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, 2018
 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
06902-7700
(Address of principal executive offices)
(Zip Code)
 
 
(203) 316-1111
 
(Registrant’s telephone number, including area code)
 
Securities registered pursuant to Section 12(b) of the Act:  
Title of each class
 
Name of each exchange
on which registered
Common Stock, $.0005 par value per share
 
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes þ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company as defined in Rule 12b-2 of the Exchange Act:  
Large accelerated filer þ
Accelerated filer o
Non-accelerated filer o
Smaller reporting company o
Emerging growth company o
 
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, 2018, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $11,675,031,229, based on the closing sale price as reported on the New York Stock Exchange.
As of January 31, 2019, 89,711,737 shares of the registrant’s common shares were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The definitive Proxy Statement for the Annual Meeting of Stockholders to be held on May 30, 2019 is incorporated by reference into Part III to the extent described therein.
 




GARTNER, INC.
2018 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



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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 goals and build the successful organizations of tomorrow. We believe we have an 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’re a trusted advisor and an objective resource for more than 15,000 organizations in more than 100 countries — across all major functions, in every industry and enterprise size.

Gartner delivers its products and services globally through three business segments:

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 and advisors, 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, finance, sales and legal.

Conferences (formerly called Events) provides business professionals across the organization the opportunity to learn, share and network. From our flagship CIO conference Gartner IT Symposium, to industry-leading conferences focused on specific business roles and topics, to member-driven sessions, our offerings enable attendees to experience the best of Gartner insight and advice live.

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.

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

MARKET OVERVIEW

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, business leaders must deal with this unprecedented level of disruption and change. No enterprise can be operationally effective unless it incorporates the right technology and related strategy and management decisions into every part of its business. This affects all business levels, functions and roles. Chief financial officers, heads of human resources, chief marketing officers and other executives and leaders across the enterprise are more reliant on technology than ever. Given this critical need, business enterprises, governments and their agencies, and other organizations turn to Gartner for decision-making guidance to ensure they maximize their technology investments and meet their current and future needs.

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 the CEB expertise in functional areas that we integrated during 2018, 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, data-driven research steers clients toward the right decisions 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 conferences, including the Gartner Symposium/XpoTM series.

We had 2,114 research analysts and expert advisors as of December 31, 2018 located around the world who create and deliver compelling, relevant, independent and objective research and fact-based analysis on virtually every function across the enterprise.

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Through our robust product portfolio, our global research and advisory team provides thought leadership and insights that CIOs and other technology practitioners, HR, sales, legal, finance, supply chain and marketing executives need to make the right decisions, every day.

In addition to our research analysts and expert advisors, as of December 31, 2018, we had 718 experienced consultants who combine our objective, independent research with a practical business perspective focused on the IT industry. Finally, our conferences are some of 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, consulting services and conferences. 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 three business segments:

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 across the enterprise. Within the Research segment, Global Technology Sales ("GTS") delivers products and services to users and providers of technology, while Global Business Sales ("GBS") delivers products and services to all other functional leaders.

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 15,000 distinct organizations worldwide. We publish tens of thousands of pages of original research annually, and our analysts have over 380,000 client interactions every year. Our size and scale enable us to commit vast resources toward broader and deeper research coverage, and to deliver insight to our clients based on what they need and where they are. The ongoing interaction of our research analysts and advisors with our clients enables us to identify the most pertinent topics to them and develop relevant product enhancements to meet the evolving needs of users of our research. Our proprietary research content, presented in the form of reports, briefings, updates and related tools, is delivered directly to the client’s desktop via our website and/or product-specific portals.

Clients normally sign subscription contracts that provide access to our research content and advisory services for individual users over a defined period of time. We typically have a minimum contract period of 12 months for our research and advisory subscription contracts and at December 31, 2018, a significant portion of our contracts were multi-year.

CONFERENCES. Gartner attracts more than 80,000 business and technology professionals and industry-leading technology providers to its 70+ conferences worldwide each year. Attendees experience sessions led by Gartner analysts and advisors, cutting-edge technology solutions, peer exchange workshops, one-on-one analyst and advisor 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 IT Symposium/XpoTM in nine locations worldwide annually. Since the addition of CEB, we’ve expanded to host 700+ more intimate live meetings each year, as well as 250+ exclusive C-level meetings through the Evanta brand.

CONSULTING. Gartner Consulting deepens relationships with our largest research and advisory 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, 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

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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. Gartner Consulting also provides targeted consulting services to professionals in specific industries. Finally, we provide actionable solutions for IT cost optimization, technology modernization and IT sourcing optimization initiatives.

COMPETITION

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

Superior research content - We believe that we create the broadest, highest-quality and most relevant research coverage across all major functional roles in the enterprise. Our research analysis generates unbiased insight that we believe is timely, thought-provoking and comprehensive, and that is known for its high quality, independence and objectivity.

Our leading brand name - We have provided critical, trusted insight under the Gartner name for nearly 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 composed of research veterans and experienced industry executives with long tenure at Gartner.

Substantial operating leverage in our business model - We have the ability to distribute our intellectual property and expertise across multiple platforms, including research publications, consulting engagements, conferences and executive programs, to derive incremental revenue and profitability.

Vast network of analysts, advisors and consultants - As of December 31, 2018, we had 2,114 research analysts and expert advisors and 718 experienced consultants located around the world. Our analysts and advisors collectively speak 59 languages and are located in 26 countries, enabling us to cover vast aspects of business and technology 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. 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 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 15,173 employees as of December 31, 2018, a slight increase compared to 15,131 at December 31, 2017. The 15,173 employees at December 31, 2018 is net of a reduction of 1,547 employees resulting from our 2018 business divestitures. Adjusting for these divestitures, our total headcount increased by approximately 11% year-over-year.

We had 8,802 employees, or 58% of our total employees, based in the U.S. at December 31, 2018 in 83 offices. We had 1,312 employees located at our headquarters facility in Stamford, Connecticut and nearby; 1,930 employees located at our Ft. Myers,

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Florida offices; 1,493 located in Arlington, Virginia; 397 employees located in Irving, Texas; and 3,670 employees located elsewhere in the United States.

We had 6,371 employees, or 42% of our total employees, located outside of the United States at December 31, 2018 in 43 offices: 1,135 employees were located in Egham, the United Kingdom; 1,089 employees were located in Gurgaon, India; and 4,147 employees were located elsewhere.

Our employees may be subject to collective bargaining agreements at a company or industry level, or works councils, in those foreign countries where this is part of the local labor law or practice. We have experienced no work stoppages and consider our relations with our employees to be favorable.

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. In general, most if not all 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 for the three-year period ended December 31, 2018 is provided in Note 14 — Segment Information in the Notes to Consolidated Financial Statements. Additional information regarding revenues by business segment is located in Note 1 — Business and Significant Accounting Policies in the Notes to Consolidated Financial Statements.
 
AVAILABLE INFORMATION
 
Our internet address is gartner.com and the Investor Relations section of our website is located at investor.gartner.com. We make available free of charge, on or through the Investor Relations section of our website, printable copies of our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (the “SEC”).
 
Also available at investor.gartner.com, under the “Governance” link, are printable and current copies of our (i) CEO & CFO Code of Ethics which applies to our Chief Executive Officer, Chief Financial Officer, Controller and other financial managers, (ii) Global Code of Conduct, which applies to all Gartner officers, directors and employees, wherever located, (iii) Board Principles and Practices, the corporate governance principles that have been adopted by our Board and (iv) charters for each of the Board’s standing committees: Audit, Compensation and Governance/Nominating.

ITEM 1A. RISK FACTORS

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

Risks related to our business

Our operating results could be negatively impacted by global economic conditions. Our business is impacted by general economic conditions and trends, in the United States and abroad. In its recent report, Global Economics Prospects, January 2019: Darkening Skies, the World Bank reported that global trade and investment have weakened and it reduced its growth outlook for both 2018 and 2019. Among the concerns cited were trade disputes, higher interest rates and lower liquidity as advanced-economy central banks continue to withdraw accommodative monetary policies, high corporate debt loads, and volatile financial markets. In the U.S., where growth has remained solid, the World Bank also cited concerns regarding the diminishing impact of the 2017 tax cuts and a volatile political environment. A downturn in growth could negatively and materially affect future demand for our products

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and services in general, in certain geographic regions, in particular countries, or industry sectors. Such difficulties could negatively impact our ability to maintain or 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 and consulting utilization rates, and the number of attendees and exhibitors to our conferences and other meetings. Failure to achieve acceptable levels of these measurements or improve them could negatively impact our financial condition, results of operations, and cash flows.

We face significant competition and our failure to compete successfully could materially adversely affect our results of operations, financial condition, and cash flows. We face direct competition from a significant number of independent providers of information products and services, including information available on the internet free of charge. We also compete indirectly against consulting firms and other information providers, including electronic and print media companies, some of which may have greater financial, information gathering and marketing resources than we do. These indirect competitors could also choose to compete directly with us in the future. In addition, 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 could result in loss of market share, diminished value in our products and services, reduced pricing and increased marketing expenditures. Furthermore, we may not be successful if we cannot compete effectively on quality of research and analysis, timely delivery of information, customer service, 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 upon our ability to deliver high quality and timely research and analysis to our clients. Any failure to continue to provide credible and reliable information 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 may suffer and demand for our products and services may decline. In addition, we must continue to improve our methods for delivering our products and services in a cost-effective manner via the internet 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 services, or introduce the new products and services that are needed to remain competitive. The market for our products and services is characterized by rapidly changing needs for information and analysis. 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, develop, enhance and improve our existing 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.

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 enhance 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 new subscription-based services for a significant portion of our revenue, and our failure to renew at historical rates or generate new sales of such services could lead to a decrease in our revenues. A large portion of our success depends on our ability to generate renewals of our subscription-based research products and services and new sales of such products and services, both to new clients and existing clients. These products and services constituted approximately 80% and 79% of total revenues from our on-going operations for 2018 and 2017, respectively. Generating new sales of our subscription-based products and services, both to new and existing clients, is a challenging, costly, and often time consuming process. If we are unable to generate new sales, due to competition or other factors, our revenues will be adversely affected.


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Our research subscription contracts are typically for 12-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 Research client retention rate was 83% at both December 31, 2018 and 2017, there can be no guarantee that we will continue to maintain this rate of client renewals.

The profitability and success of our conferences and other meetings could be adversely affected by external factors beyond our control. Our Conferences business constituted approximately 11% of total revenues from our on-going operations in both 2018 and 2017. The market for desirable dates and locations for our activities is highly competitive. If we cannot secure desirable dates and suitable venues for our conferences their profitability could suffer, and our financial condition and results of operations may be adversely affected. In addition, because our conferences are scheduled in advance and held at specific locations, the success of these activities can be affected by circumstances outside of our control, such as 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 activity. We also face the challenge of procuring venues that are sizeable enough at a reasonable cost to accommodate some of our major activities.

Our Consulting business depends on non-recurring engagements and our failure to secure new engagements could lead to a decrease in our revenues. Consulting segment revenues constituted approximately 9% and 10% of total revenues from our on-going operations in 2018 and 2017, respectively. 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.

Our sales to governments are subject to appropriations and may be terminated. 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, 2018 and 2017, approximately $555.0 million and $435.0 million, respectively, of our 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 all 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, as well as intense competition. While 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 could jeopardize the quality of our products and services and our future growth plans. Our success is 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 are 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

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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. We 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 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 us to a variety of operational and other risks which could negatively impact our financial condition, results of operations, and cash flows. 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, 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 or against economic espionage in international jurisdictions.

Our business could also be negatively impacted by 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. In addition, the withdrawal of nations from existing common markets or trading blocs, such as the possible exit of the United Kingdom from the European Union (EU), commonly referred to as Brexit, could be potentially disruptive and could negatively impact our business and our clients. Brexit could lead to legal uncertainty and potentially divergent national laws and regulations in the United Kingdom and EU. We, as well as our clients who have significant operations in the United Kingdom, may incur additional costs and expenses as we adapt to potentially divergent regulatory frameworks from the rest of the EU and as a result, our contractual commitments in the United Kingdom and the rest of the EU may be impacted, which could negatively affect our operations in Europe. This and other Brexit-related issues may require changes to our legal entity structure in the United Kingdom and the EU. Any of these effects of Brexit, among others, could harm our business and financial results.

We rely on local distributors or sales agents in some international locations. If any of these arrangements are terminated by our agent or us, we may not be able to replace the arrangement on beneficial terms or on a timely basis, or clients of the local distributor or sales agent may not want to continue to do business with us or our new agent.

Our 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-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. There can be no assurance that all of our employees, contractors and agents will comply with the Company’s policies that mandate compliance with these laws. Any failure to comply with 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. 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 intend to fully cooperate with any SEC or 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.


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We are exposed to volatility in foreign currency exchange rates from our international operations. A significant portion of our revenues are typically derived from sales outside of the United States. Revenues earned outside the U.S. are typically transacted in local currencies, which may fluctuate significantly against the U.S. dollar. While we may use forward exchange contracts to a limited extent to seek to mitigate foreign currency risk, our revenues and results of operations could be adversely affected by unfavorable foreign currency fluctuations. Additionally, our effective tax rate is increased as the U.S. dollar strengthens against foreign currencies, which could impact our operating results.

Natural disasters, terrorist acts, war, actions by governments, and other geopolitical activities could disrupt our operations. We operate in numerous U.S. and international locations, and we have offices in a number of major cities across the globe. A major weather event, earthquake, flood, drought, volcanic activity, disease, or other 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 internet 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 conferences. Concerns relating to global data privacy have the potential to damage our reputation and deter current and prospective clients from using our products and services or attending our 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 conference 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 conferences, as well as harm our reputation and brand and, therefore, our business.

In addition, continuously evolving data protection laws and regulations, such as the European Union General Data Protection Regulation (“GDPR”) (effective in May 2018), and the new California Consumer Privacy Act (“CCPA”), which takes effect in January 2020, pose increasingly complex compliance challenges. We have implemented a GDPR compliance program and are working towards CCPA compliance. 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 Union 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. A significant portion of our business is conducted over the internet and we rely heavily on computer systems to conduct our operations. 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 develop and deploy 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. These threats are constantly evolving and becoming more sophisticated, thereby increasing the difficulty of detecting and successfully defending against them. A cyber-attack, widespread internet failure or internet 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 security of outsourced website and service providers prior to retaining their services. However, the security measures implemented by us or by our outside service providers may not be effective and our systems (and those of our outside service providers) may be vulnerable to theft, loss, damage and interruption from a number of potential sources and events, including unauthorized access or security breaches, cyber-attacks, computer viruses, power loss, or other disruptive events. Our reputation, brand, financial condition and operating results could be materially adversely affected if, as a result of a significant cyber event or other technology-related catastrophe, our operations are disrupted or shutdown; our confidential, proprietary information is stolen or disclosed; we incur costs or are required to pay fines

10



in connection with stolen customer, employee, or other confidential information; we are required to dedicate significant resources to system repairs or increase cyber security protection; or we otherwise incur significant litigation, regulatory action and scrutiny or other costs as a result of these occurrences.

We may experience outages and disruptions of our online services if we fail to maintain an adequate operations infrastructure. Our increasing user traffic and complexity of our products and services demand more computing power. We have spent and expect to continue to spend substantial amounts to maintain data centers and equipment and to 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, 2018, the Company had outstanding debt of $1.5 billion under its 2016 term loan and revolving credit facility, as amended (the "2016 Credit Agreement") and $800.0 million of Senior Notes Due 2025 ("Senior Notes"). Additional information regarding the 2016 Credit Agreement and the Senior Notes is included in Note 5 — Debt in the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.

The debt service requirements of these borrowings 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. 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. 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 on favorable 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 our competitive position may be harmed. We rely on a combination of copyright, trademark, trade secret, patent, confidentiality, non-compete and other contractual provisions to protect our intellectual property rights. Despite our efforts to protect our intellectual property rights, unauthorized third parties may obtain and use technology or other information that we regard as proprietary. Our intellectual property rights may not survive a legal challenge to their validity or provide significant protection for us. The laws of certain countries, particularly in emerging markets, do not protect our proprietary rights to the same extent as the laws of the United States. Accordingly, we may not be able to protect our intellectual property against unauthorized third-party copying or use, which could adversely affect our competitive position. Additionally, there can be no assurance that another party will not assert that we have infringed its intellectual property rights.

Our employees are subject to 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 the particular restriction, 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.


11



We have grown, and may continue to grow, through acquisitions and strategic investments, which could involve substantial risks. We have made and may continue to make acquisitions of, or significant investments in, businesses that offer complementary products and services 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 and increase sales, 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.

We face risks related to leased office space. With the 2017 CEB acquisition we assumed a significant amount of additional leased office space, in particular in Arlington, Virginia, which formerly served as CEB's headquarters location. We have largely completed all the office space consolidations necessitated by the CEB acquisition as well as the divestiture of certain former CEB businesses that we completed during 2018. In Arlington we have consolidated all our businesses into a single new building and have substantially sublet the excess space in all of our other properties. Similarly, in Chicago we have also consolidated into a single new office space consolidating four different legacy spaces. Through all the consolidations we have tried to secure quality sub-tenants with appropriate sub-lease terms. However, if subtenants default on their sublease obligation with us or otherwise terminate the subleases with us, we may experience a loss of planned sublease rental income, which could result in a material charge against our operating results.

We are also in the process of adding new leased 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 a 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 and despite vigorous efforts to defend any such claim 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 which 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 States and other countries where we do business have either changed or are actively considering changes in their tax, accounting and other related laws. In the United States, tax reform has introduced numerous new complicated tax laws which could unfavorably impact our future effective tax rate. Various provisions of the U.S. Tax Cuts and Jobs Act of 2017 ("the Act") are highly complex and remain unclear in certain respects. Additional guidance in the form of notices and proposed regulations have been issued, and further guidance is expected to be issued. Changes could be made to the proposed regulations, future legislation could be enacted, and more regulations and notices could be issued. We will continue to monitor and will reflect impacts in future financial statements as appropriate. In addition, many state and local tax jurisdictions are still determining how they will interpret the Act. Final state and local governments’ legislation or guidance relating to the Act may impact our financial results.

During 2015, the Organization for Economic Cooperation and Development (“OECD”) released final reports on various action items associated with its initiative to prevent Base Erosion and Profit Shifting (“BEPS”). Numerous countries have and continue to propose 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.

12




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.

As of December 31, 2018, we had approximately $171.0 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, 2018, 79% 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, 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. Our current liquidity requirements 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. Accordingly, the Company intends to continue to reinvest substantially all of its accumulated undistributed foreign earnings, except in instances in which 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, under the provisions of the 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, we have a corporate compliance program which includes the creation of appropriate policies defining employee behavior that mandate adherence to laws, employee training, annual affirmations, monitoring and enforcement. However, if any employee fails to comply with, or intentionally disregards, any of these laws, regulations or our policies, 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 the expectations 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 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 fluctuations in our operating results could cause period-to-period comparisons of operating results not to be meaningful and may provide an unreliable indication of future operating results. Furthermore, our operating results may not meet the expectations of 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 may not be able to resell shares of our common stock at or above the price you paid. 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 stock price. Sales of a substantial number of shares of common stock in the public market by our current stockholders, or the threat that substantial sales may occur, could cause the market price of our common stock to decrease significantly or make it difficult for us to raise additional capital by selling stock. 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, 2018, approximately $871.0 million remained available for share

13



purchases under this program. No assurance can be given that we will continue these share repurchase activities in the future when the program is completed, or in the event that the price of our common stock reaches levels at which repurchases are not accretive.

Future sales of our common stock from grants and awards could lower our stock price. As of December 31, 2018, the aggregate number of shares of our common stock issuable pursuant to outstanding grants and awards under our equity incentive plans was approximately 2.6 million shares (approximately 0.5 million of which have vested). In addition, at the present time, approximately 4.9 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 yours. 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.
 
None.
 
ITEM 2. PROPERTIES.

As of December 31, 2018, we leased 83 domestic and 43 international active properties. These offices support our executive and administrative activities, research and consulting, sales, systems support, operations, and other functions. We have a significant presence in Stamford, Connecticut; Ft. Myers, Florida; Arlington, Virginia; Egham, the United Kingdom; Gurgaon, India; and Irving, Texas. The Company does not own any real properties.

Our Stamford corporate headquarters are located in 213,000 square feet of leased office space in three buildings located on the same campus. The Company's lease on the Stamford headquarters facility expires in 2027 and contains three five-year renewal options at fair value. In 2017 we leased an additional 57,000 square feet of space in a fourth building adjacent to our Stamford headquarters facility under a lease designed to be co-terminus with our headquarters, and we also have options for further space in this building.

In Ft. Myers, we lease 257,795 square feet in two buildings located on the same campus and we also have an 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 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 250,000 square feet to be delivered in phases. We occupied the first phase of the south campus in 2018 and expect to occupy the rest in 2019. This site also offers us options for further growth as necessary.

In Arlington, we have largely completed our strategy to consolidate multiple heritage CEB and Gartner offices that occupied 439,354 square feet across four different locations into 290,215 square feet of space in a single new building for a 15 year term that expires at the end of 2032.


14



In Egham, most of our operations are housed in a 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 occupy 125,358 square feet across five locations that are a mix of serviced and traditional office space. To accommodate future growth in Gurgaon and consolidate our operations, we signed an agreement to lease approximately 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 Irving, we have begun a phased occupancy in our new Center of Excellence. To support the growth of this site, we 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 at 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, we believe that the ultimate resolution of these matters, after considering amounts already accrued and insurance coverage, will not have a material adverse effect on our financial position, results of operations, or cash flows in future periods.
 
ITEM 4. MINE SAFETY DISCLOSURES.
 
Not applicable.


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, 2019, there were 1,189 holders of record of our common stock. Our 2019 Annual Meeting of Stockholders will be held on May 30, 2019 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 2018.
 
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
 
The equity compensation plan information set forth in Part III, Item 12 of this Form 10-K is hereby incorporated by reference into this Part II, Item 5.
 
SHARE REPURCHASES
 
The Company has a $1.2 billion board authorization adopted in May 2015 to repurchase the Company's common stock. The Company may repurchase its common stock from time-to-time in amounts, 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 from cash on hand and borrowings under our 2016 Credit Agreement. Repurchases may also be made from time-to-time in connection with the settlement of the Company's share-based compensation awards.







15



The following table summarizes the repurchases of our outstanding common stock during the three months ended December 31, 2018 pursuant to our $1.2 billion share repurchase authorization and the settlement of share-based compensation awards:  
Period
 
Total Number of Shares Purchased
(#)
 
Average Price Paid Per Share
($)
 
Total Number of Shares Purchased Under Announced Program (#)
 
Maximum Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs
(in billions)
October
 
424,708
 
$
145.46

 
424,400

 
$
1.0

November
 
80,944
 
143.50

 
71,011

 
1.0

December
 
733,365
 
133.68

 
733,044

 
$
0.9

Total for the quarter
 
1,239,017
 
$
138.36

 
1,228,455

 
 


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ITEM 6. SELECTED FINANCIAL DATA
 
The fiscal years presented below are for the respective twelve-month period from January 1 through December 31. Data for all years was derived or compiled from our audited consolidated financial statements included herein or from submissions of our Form 10-K in prior years. The selected consolidated financial data should be read in conjunction with our consolidated financial statements and related notes contained in this Annual Report on Form 10-K.
(In thousands, except per share data)
 
2018
 
2017
 
2016
 
2015
 
2014
STATEMENT OF OPERATIONS DATA:
 
 

 
 
 
 
 
 

 
 

Revenues:
 
 

 
 
 
 
 
 

 
 

Research
 
$
3,105,764

 
$
2,471,280

 
$
1,857,001

 
$
1,614,904

 
$
1,479,976

Conferences
 
410,461

 
337,903

 
268,605

 
251,835

 
227,707

Consulting
 
353,667

 
327,661

 
318,934

 
296,317

 
313,758

Other
 
105,562

 
174,650

 

 

 

Total revenues
 
$
3,975,454

 
$
3,311,494

 
$
2,444,540

 
$
2,163,056

 
$
2,021,441

Operating income (loss)
 
$
259,715

 
$
(6,329
)
 
$
305,141

 
$
287,997

 
$
286,162

Net income
 
$
122,456

 
$
3,279

 
$
193,582

 
$
175,635

 
$
183,766

 
 
 
 
 
 
 
 
 
 
 
PER SHARE DATA:
 
 

 
 
 
 
 
 
 
 

Basic income per share
 
$
1.35

 
$
0.04

 
$
2.34

 
$
2.09

 
$
2.06

Diluted income per share
 
$
1.33

 
$
0.04

 
$
2.31

 
$
2.06

 
$
2.03

 
 
 
 
 
 
 
 
 
 
 
Weighted average shares outstanding:
 
 

 
 
 
 
 
 
 
 

Basic
 
90,827

 
88,466

 
82,571

 
83,852

 
89,337

Diluted
 
92,122

 
89,790

 
83,820

 
85,056

 
90,719

 
 
 
 
 
 
 
 
 
 
 
OTHER DATA:
 
 

 
 
 
 
 
 
 
 

Cash and cash equivalents
 
$
156,368

 
538,908

 
$
474,233

 
$
372,976

 
$
365,302

Total assets
 
6,201,474

 
7,283,173

 
2,367,335

 
2,168,517

 
1,904,351

Long-term debt
 
2,146,514

 
2,943,341

 
672,500

 
790,000

 
385,000

Stockholders’ equity (deficit)
 
850,757

 
983,465

 
60,878

 
(132,400
)
 
161,171

Cash provided by operating activities
 
$
471,158

 
254,517

 
$
365,632

 
$
345,561

 
$
346,779

The following items impact the presentation and comparability of our consolidated data:
In 2017 the Company acquired CEB Inc. The operating results of CEB have been included in the Company's operating results since the acquisition date. The Company also made acquisitions in the other periods presented in the table. Note 2 — Acquisitions and Divestitures in the Notes to Consolidated Financial Statements provides additional information.

In 2018 the Company divested all three of the non-core businesses that comprised its Other segment. Note 2 –Acquisitions and Divestitures in the Notes provides additional information.

In 2018 and 2017 we had $107.2 million and $158.5 million, respectively, of acquisition and integration charges related to our acquisitions. Note 2 –Acquisitions and Divestitures in the Notes provides additional information.

In 2017 we recorded a $59.6 million tax benefit related to the U.S. Tax Cuts and Jobs Act of 2017, which increased our diluted earnings per share by $0.66 per share. Note 10 — Income Taxes in the Notes provides additional information.

In 2017 the Company borrowed approximately $2.8 billion. In 2018, the Company reduced its outstanding debt by $1.0 billion. Note 5 — Debt in the Notes provides additional information.

In 2017 the Company issued 7.4 million shares of its common stock in connection with the CEB acquisition. Note 7 — Stockholders' Equity in the Notes provides additional information.



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We repurchased 2.1 million, 0.4 million, 0.6 million, 6.2 million and 5.9 million shares of our common stock in 2018, 2017, 2016, 2015 and 2014, respectively. We used $260.8 million, $41.3 million, $59.0 million, $509.0 million and $432.0 million in cash for share repurchases in 2018, 2017, 2016, 2015 and 2014, respectively. Note 7 — Stockholders’ Equity in the Notes provides additional information.

18



ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
 
The purpose of the following 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," the "Company,” “we,” “our” and “us” in this MD&A are to Gartner, Inc. and its consolidated subsidiaries.

Business Divestitures

During 2018, the Company divested all three of the non-core businesses that comprised its Other segment, each of which were acquired as part of the acquisition of CEB Inc. in April 2017. As a result of these divestitures and the movement of a small residual product in the Other segment into the Research business, the Company is no longer recording any additional operating activity in the Other segment effective September 1, 2018. Additional information regarding the divestitures is included in Note 2 –Acquisitions and Divestitures in the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.

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. Additionally, our quarterly and annual revenues, operating income, 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 conferences and meetings; the 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 timing of the development, introduction and marketing of new products and services; competition in the industry; the payment of performance compensation; 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 discussed in “Risk Factors” in Item 1A. 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. 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.

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 goals and build the successful organizations of tomorrow. We believe we have an 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’re a trusted advisor and an objective resource for more than 15,000 organizations in more than 100 countries — across all major functions, in every industry and enterprise size. Gartner is headquartered in Stamford, Connecticut, and as of December 31, 2018, we had more than 15,000 associates.

Gartner currently delivers its products and services globally through three business segments:

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 and advisors, peer networking services and membership programs that enable our clients to make better decisions. Gartner's traditional strengths

19



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, finance, sales and legal.

Conferences (formerly called Events) provides business professionals across the organization the opportunity to learn, share and network. From our flagship CIO conference Gartner IT Symposium, to industry-leading conferences focused on specific business roles and topics, to member-driven sessions, our offerings enable attendees to experience the best of Gartner insight and advice live.

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.


BUSINESS MEASUREMENTS

We believe that the following business measurements are important performance indicators for our business segments:  
BUSINESS SEGMENT
 
BUSINESS MEASUREMENTS
Research
 
Total contract value 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 Conferences tickets) for which revenue is recognized when the deliverable is utilized. 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 clients, who were clients one 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.
 
 
 
 

20



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 continue to focus on maximizing shareholder value. During 2018, we repurchased 2.1 million shares of our outstanding common stock, reduced the Company's outstanding debt by $1.0 billion, and divested all three of the non-core businesses that comprised the Company's Other segment, each of which were acquired as part of the acquisition of CEB Inc. ("CEB") in 2017.

We had total revenues of $4.0 billion in 2018, an increase of 20% compared to 2017 on a reported basis and 19% excluding the foreign currency impact. Net income increased to $122.5 million in 2018 from $3.3 million in 2017 and, as a result, diluted earnings per share was $1.33 in 2018 compared to $0.04 in 2017.

Research revenues increased to $3.1 billion during 2018, or 26% compared to 2017 on a reported basis and 25% excluding the foreign currency impact. The Research gross contribution margin improved by two points in 2018, to 69%. Total contract value was $3.2 billion at December 31, 2018, an increase of 11% compared to December 31, 2017 on a foreign currency neutral basis.

Conferences revenues increased to $410.5 million in 2018, or 21% compared to 2017 on a reported basis and 22% excluding the foreign currency impact. The Conferences gross contribution margin was 50% and 48% in 2018 and 2017, respectively. We held 70 and 69 destination conferences in 2018 and 2017, respectively.

Consulting revenues increased to $353.7 million in 2018, or 8% compared to 2017 on a reported basis and 7% excluding the foreign currency impact. The Consulting gross contribution margin was 29% for both 2018 and 2017. Backlog was $110.7 million at December 31, 2018.

Cash provided by operating activities was $471.2 million and $254.5 million during 2018 and 2017, respectively. As of December 31, 2018, we had $156.4 million of cash and cash equivalents and $1.0 billion of available borrowing capacity on our revolving credit facility.
 

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. Management considers the policies discussed below to be critical to an understanding of our financial statements because their application requires complex and subjective management judgments and estimates. Specific risks for these critical accounting policies are also described below.

The preparation of our 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, they 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 pertaining to the years presented in the consolidated financial statements included in this Annual Report on Form 10-K are described below.
 
Revenue recognition — On January 1, 2018, the Company adopted Financial Accounting Standards Board ("FASB") Accounting Standards Update No. 2014-09, "Revenue from Contracts with Customers" ("ASU No. 2014-09"). ASU No. 2014-09 and related amendments required changes in revenue recognition policies as well as enhanced disclosures. Among other things, ASU No. 2014-09 requires a five-step evaluative process that consists of:

(1) Identifying the contract with the customer;
(2) Identifying the performance obligations in the contract;
(3) Determining the transaction price for the contract;

21



(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 on January 1, 2018 using the modified retrospective method of adoption. Under this method of adoption, the cumulative effect of applying the new standard is recorded at the date of initial application, with no restatement of the comparative prior periods presented. The adoption of ASU No. 2014-09 did not have a material impact on the Company’s consolidated financial statements. However, the adoption of the new standard required reclassifications of certain amounts presented in the Company’s consolidated balance sheet. 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" (“prior GAAP”). Under both ASU No. 2014-09 and prior GAAP, revenue can only be recognized when all of the required criteria are met. Note 1 — Business and Significant Accounting Policies in the Notes to Consolidated Financial Statements provides additional information regarding our adoption of ASU No. 2014-09 and its impact on the Company's consolidated financial statements and related disclosures.

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 material engagements. Revenues from fixed fee contracts are recognized as we work to satisfy our performance obligations. Revenues from time and materials engagements are recognized as work is delivered and/or services are provided. Revenues related to contract optimization contracts are contingent in nature and are only recognized upon satisfaction of all conditions related to their payment.

The majority of Research contracts are billable upon signing, absent special terms granted on a limited basis from time to time. Research 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 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.
 
Uncollectible fees receivable — At December 31, 2017, the Company maintained an allowance for losses that was comprised of a bad debt allowance and a revenue reserve. In connection with the adoption of ASU No. 2014-09 on January 1, 2018, management concluded that the revenue reserve was a refund liability rather than a contra-receivable due to the nature of the account activity. As a result, the Company reclassified the revenue reserve of $6.2 million on January 1, 2018 from the allowance for losses to Accounts payable and accrued liabilities and will consistently present the revenue reserve in this manner in all future consolidated balance sheets. Note 1 — Business and Significant Accounting Policies in the Notes to Consolidated Financial Statements provides additional information regarding our adoption of ASU No. 2014-09 and its impact on the Company's allowance for losses. Increases and decreases in the allowance for losses are charged to earnings, either to expense (i.e., the bad debt allowance) or revenues (i.e., the revenue reserve).

The determination of the bad debt allowance 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 estimates. The Company's bad debt allowance is periodically re-evaluated and adjusted as more information about the ultimate collectability of fees receivable becomes available. Circumstances that could cause our bad debt 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 presents our total fees receivable and the related allowance for losses (in thousands):
 
December 31,
 
2018
 
2017
Total fees receivable (1)
$
1,262,818

 
$
1,189,543

Allowance for losses (2)
(7,700
)
 
(12,700
)
Fees receivable, net
$
1,255,118

 
$
1,176,843



22



(1)
Total fees receivable at December 31, 2017 included $26.7 million of contract assets. As a result of the Company's adoption of ASU No. 2014-09 on January 1, 2018, contract assets are now included in Prepaid expenses and other current assets on the Company's consolidated balance sheet at December 31, 2018.
(2)
The allowance for losses at December 31, 2017 included $6.2 million that was attributable to the Company's revenue reserve. As a result of the Company's adoption of ASU No. 2014-09 on January 1, 2018, the revenue reserve balance is now included in Accounts payable and accrued liabilities on the Company's consolidated balance sheet at December 31, 2018.

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 and 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 for the asset and then adjusts the forecast to present value by applying an appropriate 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 an acquired intangible asset is its 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 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 recorded goodwill in accordance with FASB Accounting Standards Codification ("ASC") Topic 350, which requires goodwill to be assessed for impairment at least annually and whenever events or changes in circumstances indicate that the carrying value 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 current operating results that do not align with our annual plan or historical performance; changes in our strategic plan 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 an annual assessment of the recoverability of recorded goodwill, which can be either quantitative or qualitative in nature, or a combination of the two approaches. Both methods utilize estimates which, in turn, require judgments and assumptions regarding future trends and events. As a result, both the precision and reliability of the resulting 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 a 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. A quantitative analysis requires management to consider each of the factors relevant to a qualitative assessment, as well as the utilization of detailed financial projections, to include the rate 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 conducted a quantitative assessment of the fair value of all of the Company's reporting units during the quarter ended September 30, 2018. Our assessment determined that the fair values of the Company's reporting units continue to exceed their respective carrying values and, as a result, no goodwill impairment was indicated. Note 1 — Business and Significant Accounting Policies in the Notes to Consolidated Financial Statements provides additional information regarding 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. 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. When assessing the

23



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.

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. Note 8 — Stock-Based Compensation in the Notes to Consolidated Financial Statements provides additional 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 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 costs. Estimates of costs to be incurred to complete these actions, such as future lease payments, sublease income, the fair value of assets, and severance and related benefits, are based on assumptions at the time the actions are initiated. These accruals may need to be adjusted to the extent 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.

Accounting for leases — The Company adopted FASB Accounting Standards Update No. 2016-02, "Leases," as amended ("ASU No. 2016-02"), on January 1, 2019. Prior thereto, the Company recognized lease expense in accordance with FASB ASC Topic 840, Leases. Note 1 — Business and Significant Accounting Policies in the Notes to Consolidated Financial Statements provides additional information regarding our leases and the adoption of the new leasing standard.

24



RESULTS OF OPERATIONS
 
Consolidated Results
 
2018 VERSUS 2017

The table below presents an analysis of selected line items and year-over-year changes in our Consolidated Statements of Operations for the years indicated (in thousands). The operating results of CEB are included beginning on April 5, 2017, the date of the acquisition.
 
Year Ended
December 31,
2018
 
Year Ended
December 31,
2017
 
Effect on Net Income - Increase (Decrease)
 
Increase
(Decrease)
%
Total revenues
$
3,975,454

 
$
3,311,494

 
$
663,960

 
20
 %
Costs and expenses:
 

 
 

 
 

 
 

     Cost of services and product development
1,468,800

 
1,320,198

 
(148,602
)
 
(11
)
     Selling, general and administrative
1,884,141

 
1,599,004

 
(285,137
)
 
(18
)
     Depreciation
68,592

 
63,897

 
(4,695
)
 
(7
)
     Amortization of intangibles
187,009

 
176,274

 
(10,735
)
 
(6
)
     Acquisition and integration charges
107,197

 
158,450

 
51,253

 
32

Operating income (loss)
259,715

 
(6,329
)
 
266,044

 
>100

Interest expense, net
(124,208
)
 
(124,936
)
 
728

 
1

Gain from divested operations
45,447

 

 
45,447

 
>100

Other income, net
167

 
3,448

 
(3,281
)
 
(95
)
Provision (benefit) for income taxes
58,665

 
(131,096
)
 
(189,761
)
 
>(100)

Net income
$
122,456

 
$
3,279

 
$
119,177

 
>100%

 
TOTAL REVENUES for the year ended December 31, 2018 increased $664.0 million, to $4.0 billion, an increase of 20% compared to the year ended December 31, 2017 on a reported basis and 19% excluding the foreign currency impact. A portion of the total revenue increase for 2018 compared to 2017 was due to the CEB acquisition.

The table below presents total revenues by geographic region for the years indicated (in thousands):  
Geographic Region
 
Year Ended December 31, 2018
 
Year Ended December 31, 2017
 
Increase (Decrease) $
 
Increase (Decrease) %
 
United States and Canada
 
$
2,514,952

 
$
2,092,366

 
$
422,586

 
20
%
 
Europe, Middle East and Africa
 
1,000,490

 
855,421

 
145,069

 
17

 
Other International
 
460,012

 
363,707

 
96,305

 
26

 
Totals
 
$
3,975,454

 
$
3,311,494

 
$
663,960

 
20
%
 

The table below presents our revenues by segment for the years indicated (in thousands):
Segment
 
Year Ended December 31, 2018
 
Year Ended December 31, 2017
 
Increase (Decrease) $
 
Increase (Decrease) %
 
Research
 
$
3,105,764

 
$
2,471,280

 
$
634,484

 
26
 %
 
Conferences
 
410,461

 
337,903

 
72,558

 
21

 
Consulting
 
353,667

 
327,661

 
26,006

 
8

 
Other (1)
 
105,562

 
174,650

 
(69,088
)
 
(40
)
 
Totals
 
$
3,975,454

 
$
3,311,494

 
$
663,960

 
20
 %
 
 
(1)
During 2018, the Company divested all three of the non-core businesses that comprised its Other segment.

25



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 was $1.5 billion in 2018, an increase of $148.6 million compared to 2017, or 11% on both a reported basis and excluding the foreign currency impact. This increase was primarily due to higher payroll and related benefits costs resulting from increased headcount, as well as incremental payroll and related benefits costs resulting from the CEB acquisition. Cost of services and product development as a percent of revenues was 37% and 40% for 2018 and 2017, respectively, with the improvement in 2018 primarily due to the negative impact on revenue from the deferred revenue fair value accounting adjustment, which was substantially less in 2018 compared to 2017.
 
SELLING, GENERAL AND ADMINISTRATIVE (“SG&A”) expense was $1.9 billion in 2018, an increase of $285.1 million compared to 2017, or 18% on a reported basis and 17% excluding the foreign currency impact. This increase was primarily due to: (i) higher commissions from increased sales bookings; (ii) incremental costs from the CEB acquisition; (iii) higher facilities and corporate costs; and (iv) more payroll and related benefits costs, which were driven mostly by increased headcount. These items were partially offset by a reduction in SG&A expense resulting from certain businesses that were divested during 2018. The overall headcount growth includes increases in quota bearing sales associates at Global Technology Sales and Global Business Sales to 3,104 and 790, respectively, at December 31, 2018. On a combined basis, the total number of quota-bearing sales associates increased by 16% when compared to December 31, 2017. SG&A expense as a percent of revenues was 47% and 48% for 2018 and 2017, respectively.

DEPRECIATION increased $4.7 million during 2018 when compared to 2017. Such increase was due to property, equipment and leasehold improvements acquired with CEB and additional Gartner investments.

AMORTIZATION OF INTANGIBLES increased $10.7 million during 2018 when compared to 2017. Such increase was due to additional amortization recorded in connection with our 2017 acquisitions.

ACQUISITION AND INTEGRATION CHARGES declined in 2018 compared to 2017 as the Company had two acquisitions in 2017 and none in 2018. Acquisition and integration charges consist of additional costs and expenses resulting from our acquisitions and include, among other items, professional fees, severance, stock-based compensation charges and accruals for exit costs for certain office space in Arlington, Virginia related to our acquisition of CEB that the Company does not intend to occupy. During 2018, exit costs represented the single largest component of our acquisition and integration charges.
 
OPERATING INCOME (LOSS) was operating income of $259.7 million in 2018 compared to an operating loss of $6.3 million in 2017. The improvement in profitability in 2018 reflects several factors, including (i) higher Research and Conferences segment contributions, and (ii) reduced acquisition and integration charges. These items were partially offset by higher cost of services and product development, SG&A expense and amortization of intangibles.

INTEREST EXPENSE, NET declined slightly in 2018 compared to 2017. The weighted-average debt outstanding in 2018 was approximately $2.5 billion compared to $2.8 billion in 2017. Offsetting the favorable impact of the lower weighted-average debt outstanding in 2018 was a higher weighted-average annual effective interest rate during 2018 when compared to 2017.

GAIN FROM DIVESTED OPERATIONS was $45.4 million in 2018 and was attributable to sales of certain business units and other miscellaneous assets. Additional information is included in Note 2 — Acquisitions and Divestitures in the Notes to Consolidated Financial Statements while additional information regarding our segments is included in Note 14 — Segment Information.

OTHER INCOME, NET for 2018 and 2017 primarily reflects the net impact of foreign currency gains and losses from our hedging activities, as well as sales of certain state tax credits and the recognition of other tax incentives.

PROVISION (BENEFIT) FOR INCOME TAXES in 2018 was an expense of $58.7 million on pretax income of $181.1 million compared to a benefit of $131.1 million on a pretax loss of $127.8 million in 2017. The effective income tax rate was 32.4% in 2018 compared to 102.6% in 2017. Both periods included favorable adjustments for the impact of the U.S. Tax Cuts and Jobs Act of 2017. The adjustment in 2017 was more significant than 2018 and had a larger favorable impact on the 2017 effective tax rate. The 2017 tax rate was also favorably impacted by the recognition of unrealized capital losses from a divested business. See Note 10 - Income Taxes in the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for further information related to the Company’s effective tax rates.

NET INCOME was $122.5 million and $3.3 million during 2018 and 2017, respectively. Additionally, our diluted income per share increased by $1.29 in 2018 when compared to 2017. These changes reflect an improvement in our 2018 operating profitability

26



and the gain from divested operations, partially offset by an increase in our income tax expense. Our 2017 income taxes included the favorable impacts from the U.S. Tax Cuts and Jobs Act of 2017.

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 years indicated (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
 
Effect on Net Income - Increase (Decrease)
 
Increase
(Decrease)
%
Total revenues
$
3,311,494

 
$
2,444,540

 
$
866,954

 
35
 %
Costs and expenses:
 

 
 

 
 

 
 

     Cost of services and product development
1,320,198

 
945,648

 
(374,550
)
 
(40
)
     Selling, general and administrative
1,599,004

 
1,089,184

 
(509,820
)
 
(47
)
     Depreciation
63,897

 
37,172

 
(26,725
)
 
(72
)
     Amortization of intangibles
176,274

 
24,797

 
(151,477
)
 
>(100)

     Acquisition and integration charges
158,450

 
42,598

 
(115,852
)
 
>(100)

Operating (loss) income
(6,329
)
 
305,141

 
(311,470
)
 
>(100)

Interest expense, net
(124,936
)
 
(25,116
)
 
(99,820
)
 
>(100)

Other income, net
3,448

 
8,406

 
(4,958
)
 
(59
)
(Benefit) provision for income taxes
(131,096
)
 
94,849

 
225,945

 
>100

Net income
$
3,279

 
$
193,582

 
$
(190,303
)
 
(98
)%
 
TOTAL REVENUES for the year ended December 31, 2017 increased $867.0 million, to $3.3 billion, an increase of 35% compared to the year ended December 31, 2016 on both a reported basis and excluding the foreign currency impact. CEB contributed approximately $522.9 million of the revenue increase.

The table below presents total revenues by geographic region for the years indicated (in thousands):
Geographic Region
Year Ended December 31, 2017
 
Year Ended December 31, 2016
 
Increase (Decrease) $
 
Increase (Decrease) %
United States and Canada
$
2,092,366

 
$
1,519,748

 
$
572,618

 
38
%
Europe, Middle East and Africa
855,421

 
616,721

 
238,700

 
39

Other International
363,707

 
308,071

 
55,636

 
18

Totals
$
3,311,494

 
$
2,444,540

 
$
866,954

 
35
%

The table below presents our 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
%
Conferences
337,903

 
268,605

 
69,298

 
26

Consulting
327,661

 
318,934

 
8,727

 
3

Other
174,650

 

 
174,650

 
100

Totals
$
3,311,494

 
$
2,444,540

 
$
866,954

 
35
%

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

27



COST OF SERVICES AND PRODUCT DEVELOPMENT was $1.3 billion in 2017, an increase of $374.6 million compared to 2016, or 40% on both a reported basis and excluding the foreign currency impact. Approximately $238.0 million of the increase was attributable to CEB. The additional increase of $136.6 million in cost of services and product development was primarily due to higher payroll and related benefits costs resulting from increased headcount, which increased 20% exclusive of incremental CEB personnel. Cost of services and product development as a percentage of revenues was 40% and 39% for 2017 and 2016, respectively.
 
SELLING, GENERAL AND ADMINISTRATIVE (“SG&A”) expense was $1.6 billion in 2017, an increase of $509.8 million compared to 2016, or 47% on both a reported basis and excluding the foreign currency impact. Approximately $283.8 million of the increase was attributable to CEB. In addition to these incremental CEB-related costs, all other SG&A costs increased $226.0 million in 2017, primarily due to $107.4 million in higher payroll and related benefits costs, reflecting a 17% overall headcount increase; $33.8 million in higher commissions due to increased sales bookings; and $84.8 million in higher corporate costs and foreign exchange impact. Such overall headcount growth includes a 15% increase in non-CEB quota-bearing sales associates. SG&A expense as a percent of revenues was 48% and 45% for 2017 and 2016, respectively.

DEPRECIATION increased $26.7 million during 2017 when compared to 2016, due to property, equipment and leasehold improvements acquired with CEB and additional Gartner investments.

AMORTIZATION OF INTANGIBLES increased $151.5 million during 2017 when compared to 2016 due to additional amortization from the intangibles recorded in connection with our 2017 acquisitions.

ACQUISITION AND INTEGRATION CHARGES increased $115.9 million during 2017 when compared to 2016. Acquisition and integration charges reflect additional costs and expenses resulting from our acquisitions and include, among other items, professional fees, severance, stock-based compensation charges and accruals for exit costs in 2017 for certain office space in Arlington, Virginia related to our acquisition of CEB that the Company does not intend to occupy. Our acquisition and integration charges increased in 2017 because of the Company's acquisitions during that year.
 
OPERATING (LOSS) INCOME was an operating loss of $6.3 million during 2017 compared to 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, including depreciation, amortization of intangibles, and acquisition and integration charges.
 
INTEREST EXPENSE, NET increased $99.8 million during 2017 when compared to 2016. The increase was primarily due to higher borrowings during 2017.

OTHER INCOME, NET was $3.4 million during 2017, primarily reflecting the net impact of foreign currency gains and losses from our hedging activities, as well as the sale of certain state tax credits and the recognition of other tax incentives. 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.

(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 was 102.6% in 2017 compared to 32.9% in 2016. The change in the 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 then-pending divestiture of the CEB 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.

28



SEGMENT RESULTS

We evaluate reportable segment performance and allocate resources based on gross contribution margin. Gross contribution is defined as operating income (loss), excluding certain Cost of services and product development charges, SG&A expenses, Depreciation, Acquisition and integration charges, and Amortization of intangibles. Gross contribution margin is defined as gross contribution as a percent of revenues.
 
Business Divestitures

During 2018, the Company divested all three of the non-core businesses that comprised its Other segment, each of which were acquired as part of the acquisition of CEB Inc. in April 2017. As a result of these divestitures and the movement of a small residual product in the Other segment into the Research business, the Company is no longer recording any additional operating activity in the Other segment effective September 1, 2018. Additional information regarding the divestitures is included in Note 2 –Acquisitions and Divestitures in the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.

The Company's current reportable segments are as follows:
 
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 and advisors, 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, finance, sales and legal.

Conferences (formerly called Events) provides business professionals across the organization the opportunity to learn, share and network. From our flagship CIO conference Gartner IT Symposium, to industry-leading conferences focused on specific business roles and topics, to member-driven sessions, our offerings enable attendees to experience the best of Gartner insight and advice live.

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.
  
The sections below present the results of the Company's three currently reportable business segments and its Other segment:

Research
 
As Of And For The Year Ended December 31, 2018
 
As Of And For The Year Ended December 31, 2017
 
Increase
(Decrease)
 
Percentage
Increase
(Decrease)
 
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)
Financial Measurements:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Revenues (1)
$3,105,764
 
$2,471,280
 
$
634,484

 
26
%
 
$2,471,280
 
$1,857,001
 
$
614,279

 
33
%
Gross contribution (1)
$2,144,097
 
$1,653,014
 
$
491,083

 
30
%
 
$1,653,014
 
$1,285,611
 
$
367,403

 
29
%
Gross contribution margin
69
%
 
67
%
 
2 points

 

 
67
%
 
69
%
 
(2) points

 

Business Measurements:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Global Technology Sales (2):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Contract value (1), (3)
$2,556,000
 
$2,238,000
 
$
318,000

 
14
%
 
$2,238,000
 
$1,975,000
 
$
263,000

 
13
%
Client retention
83
%
 
83
%
 

 

 
83
%
 
82
%
 
1 point

 

Wallet retention
105
%
 
105
%
 

 

 
105
%
 
103
%
 
2 points

 

Global Business Sales (2):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Contract value (1), (3)
$607,000
 
$601,000
 
$
6,000

 
1
%
 
$601,000
 
$568,000
 
33,000

 
6
%
Client retention
82
%
 
81
%
 
1 point

 

 
81
%
 
76
%
 
5 points

 

Wallet retention
95
%
 
100
%
 
(5) points

 

 
100
%
 
95
%
 
5 points

 

 
(1)
Dollars in thousands.

29



(2)
Global Technology Sales ("GTS") includes sales to users and providers of technology. Global Business Sales ("GBS") includes sales to all other functional leaders.
(3)
Contract values are on a foreign exchange neutral basis and exclude certain amounts related to divested businesses. Additional information regarding our divestitures is included in Note 2 – Acquisitions and Divestitures in the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K. The contract values at December 31, 2016 include pre-acquisition CEB amounts that were calculated using Gartner's methodology as well as 2018 foreign exchange rates.

2018 VERSUS 2017

Research revenues increased by $634.5 million during 2018 compared to 2017, or 26% on a reported basis and 25% excluding the foreign currency impact. Higher revenues in 2018 were primarily driven by (i) a double-digit increase in subscription revenues in 2018, a portion of which was due to the impact of the CEB acquisition, as 2018 included a full year of revenue compared to nine months in 2017; and (ii) the negative impact on revenue in 2017 from the deferred revenue fair value accounting adjustment resulting from the CEB acquisition, which had a significantly lesser impact in 2018. The gross contribution margin improved by two points in 2018, primarily due to (i) a negative impact on margin in 2017 from the deferred revenue fair value accounting adjustment, which had a significantly lesser impact in 2018; and (ii) improvement in margins for our premium services in 2018.

Total contract value increased to $3.2 billion at December 31, 2018, or 11%. Total contract value at December 31, 2018 increased by double-digits across almost all of the Company’s client sizes as well as about three-quarters of its industry segments when compared to December 31, 2017. GTS and GBS contract values increased 14% and 1%, respectively, at December 31, 2018 when compared to December 31, 2017. The 14% increase in GTS contract value during 2018 reflects additional sales headcount and productivity improvements. The slower 1% growth in GBS contract value during 2018 reflects the Company's strategic decision to discontinue new sales of the largest legacy enterprise products in favor of new seat-based GxL products (i.e., products for business leaders across an enterprise).

GTS client retention was 83% as of both December 31, 2018 and 2017, while wallet retention was 105% at both dates. GBS client retention was 82% and 81% as of December 31, 2018 and 2017, respectively, while wallet retention was 95% and 100%, respectively. The number of GTS client enterprises increased by 6% at December 31, 2018 when compared to December 31, 2017, while the corresponding number of GBS client enterprises decreased by 4% year-over-year.

2017 VERSUS 2016

Research revenues increased by $614.3 million during 2017 compared to 2016, or 33% on both a reported basis and excluding the foreign currency impact. On a reported basis, CEB contributed $309.6 million of the 2017 increase. The additional increase of $304.7 million in Research revenues represented a 16% increase in our non-CEB Research revenues on both a reported basis and excluding the foreign currency impact, with approximately one point of the increase due to L2, Inc., which we acquired in the first quarter of 2017. 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.

Excluding the foreign currency impact, GTS and GBS contract values increased 13% and 6%, respectively, at December 31, 2017 when compared to December 31, 2016. Total contract value increased to $2.8 billion at December 31, 2017, or 12%. Total contract value at December 31, 2017 increased by double-digits across all of the Company’s sales regions and client sizes and virtually every industry segment compared to December 31, 2016.

GTS client retention was 83% and 82% as of December 31, 2017 and 2016, respectively, while wallet retention was 105% and 103%, respectively. GBS client retention was 81% and 76% as of December 31, 2017 and 2016, respectively, while wallet retention was 100% and 95%, respectively. The number of GTS client enterprises increased by 7% at December 31, 2017 when compared to December 31, 2016, while the corresponding number of GBS client enterprises was flat year-over-year.

30




Conferences

The Conferences segment was previously called Events.
 
As Of And For The Year Ended December 31, 2018
 
As Of And For The Year Ended December 31, 2017
 
Increase
(Decrease)
 
Percentage
Increase
(Decrease)
 
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)
Financial Measurements:
 

 
 

 
 
 
 

 
 

 
 

 
 

 
 

Revenues (1)
$410,461
 
$337,903
 
$
72,558

 
21
%
 
$337,903
 
$268,605
 
$
69,298

 
26
%
Gross contribution (1)
$207,260
 
$163,480
 
$
43,780

 
27
%
 
$163,480
 
$136,655
 
$
26,825

 
20
%
Gross contribution margin
50
%
 
48
%
 
2 points

 

 
48
%
 
51
%
 
(3) points

 

Business Measurements:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Number of destination conferences (2)
70

 
69

 
1

 
1
%
 
69

 
66

 
3

 
5
%
Number of destination conferences attendees (2)
78,136

 
67,401

 
10,735

 
16
%
 
67,401

 
54,602

 
12,799

 
23
%
 
(1)
Dollars in thousands.
(2)
Single day, local meetings are excluded.

2018 VERSUS 2017

Conferences revenues increased by $72.6 million during 2018 compared to 2017, or 21% on a reported basis and 22% excluding the foreign currency impact. A portion of the revenue increase for 2018 was due to the CEB acquisition, as 2018 included a full year of revenue compared to nine months in 2017. Revenues from both attendees and exhibitors at our destination conferences, as well as revenues from our single day local meetings, increased by double-digits during 2018. We held 70 destination conferences in 2018 with a 16% increase in the number of attendees and an 8% increase in exhibitors when compared to 2017, while the average revenue per attendee and exhibitor increased by 5% and 7%, respectively. The gross contribution margin improved by two points in 2018 compared to 2017 due to greater profitability at our ongoing conferences, which was primarily driven by increased attendee and exhibitor participation and improvements in our average revenue per attendee and exhibitor, as well as our continuing efforts to efficiently manage our conference-related expenses.

2017 VERSUS 2016

Conferences revenues increased by $69.3 million during 2017 compared to 2016, or 26% on a reported basis and 25% excluding the foreign currency impact. On a reported basis, CEB contributed $38.6 million of the 2017 increase, including four destination conferences with 3,578 attendees. The additional increase of $30.7 million in our segment revenues represented an 11% increase in our non-CEB Conferences revenues on a reported basis and 10% excluding the foreign currency impact, with such revenues for both attendees and exhibitors increasing by double-digits. Overall, we held 69 destination conferences in 2017 with a 23% increase in the number of attendees and a 6% increase in exhibitors when compared to 2016, while the average revenue per exhibitor increased by 3% and the average revenue per attendee declined by 4%. The gross contribution margin declined by three points in 2017 compared to 2016, primarily due to additional investment in headcount and higher program expenses and, to a lesser extent, a dilutive effect from the CEB destination conferences.








31



Consulting

 
As Of And For The Year Ended December 31, 2018
 
As Of And For The Year Ended December 31, 2017
 
Increase
(Decrease)
 
Percentage
Increase
(Decrease)
 
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)
Financial Measurements:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Revenues (1)
$353,667
 
$327,661
 
$
26,006

 
8
%
 
$327,661
 
$318,934
 
$
8,727

 
3
 %
Gross contribution (1)
$102,541
 
$93,643
 
$
8,898

 
10
%
 
$93,643
 
$89,734
 
$
3,909

 
4
 %
Gross contribution margin
29
%
 
29
%
 

 

 
29
%
 
28
%
 
1 point

 

Business Measurements:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Backlog (1)
$110,700
 
$95,200
 
$
15,500

 
16
%
 
$95,200
 
$88,600
 
$
6,600

 
7
 %
Billable headcount
718
 
669
 
49

 
7
%
 
669
 
628
 
41

 
7
 %
Consultant utilization
63
%
 
64
%
 
(1) point

 

 
64
%
 
66
%
 
(2) points

 

Average annualized revenue per billable headcount (1)
$
375

 
$
366

 
$
9

 
2
%
 
$
366

 
$
383

 
$
(17
)
 
(4
)%
 
(1)
Dollars in thousands.

2018 VERSUS 2017

Consulting revenues increased 8% during 2018 compared to 2017 on a reported basis and 7% excluding the foreign currency impact, with revenue improvements in labor-based core consulting and contract optimization of 9% and 2%, respectively, on a reported basis. The gross contribution margin was 29% for both 2018 and 2017.

Backlog increased by $15.5 million, or 16%, from December 31, 2017 to December 31, 2018. The $110.7 million of backlog at December 31, 2018 represented approximately four months of backlog, which is in line with the Company's operational target.

2017 VERSUS 2016

Consulting revenues increased 3% during 2017 compared to 2016 on both a reported basis and excluding the foreign currency impact, with revenue improvements in both labor-based core consulting and contract optimization. The gross contribution margin was 29% and 28% for 2017 and 2016, respectively. The margin improvement in 2017 was primarily due to additional 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.

Backlog increased by $6.6 million, or 7%, from December 31, 2016 to December 31, 2017. The $95.2 million of backlog at December 31, 2017 represented approximately four months of backlog, which is in line with the Company's operational target.

32



Other
 
As Of And For The Year Ended December 31, 2018
 
As Of And For The Year Ended December 31, 2017
 
Increase
(Decrease)
 
Percentage
Increase
(Decrease)
Financial Measurements:
 

 
 

 
 

 
 

Revenues (1)
$105,562
 
$174,650
 
$
(69,088
)
 
(40
)%
Gross contribution (1)
$65,075
 
$90,249
 
$
(25,174
)
 
(28
)%
Gross contribution margin
62
%
 
52
%
 
10 points

 

 
(1)
Dollars in thousands.

During 2018, the Company divested all three of the non-core businesses that comprised its Other segment, each of which were acquired as part of the acquisition of CEB Inc. in April 2017. Both revenue and gross contribution declined in 2018 compared to 2017 due to the divestitures.

As a result of the divestitures and the movement of a small residual product in the Other segment into the Research business, the Company is no longer recording any additional operating activity in the Other segment effective September 1, 2018. Additional information regarding the divestitures is included in Note 2 –Acquisitions and Divestitures in the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.


33



LIQUIDITY AND CAPITAL RESOURCES

We finance our operations through cash generated from our operating activities and borrowings. Note 5 — Debt in the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K provides additional information regarding the Company's outstanding debt obligations. At December 31, 2018, we had $156.4 million of cash and cash equivalents and $1.0 billion of available borrowing capacity on the revolving credit facility under our 2016 Credit Agreement. We believe that the Company has adequate liquidity to meet its currently anticipated needs.

We have historically generated significant cash flows from our operating activities. Our operating cash flow has been continuously maintained by the leverage characteristics of our subscription-based business model in our Research segment, which is our largest business segment and historically has constituted the majority of our total 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. Cash flow generation has also benefited from our ongoing 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 sales.

Our cash and cash equivalents are held in numerous locations throughout the world with 79% held overseas at December 31, 2018. The Company intends to reinvest substantially all of its accumulated undistributed foreign earnings, except in instances where repatriation would result in minimal additional tax. As a result of the U.S. Tax Cuts and Jobs Act of 2017, we believe that the income tax impact if such earnings were repatriated would be minimal.

The following table summarizes the changes in the Company's cash balances for the years indicated (in thousands):
 
2018 vs. 2017
 
2017 vs. 2016
 
Year Ended
December 31,
2018
 
Year Ended
December 31,
2017
 
Increase
(Decrease)
 
Year Ended
December 31,
2017
 
Year Ended
December 31,
2016
 
Increase
(Decrease)
Cash provided by operating activities
$
471,158

 
$
254,517

 
$
216,641

 
$
254,517

 
$
365,632

 
$
(111,115
)
Cash provided by (used in) investing activities
384,051

 
(2,752,545
)
 
3,136,596

 
(2,752,545
)
 
(98,059
)
 
(2,654,486
)
Cash (used in) provided by financing activities
(1,257,115
)
 
2,539,830

 
(3,796,945
)
 
2,539,830

 
(174,686
)
 
2,714,516

Net (decrease) increase in cash and cash equivalents
(401,906
)
 
41,802

 
(443,708
)
 
41,802

 
92,887

 
(51,085
)
Effects of exchange rate changes
(6,489
)
 
25,902

 
(32,391
)
 
25,902

 
(5,640
)
 
31,542

Beginning cash and cash equivalents
567,058

 
499,354

 
67,704

 
499,354

 
412,107

 
87,247

Ending cash and cash equivalents (1)
$
158,663

 
$
567,058

 
$
(408,395
)
 
$
567,058

 
$
499,354

 
$
67,704

 
(1) The December 31, 2018 ending cash balance of $158.7 million consisted of $156.4 million of cash and cash equivalents and $2.3 million of restricted cash.

2018 VERSUS 2017

Operating

Cash provided by operating activities was $471.2 million in 2018 compared to $254.5 million in 2017, an increase of $216.6 million. The year-over-year increase was driven by net income of $122.5 million in 2018 compared to net income of $3.3 million in 2017, as well as substantially higher receivable collections during 2018. Partially offsetting these increases in 2018 were higher cash amounts paid for bonuses, taxes, and interest on our borrowings, as well as decreases in our other working capital accounts.

Investing

Cash provided by investing activities was $384.1 million in 2018, with $510.9 million in net cash realized from business divestiture and acquisition activities, which was partially offset by approximately $126.8 million of capital expenditures. In 2017, cash used in investing activities was $2.8 billion, primarily due to business acquisitions.





34



Financing

Cash used in financing activities was approximately $1.3 billion in 2018 compared to cash provided of $2.5 billion in 2017. During 2018, the Company used $1.0 billion in cash to reduce its outstanding debt and used $260.8 million in cash for share repurchases. During 2017, the Company borrowed approximately $3.0 billion and paid: $404.4 million in debt principal repayments; $51.2 million for deferred financing fees on debt; and $41.3 million for share repurchases.

2017 VERSUS 2016

Operating

Cash provided by operating activities was $254.5 million in 2017 compared to $365.6 million in 2016. The decline was due to: a decline in net income, which was $3.3 million in 2017 compared to $193.6 million in 2016; unfavorable changes in working capital in 2017 compared to 2016; and substantially higher cash payments for bonuses, commissions, interest on our borrowings, and acquisition and integration costs in 2017 compared to 2016.

Investing

Cash used in investing activities was $2.8 billion in 2017 compared to $98.1 million of cash used in 2016. Cash used in 2017 was substantially higher primarily due to business acquisitions. We also made additional investments 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 2017, the Company borrowed a total of approximately $3.0 billion and paid: $404.4 million in debt principal repayments: $51.2 million for deferred financing fees on debt; and $41.3 million for share repurchases. During 2016, the Company used $59.0 million in cash for share repurchases and $125.0 million for debt repayments.



35



OBLIGATIONS AND COMMITMENTS
 
Debt

As of December 31, 2018, the Company had $2.3 billion in principal amount of debt outstanding. Note 5 — Debt in the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K provides additional information regarding the Company's debt obligations.

Off-Balance Sheet Arrangements

Through December 31, 2018, we have 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 contractual cash commitments as of December 31, 2018 (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
Debt – principal and interest (1)
 
$
200,431

 
$
372,973

 
$
1,327,960

 
$
884,030

 
$
2,785,394

Operating leases (2)
 
130,991

 
240,747

 
217,231

 
689,359

 
1,278,328

Deferred compensation arrangements (3)
 
10,857

 
11,852

 
7,549

 
42,450

 
72,708

U.S. Tax Cuts and Job Act - transition tax (4)
 
785

 
1,569

 
1,569

 
5,885

 
9,808

Other (5)
 
38,753

 
35,133

 
16,474

 
24,654

 
115,014

Totals
 
$
381,817

 
$
662,274

 
$
1,570,783

 
$
1,646,378

 
$
4,261,252

 
 
(1)
Principal repayments of the Company's debt obligations are classified in the above table based on the contractual repayment dates. Interest payments due were based on the effective interest rates as of December 31, 2018. Note 5 — Debt in the Notes to Consolidated Financial Statements provides information regarding the Company's debt obligations.
(2)
The Company leases various facilities, furniture, computer equipment, automobiles and equipment under non-cancelable operating lease agreements expiring between 2019 and 2032. The total commitment excludes approximately $372.0 million of estimated income from the subleasing of certain facilities. See Note 1 — Business and Significant Accounting Policies in the Notes to Consolidated Financial Statements for additional information on the Company's leases.
(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 since the Company cannot determine when the amounts will be paid. See Note 13 — Employee Benefits in the Notes to Consolidated Financial Statements for additional information regarding the Company's supplemental deferred compensation arrangements.
(4)
The amount due represents the Company's cash payable for the transition tax liability under the U.S. Tax Cut and Jobs Act of 2017 which is reduced by certain unrelated credits and attributes. The Company currently expects to pay the transition tax over approximately eight years.
(5)
Other includes (i) contractual commitments for software, building maintenance, telecom and other services; (ii) amounts due for share repurchase transactions that occurred in late December 2018 but were settled in cash in January 2019; and (iii) projected cash contributions to the Company's defined benefit pension plans. See Note 13 — Employee Benefits in the Notes to Consolidated Financial Statements for additional information regarding the Company's defined benefit pension plans.

In addition to the contractual cash commitments included in the above table, 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 4 — Accounts Payable, Accrued, and Other Liabilities in the Notes to Consolidated Financial Statements.
 




36




QUARTERLY FINANCIAL DATA
 
The following tables present our quarterly operating results for the two-year period ended December 31, 2018:

2018
 
 
 
 
 
 
 
 
(In thousands, except per share data)
 
First
 
Second
 
Third
 
Fourth
Revenues
 
$
963,565

 
$
1,001,336

 
$
921,674

 
$
1,088,878

Operating (loss) income
 
(8,711
)
 
86,096

 
52,724

 
129,606

Net (loss) income
 
(19,587
)
 
46,270

 
11,753

 
84,020

Net (loss) income per share (1):
 
 

 
 

 
 
 
 

Basic
 
$
(0.22
)
 
$
0.51

 
$
0.13

 
$
0.93

Diluted
 
$
(0.22
)
 
$
0.50

 
$
0.13

 
$
0.92


2017
 
 
 
 
 
 
 
 
(In thousands, except per share data)
 
First
 
Second
 
Third
 
Fourth
Revenues
 
$
625,169

 
$
843,731

 
$
828,085

 
$
1,014,509

Operating income (loss)
 
53,514

 
(98,388
)
 
(24,349
)
 
62,894

Net income (loss) (2)
 
36,433

 
(92,281
)
 
(48,180
)
 
107,307

Net income (loss) per share (1), (2):
 
 

 
 

 
 
 
 

Basic
 
$
0.44

 
$
(1.03
)
 
$
(0.53
)
 
$
1.18

Diluted
 
$
0.43

 
$
(1.03
)
 
$
(0.53
)
 
$
1.16

 
 
 
 
(1)
The aggregate of the four quarters’ basic and diluted earnings per common share may not equal the reported full calendar year amounts due to the effects of share repurchases, dilutive equity compensation and rounding.
(2)
In December 2017, the Company recorded a $59.6 million tax benefit related to the U.S. Tax Cuts and Jobs Act of 2017. The tax benefit increased our net income and our basic and diluted income per share for the fourth quarter of 2017 by approximately $0.66 per share and $0.65 per share, respectively. See Note 10 — Income Taxes in the Notes to Consolidated Financial Statements for additional information regarding the impact of the U.S. Tax Cuts and Jobs Act of 2017.

RECENTLY ISSUED ACCOUNTING STANDARDS
 
The FASB has issued accounting standards that have not yet become effective and that may impact the Company’s consolidated financial statements and related disclosures in future periods. Note 1 — Business and Significant Accounting Policies in the Notes to Consolidated Financial Statements herein provides information regarding those accounting standards.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

INTEREST RATE RISK
 
At December 31, 2018, the Company had $2.3 billion in outstanding debt. Approximately $1.5 billion of the Company's total debt outstanding as of December 31, 2018 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 rates through our interest rate swap contracts, which effectively converts the floating base interest rate on a portion of these variable rate borrowings to fixed rates. Thus we are exposed to base interest rate risk on floating rate borrowings only in excess of any amounts that are not hedged. At December 31, 2018, we had unhedged interest rate risk on approximately $110.0 million of 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 $0.3 million.





37



FOREIGN CURRENCY RISK
 
For both the years ended December 31, 2018 and 2017, a significant portion of our revenues were 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.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 since 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). 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, 2018, we had $156.4 million of cash and cash equivalents, 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, 2018 would have increased or decreased by approximately $12.0 million. The translation of our foreign currency revenues and expenses historically has not had a material impact on our consolidated earnings since 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.S dollar.
 
Transaction risk arises when we enter into a transaction that is 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 currency contracts as of December 31, 2018 had an immaterial net unrealized loss. 
 
CREDIT RISK
 
Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of short-term, highly liquid investments classified as cash equivalents, accounts receivable, interest rate swap contracts and foreign exchange contracts. The majority of the Company’s cash and cash equivalents, interest rate swap contracts, and its foreign exchange contracts are with large investment grade commercial banks. Accounts receivable balances deemed to be collectible from customers have limited concentration of credit risk due to our diverse customer base and geographic dispersion.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
 
Our consolidated financial statements for 2018, 2017 and 2016, together with the reports of KPMG LLP, our independent registered public accounting firm, are included herein in this Annual Report on Form 10-K.
 
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
 
None.  


38



ITEM 9A. CONTROLS AND PROCEDURES
 
DISCLOSURE CONTROLS AND PROCEDURES
 
Management conducted an evaluation, as of December 31, 2018, 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 our disclosure controls and procedures are effective in alerting them in a timely manner to material Company information required to be disclosed by us in reports filed or submitted under the 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, 2018. 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, 2018, Gartner’s internal control over financial reporting was effective. The effectiveness of management’s internal control over financial reporting as of December 31, 2018 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their report which is included in this Annual Report on Form 10-K in Part IV, Item 15.
 
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
 
There were no changes in our internal controls over financial reporting during the quarter ended December 31, 2018 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

ITEM 9B. OTHER INFORMATION
 
Not applicable.

39



PART III  

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

The information required to be furnished pursuant to this item will be set forth under the captions “The Board of Directors," "Proposal One: Election of Directors,” “Executive Officers,” “Corporate Governance,” “Section 16(a) Beneficial Ownership Reporting Compliance” and “Miscellaneous — Available Information” in the Company’s Proxy Statement to be filed with the SEC no later than April 30, 2019. If the Proxy Statement is not filed with the SEC by April 30, 2019, such information will be included in an amendment to this Annual Report filed by April 30, 2019. 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 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, 2019. If the Proxy Statement is not filed with the SEC by April 30, 2019, such information will be included in an amendment to this Annual Report filed by April 30, 2019.

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 captions "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, 2019. If the Proxy Statement is not filed with the SEC by April 30, 2019, such information will be included in an amendment to this Annual Report filed by April 30, 2019.

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, 2019. If the Proxy Statement is not filed with the SEC by April 30, 2019, such information will be included in an amendment to this Annual Report filed by April 30, 2019.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES. 

The information required to be furnished pursuant to this item will be set forth under the caption “Proposal Three: Ratification of Appointment of Independent Registered Public Accounting Firm” and “Proposal Three: Ratification of Appointment of Independent Registered Public Accounting Firm — Principal Accountant Fees and Services” in the Company’s Proxy Statement to be filed with the SEC no later than April 30, 2019. If the Proxy Statement is not filed with the SEC by April 30, 2019, such information will be included in an amendment to this Annual Report filed by April 30, 2019.






40



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.
 
 
 
 
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.
 
 
 
 
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 -Term Incentive Plan, as amended and restated effective June 4, 2009.
 
 
 
 
Gartner, Inc. Long-Term Incentive Plan, as amended and restated effective January 31, 2019.
 
 
 
 
Amended and Restated Employment Agreement between Eugene A. Hall and the Company dated as of February 14, 2019.
 
 
 
 
Company Deferred Compensation Plan, effective January 1, 2009.
 
 
 
 
Form of 2017 Stock Appreciation Right Agreement for executive officers.

41



 
 
 
 
Form of 2017 Performance Stock Unit Agreement for executive officers.
 
 
 
 
Form of 2017 Restricted Stock Unit Agreement for certain officers.
 
 
 
 
Form of 2018 Stock Appreciation Right Agreement 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 Restricted Stock Unit Agreement for non-employee directors.
 
 
 
 
Separation Agreement and Release of Claims, dated October 12, 2017, between the Company and Per Anders Waern.
 
 
 
 
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.
 
*
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.
 
 
(4)
Incorporated by reference from the Company’s Quarterly Report on Form 10-Q filed on August 4, 2016.
 
 
(5)
Incorporated by reference from the Company’s Current Report on form 8-K filed on January 24, 2017.
 
 
(6)
Incorporated by reference from the Company’s Current Report on form 8-K filed on March 21, 2017.
 
 
(7)
Incorporated by reference from the Company’s Current Report on form 8-K filed on April 6, 2017.
 
 
(8)
Incorporated by reference from the Company’s Current Report on form 8-K filed on March 30, 2017.
 
 
(9)
Incorporated by reference from the Company’s Quarterly Report on form 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 Annual Report on Form 10-K filed on February 20, 2009.
 
 
(13)
Incorporated by reference from the Company’s Current Report on Form 8-K dated on February 7, 2017.
 
 
(14)
Incorporated by reference from the Company’s Quarterly Report on Form 10-Q filed on November 2, 2017.
 
 
(15)
Incorporated by reference from the Company’s Quarterly Report on Form 10-Q filed on May 8, 2018.
 
 
(16)
Incorporated by reference from the Company’s Quarterly Report on Form 10-Q filed on August 1, 2018.
 
 
(17)
Incorporated by reference from the Company’s Annual Report on Form 10-K filed on February 22, 2018.



42



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.


43



Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors
Gartner, Inc.:

Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Gartner, Inc. and subsidiaries (the Company) as of December 31, 2018 and 2017, 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, 2018, 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, 2018 and 2017, and the results of its operations and its cash flows for each of the years in the three‑year period ended December 31, 2018, 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, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 22, 2019 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
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.
/s/ KPMG LLP
 
We have served as the Company’s auditor since 1996.

New York, New York
February 22, 2019


44



Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors
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, 2018, 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, 2018, 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, 2018 and 2017, 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, 2018, and the related notes (collectively, the consolidated financial statements), and our report dated February 22, 2019 expressed an unqualified opinion on those consolidated financial statements.
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, 2019

45



GARTNER, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
 
 
December 31,
 
2018
 
2017
ASSETS
 

 
 

Current assets:
 

 
 

Cash and cash equivalents
$
156,368

 
$
538,908

Fees receivable, net of allowances of $7,700 and $12,700, respectively
1,255,118

 
1,176,843

Deferred commissions
235,016

 
205,260

Prepaid expenses and other current assets
165,237

 
124,632

Assets held-for-sale

 
542,965

Total current assets
1,811,739

 
2,588,608

Property, equipment and leasehold improvements, net
267,665

 
221,507

Goodwill
2,923,136

 
2,987,294

Intangible assets, net
1,042,565

 
1,292,022

Other assets
156,369

 
193,742

Total Assets
$
6,201,474

 
$
7,283,173

LIABILITIES AND STOCKHOLDERS’ EQUITY
 

 
 

Current liabilities:
 

 
 

Accounts payable and accrued liabilities
$
710,113

 
$
666,821

Deferred revenues
1,745,244

 
1,630,198

Current portion of long-term debt
165,578

 
379,721

Liabilities held-for-sale

 
145,845

Total current liabilities
2,620,935

 
2,822,585

Long-term debt, net of deferred financing fees
2,116,109

 
2,899,124

Other liabilities
613,673