| United States and Canada | $ | 288,735 |
| | $ | 143,921 |
| | $ | 163,933 |
| $ | 867,974 |
| | $ | 305,928 |
| | $ | 288,735 |
|
| Europe, Middle East and Africa | 84,840 |
| | 42,326 |
| | 31,130 |
| 242,729 |
| | 67,306 |
| | 84,840 |
|
| Other International | 41,674 |
| | 24,630 |
| | 16,050 |
| 159,037 |
| | 50,800 |
| | 41,674 |
|
| Total long-lived assets | $ | 415,249 |
| | $ | 210,877 |
| | $ | 211,113 |
| $ | 1,269,740 |
| | $ | 424,034 |
| | $ | 415,249 |
|
| |
| (1) | Excludes goodwill and intangible assets for all dates and, as of December 31, 2017, held-for-sale assets. Additionally, long-lived assets as of December 31, 2019 included $702.9 million of operating lease right-of-use assets. Note 1 — Business and Significant Accounting Policies and Note 7 — Leases provide additional information regarding the Company's leases and certain changes in lease accounting effective January 1, 2019. |
1517 — CONTINGENCIES
Legal Matters. The Company is involved in legal proceedings and litigation arising in the ordinary course of business. We record a provision for pending litigation in our consolidated financial statements when we determine that an unfavorable outcome is probable and the amount of the loss can be reasonably estimated. 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, cash flows or results of operations when resolved in a future period.
Indemnifications. 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 matters such as title to assets sold and licensed or certain intellectual property rights. It is not possible to predict the maximum potential amount of future payments under these indemnification agreements due to the conditional nature of the Company’s obligations and the unique facts of each particular agreement. Historically, payments made by us under these agreements have not been material. As of December 31, 2019, the Company did not have any material payment obligations under any such indemnification agreements.
18 — VALUATION AND QUALIFYING ACCOUNTS
The Company maintains an allowance for losses whichthat is composedcomprised of a bad debt allowance and, through December 31, 2017, a revenue reserve. Provisions are charged against earningsrecorded as either as an increase toin bad debt expense or, prior to 2018, a reduction in revenues.
The following table below summarizes the activity in the Company’s allowance for losses for the years ended December 31 (in thousands): . |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Balance at Beginning of Year | | Additions Charged to Expense | | Additions Charged Against Revenues | | Deductions from the Reserve | | Reclassification to Accounts Payable and Accrued Liabilities (1) | | Balance at End of Year |
| 2019: | | | | | | | | | | | |
| Bad debt allowance | $ | 7,700 |
| | $ | 14,000 |
| | $ | — |
| | $ | (13,700 | ) | | $ | — |
| | $ | 8,000 |
|
| 2018: | |
| | |
| | |
| | |
| | | | |
|
| Bad debt allowance | $ | 12,700 |
| | $ | 12,500 |
| | $ | — |
| | $ | (11,300 | ) | | $ | (6,200 | ) | | $ | 7,700 |
|
| 2017: | |
| | |
| | |
| | |
| | | | |
|
| Bad debt allowance and revenue reserve | $ | 7,400 |
| | $ | 16,600 |
| | $ | 5,500 |
| | $ | (16,800 | ) | | $ | — |
| | $ | 12,700 |
|
|
| | | | | | | | | | | | | | | | | | | |
| | Balance at Beginning of Year | | Additions Charged to Expense | | Additions Charged Against Revenues | | Deductions from Reserve | | Balance at End of Year |
| 2017: | | | | | | | | | |
| Allowance for doubtful accounts and returns and allowances | $ | 7,400 |
| | $ | 16,600 |
| | $ | 5,500 |
| | $ | (16,800 | ) | | $ | 12,700 |
|
| 2016: | |
| | |
| | |
| | |
| | |
|
| Allowance for doubtful accounts and returns and allowances | $ | 6,900 |
| | $ | 4,750 |
| | $ | 4,850 |
| | $ | (9,100 | ) | | $ | 7,400 |
|
| 2015: | |
| | |
| | |
| | |
| | |
|
| Allowance for doubtful accounts and returns and allowances | $ | 6,700 |
| | $ | 3,480 |
| | $ | 5,420 |
| | $ | (8,700 | ) | | $ | 6,900 |
|
16 — SUBSEQUENT EVENTS
On February 6, 2018,(1) The allowance for losses at December 31, 2017 included $6.2 million that was attributable to the Company announced that it had reachedCompany's revenue reserve. As a definitive agreement to sell its CEB Talent Assessment business to Exponent Private Equity, a UK-based private equity firm, for $400.0 million. The CEB Talent Assessment business is a significant portionresult of the Company's Talent Assessment & Other segment. The agreement comes atadoption of ASU No. 2014-09 on January 1, 2018, the end of a previously announced process to evaluate strategic alternatives for CEB Talent Assessment, formerly SHL, which was acquired by Gartner as part ofrevenue reserve balance is now included in Accounts payable and accrued liabilities on the CEB acquisition in 2017. The transaction is expected to close in the first half of 2018Consolidated Balance Sheets. Note 9 — Revenue and is subject to customary closing conditions. Note 2 — Acquisitions and DivestitureRelated Matters provides additional information.information regarding the Company's adoption of ASU No. 2014-09.
ITEM 16. FORM 10-K SUMMARYSUMMARY.
None.
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has caused this Report on Form 10-K to be signed on its behalf by the undersigned, duly authorized, in Stamford, Connecticut, on February 22, 2018. 19, 2020.
|
| | | |
| | | Gartner, Inc. |
| | | | |
| Date: | February 22, 201819, 2020 | By: | /s/ Eugene A. Hall |
| | | Eugene A. Hall |
| | | Chief Executive Officer |
POWER OF ATTORNEY
Each person whose signature appears below appoints Eugene A. Hall and Craig W. Safian and each of them, acting individually, as his or her attorney-in-fact, each with full power of substitution, for him or her in all capacities, to sign all amendments to this Report on Form 10-K, and to file the same, with appropriate exhibits and other related documents, with the Securities and Exchange Commission. Each of the undersigned ratifies and confirms his or her signatures as they may be signed by his or her attorney-in-fact to any amendments to this Report. Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated: |
| | | | |
| Name | | Title | | Date |
| | | | | |
| /s/ Eugene A. Hall | | Director and Chief Executive Officer | | February 22, 201819, 2020 |
| Eugene A. Hall | | (Principal Executive Officer) | | |
| | | | | |
| /s/ Craig W. Safian | | Executive Vice President and Chief Financial Officer | | February 22, 201819, 2020 |
| Craig W. Safian | | (Principal Financial and Accounting Officer) | | |
| | | | | |
/s/ Michael J. Bingle | | Director | | February 22, 2018 |
Michael J. Bingle | | | | |
| | | | |
/s/ Peter E. Bisson | | Director | | February 22, 201819, 2020 |
| Peter E. Bisson | | | | |
| | | | | |
| /s/ Richard J. Bressler | | Director | | February 22, 201819, 2020 |
| Richard J. Bressler | | | | |
| | | | | |
| /s/ Raul E. Cesan | | Director | | February 22, 201819, 2020 |
| Raul E. Cesan | | | | |
| | | | | |
| /s/ Karen E. Dykstra | | Director | | February 22, 201819, 2020 |
| Karen E. Dykstra | | | | |
| | | | | |
| /s/ Anne Sutherland Fuchs | | Director | | February 22, 201819, 2020 |
| Anne Sutherland Fuchs | | | | |
| | | | | |
| /s/ William O. Grabe | | Director | | February 22, 201819, 2020 |
| William O. Grabe | | | | |
| | | | | |
| /s/ Stephen G. Pagliuca | | Director | | February 22, 201819, 2020 |
| Stephen G. Pagliuca | | | | |
| | | | | |
| /s/ Eileen M. Serra | | Director | | February 22, 201819, 2020 |
| Eileen M. Serra | | | | |
| | | | | |
| /s/ James C. Smith | | Director | | February 22, 201819, 2020 |
| James C. Smith | | | | |