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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported)
OCTOBER 27, 2004
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GARTNER, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 1-14443 04-3099750
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(State or Other Jurisdiction of (Commission File Number) (IRS Employer
Incorporation) Identification No.)
P.O. BOX 10212
56 TOP GALLANT ROAD
STAMFORD, CT 06902-7747
(Address of Principal Executive Offices, including Zip Code)
(203) 316-1111
(Registrant's telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
[ ] Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17
CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
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ITEM 2.02. RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
On October 27, 2004, Gartner, Inc. announced financial results for the quarter
ended September 30, 2004. A copy of the Company's press release is furnished as
Exhibit 99.1.
In accordance with General Instruction B.2 of Form 8-K, the information in this
Current Report on Form 8-K, including Exhibit 99.1, shall not be deemed to be
"filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), or otherwise subject to the liability of that
section, and shall not be incorporated by reference into any registration
statement or other document filed under the Securities Act of 1933, as amended,
or the Exchange Act, except as shall be expressly set forth by specific
reference in such filing.
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS.
(c) EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- -----------
99.1 Press Release issued October 27, 2004, with respect to financial
results for Gartner, Inc. (the "Company") for the quarter ended
September 30, 2004.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Gartner, Inc.
Date: October 27, 2004 By: /s/ Christopher Lafond
----------------------------
Christopher Lafond
Executive Vice President,
Chief Financial Officer
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
99.1 Press Release issued October 27, 2004, with respect to financial
results for Gartner, Inc. for the quarter ended September 30,
2004.
EXHIBIT 99.1
GARTNER, INC. REPORTS 2004 THIRD QUARTER AND NINE MONTH RESULTS
STAMFORD, Conn., October 27, 2004 - Gartner, Inc. (NYSE: IT and ITB), the
leading provider of research and analysis on the global information technology
industry, today reported results for the third quarter and nine months ended
September 30, 2004.
Highlights of Gartner's performance for the third quarter of 2004 included the
following:
- - Total revenue was $202 million, an increase of 3% compared with $197
million in the same period of 2003.
- - Net income was $160,000 or $0.00 per diluted share on a GAAP basis,
compared with net income of $5 million, or $0.07 per diluted share for the
2003 third quarter.
- - Normalized EPS was $0.05 per share, compared with $0.07 per share a year
ago. Normalized net income for the recent quarter excluded a charge of
$4.3 million for severance arrangements and a non-cash charge on
minority-owned investments of $2.2 million. Normalized EPS is a non-GAAP
financial measure. See "Non-GAAP Financial Measures" for a further
discussion of normalized EPS.
- - Research contract value was $489 million at September 30, 2004, an
increase of 4% from $470 million at September 30, 2003. Client retention
in the Research business was 78% for the recent quarter, up from 76% a
year ago; wallet retention rose to 93% from 85% a year ago.
For the first nine months of 2004:
- - Total revenue was $638 million, an increase of 4% compared with $615
million in the same period of 2003.
- - Net income was $12 million, or $0.09 per diluted share on a GAAP basis,
compared with $17 million, or $0.21 per diluted share, for the 2003
period.
- - Normalized EPS for the recent nine months was $0.26 per share, compared
with $0.21 per share for the 2003 period. Normalized net income excluded
$23.9 million of charges for severance arrangements; $3.6 million in
non-cash charges related to eliminating certain operations in Latin
America as well as a non-cash charge of $2.2 million on minority-owned
investments in the 2004 period. In the same period of 2003, Gartner had
$5.4 million of charges associated with a workforce reductions and a
pre-tax gain of $5.5 million from an insurance recovery related to
previous losses incurred from the sale of a business. See "Non-GAAP
Financial Measures" for a further discussion of normalized EPS.
Gene Hall, Gartner's chief executive officer, said, "Since joining Gartner as
CEO in August, I have gained increased admiration for the Company's respected
brand name, powerful customer value proposition, and stable revenue-generation
model. We are committed to building on these strengths to further improve
performance and enhance Gartner's shareholder value."
BUSINESS SEGMENT HIGHLIGHTS
Research revenue was $119 million for the 2004 third quarter, a 3% increase from
the same period of 2003. For the first nine months of 2004, Research revenue
totaled $360 million, a 3% increase compared with the 2003 period. Research
contract value, a leading indicator of future revenue, was $489 million at
September 30, 2004, increasing $19 million over the third quarter of 2003.
Consulting revenue was $60 million for the 2004 third quarter, a decrease of 5%
from the same period last year. For the first nine months of this year,
Consulting revenue was $192 million, a 1% increase from the 2003 period.
Utilization has averaged 62% during 2004, up 6 points versus prior year, while
billable headcount was 473 as of September 30, down 12% versus the prior year.
Consulting backlog was $103 million at September 30, 2004, compared with $93
million a year earlier.
Events revenue was $19 million for the third quarter of 2004, increasing 17%
from a year ago. For the first nine months of 2004, Events revenue was $74
million, increasing 14% from the 2003 period. The company held 44 events for the
first nine months of 2004 versus 47 in 2003.
Excluding the effect of foreign currency, total revenue for the 2004 third
quarter would have remained relatively flat versus 2003; cost of services and
product development would have increased approximately 3%; and selling, general
and administrative expenses would have increased approximately 4%. The impact of
foreign currency on net income was negligible. Research contract value would
have increased approximately 1% from the third quarter of 2003, excluding the
effects of foreign currency.
Gartner's cash position was $157 million at September 30, 2004, compared with
$230 million as of December 31, 2003. During the quarter, the Company closed on
$200 million of bank financing in the form of a term loan and secured a $100
million revolving line of credit. In addition, the Company completed the Dutch
auction self-tender offer for shares of Gartner's Class A and Class B Common
Stock, and the purchase of Class A shares from Silver Lake Partners, L.P. As a
result of these transactions, the Company purchased approximately 26 million
shares at a total cost of $342 million.
BUSINESS OUTLOOK
The Company is contemplating a fourth quarter charge primarily related to
closing certain facilities, restructuring within our international operations
and non-cash charges related to the restructuring of certain internal systems.
The Company is currently assessing the potential charge and will provide
additional guidance when a final decision has been made.
For the fourth quarter ending December 31, 2004, the Company is targeting:
- - Total revenue of approximately $245 million to $254 million.
- - Research revenue of approximately $117 million to $119 million.
- - Consulting revenue of approximately $64 million to $67 million.
- - Events revenue of approximately $61 million to $64 million.
- - Other revenue of approximately $3 million to $4 million.
- - GAAP and Normalized EPS of $0.15 to $0.18 per share. The estimated fully
diluted share count for the quarter is 113 million shares. The EPS
guidance excludes the impact of the above mentioned charges.
CONFERENCE CALL INFORMATION
The Company has scheduled a conference call at 10:00 a.m. ET on Wednesday,
October 27, 2004, to discuss the Company's financial results. The conference
call will also be available via the Internet by accessing Gartner's web site at
www.gartner.com/investors. A replay of the webcast will be available for 30 days
following the call.
ABOUT GARTNER
Gartner, Inc. is the leading provider of research and analysis on the global
information technology industry. Gartner serves more than 10,000 clients,
including chief information officers and other senior IT executives in
corporations and government agencies, as well as technology companies and the
investment community. The Company focuses on delivering objective, in-depth
analysis and actionable advice to enable clients to make more informed
technology and business decisions. The Company's businesses consist of Gartner
Intelligence, research and events for IT professionals; Gartner Executive
Programs, membership programs and peer networking services; and Gartner
Consulting, customized engagements with a specific emphasis on outsourcing and
IT management. Founded in 1979, Gartner is headquartered in Stamford,
Connecticut, and has more 3,500 associates, approximately 1,000 research
analysts and consultants, in more than 75 locations worldwide. For more
information, visit www.gartner.com.
NON-GAAP FINANCIAL MEASURES
Investors are cautioned that normalized EPS information contained in this press
release is not a financial measure under generally accepted accounting
principles. In addition, it should not be construed as an alternative to any
other measures of performance determined in accordance with generally accepted
accounting principles. This non-GAAP financial measure is provided to enhance
the user's overall understanding of the Company's current financial performance
and the Company's prospects for the future. We believe normalized EPS is an
important measure of our recurring operations as it excludes items that may not
be indicative of our core operating results. Normalized EPS for 2003 also
includes the effect of the convertible debt as if it had been converted at the
beginning of 2003. Normalized EPS is based on net income, excluding other
charges, (loss)/gain from investments, goodwill impairments and other non-cash
charges. See "Supplemental Information" at the end of this release for
reconciliation of GAAP net income and loss and EPS to normalized net income and
EPS.
SAFE HARBOR STATEMENT
Statements contained in this press release regarding the Company's business
outlook, the development of the Company's services, the demand for the Company's
products and services, and all other statements in this release other than
recitation of historical facts are forward-looking statements (as defined in the
Private Securities Litigation Reform Act of 1995). Such forward-looking
statements include risks and uncertainties; consequently, actual results may
differ materially from those expressed or implied thereby. Factors that could
cause actual results to differ materially include, but are not limited to:
ability to expand or even retain the Company's customer base in light of the
adverse current economic conditions; ability to grow or even sustain revenue
from individual customers in light of the adverse impact of the current economic
conditions on overall IT spending; the duration and severity of the current
economic slowdown; ability to attract and retain professional staff of research
analysts and consultants upon whom the Company is dependent; ability to achieve
and effectively manage growth, ability to pay the Company's debt obligations;
ability to achieve continued customer renewals and achieve new contract value,
backlog and deferred revenue growth in light of competitive pressures; ability
to integrate operations of possible acquisitions; ability to carry out the
Company's strategic initiatives and manage associated costs; ability to manage
the Company's strategic partnerships; rapid technological advances which may
provide increased indirect competition to the Company from a variety of sources;
substantial competition from existing competitors and potential new competitors;
risks associated with intellectual property rights important to the Company's
products and services; additional risks associated with international operations
including foreign currency fluctuations; and other risks listed from time to
time in the Company's reports filed with the Securities and Exchange Commission,
including the Company's Annual Report on Form 10-K for the year ended December
31, 2003 and Quarterly Report on Form 10-Q for the quarter ended June 30, 2004.
These filings can be found on Gartner's Web site at www.gartner.com/investors
and the SEC's Web site at www.sec.gov. Forward-looking statements included
herein speak only as of the date hereof and the Company disclaims any obligation
to revise or update such statements to reflect events or circumstances after the
date hereof or to reflect the occurrence of unanticipated events or
circumstances.
CONTACT GARTNER, INC.
INVESTORS:
Lisa Nadler
203-316-3701
lisa.nadler@gartner.com
MEDIA:
Tom Hayes
203-316-6835
tom.hayes@gartner.com
GARTNER, INC.
Condensed Consolidated Statements of Operations
(Unaudited, in thousands, except per share amounts)
Three Months Ended
September, 30
2004 2003 2004 2003
--------- --------- --------- ---------
Revenues:
Research $ 119,004 $ 115,830 3% $ 360,212 $ 349,347 3%
Consulting 60,073 62,998 -5% 192,308 191,302 1%
Events 18,675 15,904 17% 74,057 64,705 14%
Other 4,136 2,172 90% 11,835 9,150 29%
--------- --------- --------- ---------
Total revenues 201,888 196,904 3% 638,412 614,504 4%
Costs and expenses:
Cost of services and product
development 100,196 94,378 6% 310,058 300,151 3%
Selling, general and administrative 85,090 79,169 7% 254,312 243,403 4%
Depreciation 6,589 9,046 -27% 21,370 27,835 -23%
Amortization of intangibles and
goodwill impairments 203 320 -37% 1,329 1,063 25%
Other charges 4,333 - U 23,909 5,426 U
--------- --------- --------- ---------
Total costs and expenses 196,411 182,913 7% 610,978 577,878 6%
--------- --------- --------- ---------
Operating income 5,477 13,991 -61% 27,434 36,626 -25%
(Loss) gain from investments (2,184) 102 U (2,145) 5,624 U
Interest (expense) income, net (602) (5,774) F 13 (16,928) F
Other (expense) income, net (189) (148) U (3,625) 348 U
--------- --------- --------- ---------
Income before income taxes 2,502 8,171 -69% 21,677 25,670 -16%
Provision for income taxes 2,342 2,697 -13% 10,025 8,854 13%
--------- --------- --------- ---------
Net income $ 160 $ 5,474 -97% $ 11,652 $ 16,816 -31%
========= ========= ========= =========
Income per common share:
Basic $ - $ 0.07 -100% $ 0.09 $ 0.21 -57%
Diluted $ - $ 0.07 -100% $ 0.09 $ 0.21 -57%
Weighted average shares outstanding:
Basic 121,767 78,026 56% 128,044 79,251 62%
Diluted 124,318 128,934 -4% 130,923 128,363 2%
SUPPLEMENTAL INFORMATION
Normalized EPS (1) $ 0.05 $ 0.07 -29% $ 0.26 $ 0.21 24%
(1) Normalized net income & EPS is based on net income, excluding other charges,
(loss)/gain from investments, goodwill impairments and other non-cash charges.
We believe normalized EPS is an important measure of our recurring operations.
See "Supplemental Information" at the end of this release for a reconciliation
from GAAP net income and EPS to Normalized net income and EPS and a discussion
of the reconciling items.
GARTNER, INC.
Condensed Consolidated Balance Sheets
(in thousands)
September 30, December 31,
2004 2003
------------- ------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $156,641 $229,962 -32%
Fees receivable, net 215,587 266,122 -19%
Deferred commissions 26,967 27,751 -3%
Prepaid expenses and other current assets 31,700 25,642 24%
-------- --------
Total current assets 430,895 549,477 -22%
Property, equipment and leasehold improvements, net 64,911 66,541 -2%
Goodwill 229,555 230,387 0%
Intangible assets, net 328 985 -67%
Other assets 68,601 69,874 -2%
-------- --------
TOTAL ASSETS $794,290 $917,264 -13%
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $140,553 $175,609 -20%
Deferred revenues 299,929 315,524 -5%
Current portion of long term debt 40,000 -
-------- --------
Total current liabilities 480,482 491,133 -2%
Other liabilities 50,461 50,385 0%
Long term debt 160,000 -
-------- --------
TOTAL LIABILITIES 690,943 541,518 28%
TOTAL STOCKHOLDERS' EQUITY 103,347 375,746 -72%
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $794,290 $917,264 -13%
======== ========
GARTNER, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited, in thousands)
Nine Months Ended
September 30,
2004 2003
--------- ---------
OPERATING ACTIVITIES:
Net income $ 11,652 $ 16,816
Adjustments to reconcile net income to net cash provided by Operating
activities:
Depreciation and amortization, including goodwill impairments 22,699 28,898
Non-cash compensation 1,273 758
Tax benefit associated with employees' exercise of stock options 8,262 1,423
Deferred taxes 409 88
Loss (Gain) from investments, net 2,145 (5,624)
Accretion of interest and amortization of debt issue costs 1,915 17,909
Non-cash charges associated with South America closings 2,943 -
Changes in assets and liabilities:
Fees receivable, net 49,352 68,646
Deferred commissions 698 2,249
Prepaid expenses and other current assets (6,215) 1,300
Other assets (1,320) (2,014)
Deferred revenues (14,107) (11,964)
Accounts payable and accrued liabilities (33,432) (2,557)
--------- ---------
CASH PROVIDED BY OPERATING ACTIVITIES 46,274 115,928
--------- ---------
INVESTING ACTIVITIES:
Proceeds from insurance recovery - 5,464
Payments for Investments - (1,507)
Additions to property, equipment and leasehold improvements (19,036) (16,401)
--------- ---------
CASH USED IN INVESTING ACTIVITIES (19,036) (12,444)
--------- ---------
FINANCING ACTIVITIES:
Proceeds from stock issued for stock plans 56,472 20,956
Payments for debt issuance costs (2,821) (570)
Proceeds from debt 200,000 -
Purchases of treasury stock (352,262) (32,380)
--------- ---------
CASH USED IN FINANCING ACTIVITIES (98,611) (11,994)
--------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (71,373) 91,490
EFFECTS OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS (1,948) 5,790
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 229,962 109,657
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 156,641 $ 206,937
========= ========
SELECTED STATISTICAL DATA
(Dollars In thousands)
September 30, September 30,
2004 2003
------------- -------------
Research contract value $489,223 $469,605
Consulting backlog $103,383 $ 92,804
Research client organizations 8,506 8,698
BUSINESS SEGMENT DATA
(Dollars in thousands)
Direct Gross Contrib.
Revenue Expense Contribution Margin
------- ------- ------------ -------
THREE MONTHS ENDED 9/30/04
Research $119,004 $ 46,954 $ 72,050 61%
Consulting 60,073 39,335 20,738 35%
Events 18,675 12,104 6,571 35%
Other 4,136 383 3,753 91%
-------- -------- --------
TOTAL $201,888 $ 98,776 $103,112 51%
======== ======== ========
THREE MONTHS ENDED 9/30/03
Research $115,830 $ 42,500 $ 73,330 63%
Consulting 62,998 41,318 21,680 34%
Events 15,904 10,741 5,163 32%
Other 2,172 797 1,375 63%
-------- -------- --------
TOTAL $196,904 $ 95,356 $101,548 52%
======== ======== ========
NINE MONTHS ENDED 9/30/04
Research $360,212 $136,130 $224,082 62%
Consulting 192,308 121,492 70,816 37%
Events 74,057 43,520 30,537 41%
Other 11,835 1,312 10,523 89%
-------- -------- --------
TOTAL $638,412 $302,454 $335,958 53%
======== ======== ========
NINE MONTHS ENDED 9/30/03
Research $349,347 $126,966 $222,381 64%
Consulting 191,302 125,994 65,308 34%
Events 64,705 40,610 24,095 37%
Other 9,150 2,815 6,335 69%
-------- -------- --------
TOTAL $614,504 $296,385 $318,119 52%
======== ======== ========
SUPPLEMENTAL INFORMATION
EPS Reconciliation - GAAP to Normalized
(in thousands, except per share data)
THREE MONTHS ENDED SEPTEMBER 30,
----------------------------------------------------------
2004 2003
--------------------------- ---------------------------
After- After-
Tax Tax
Income Shares EPS Income Shares EPS
-------- ------- ----- -------- ------- -----
GAAP Basic EPS $ 160 121,767 $0.00 $ 5,474 78,026 $0.07
Share equivalents from stock
compensation shares - 2,551 (0.00) - 1,878 (0.00)
Convertible long-term debt - - - 3,341 49,030 (0.00)
-------- ------- ----- -------- ------- -----
GAAP Diluted EPS $ 160 124,318 $0.00 $ 8,815 128,934 $0.07
Other charges (1) 3,698 - 0.03 - - -
Non-cash charges (2) 2,186 - 0.02 - - -
Goodwill impairments (3) - - - - - -
Income from investments (1) - (0.00) (68) - (0.00)
-------- ------- ----- -------- ------- -----
Normalized net income & EPS $ 6,043 124,318 $0.05 $ 8,747 128,934 $0.07
======== ======= ===== ======== ======= =====
NINE MONTHS ENDED SEPTEMBER 30,
----------------------------------------------------------
2004 2003
--------------------------- ---------------------------
After- After-
Tax Tax
Income Shares EPS Income Shares EPS
-------- ------- ------ -------- ------- -----
GAAP Basic EPS $ 11,652 128,044 $ 0.09 $ 16,816 79,251 $ 0.21
Share equivalents from stock
compensation shares - 2,879 (0.00) - 797 (0.00)
Convertible long-term debt - - - 9,908 48,315 (0.00)
-------- ------- ------ -------- ------- ------
GAAP Diluted EPS $ 11,652 130,923 $ 0.09 $ 26,724 128,363 $ 0.21
Other charges (1) 16,953 - 0.13 3,635 - 0.03
Non-cash charges (2) 5,129 - 0.04 - - -
Goodwill impairments (3) 739 - 0.00 - - -
Income from investments (4) (27) - (0.00) (3,386) - (0.03)
-------- ------- ------ -------- ------- ------
Normalized net income & EPS $ 34,446 130,923 $ 0.26 $ 26,974 128,363 $ 0.21
======== ======= ====== ======== ======= ======
GENERAL NOTES & FOOTNOTES
- - Normalized net income & EPS is based on net income, excluding other
charges, (loss)/gain from investments, goodwill impairments and non-cash
charges. Normalized EPS includes the effect of the convertible debt as if
it had been converted at the beginning of 2003 in order to be on a
comparable basis with 2004. We believe normalized EPS is an important
measure of our recurring operations.
- - The normalized effective tax rate was 33% for 2004 and 2003.
(1) Other charges during both years were for costs associated with reductions
in workforce. Other charges during 2004 also included costs associated
with closing certain operations in South America.
(2) The non-cash charges in 2004 were associated with our closing of certain
operations in South America recorded in "Other (expenses) income, net and
a loss in minority owned investments recorded in "Loss (gain) from
investments."
(3) The goodwill impairments in 2004 were associated with our closing of
certain operations in South America and were recorded in Amortization of
intangibles and goodwill impairments.
(4) The 2003 gain from investments includes a pre-tax $5.5 million insurance
recovery relating to previous losses
Incurred associated with the sale of a business
