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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of the Securities Exchange Act of 1934
October 30, 2003
---------------------------------------------------
Date of Report (Date of earliest event reported)
GARTNER, INC
---------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware 1-14443 04-3099750
- ------------------------------- --------------------- -------------------
(State or Other Jurisdiction of (Commission File No.) (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)
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c) Exhibits
EXHIBIT NO. DESCRIPTION
- ----------- ---------------------------------------------------------------
99.1 Press Release issued October 30, 2003, with respect to
financial results for Gartner, Inc. (the "Company") for the
quarter ended September 30, 2003.
ITEM 12. RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
On October 30, 2003, Gartner, Inc. announced financial results for the quarter
ended September 30, 2003. A copy of the Company's press release is furnished
herewith as Exhibit 99.1 and is incorporated herein by reference. The
information contained in this report shall not be incorporated by reference into
any filing of Gartner, Inc. with the SEC, whether made before or after the date
hereof, regardless of any general incorporation language in such filings.
The press release issued by the company and furnished herewith as Exhibit 99.1
contains a non-GAAP financial measure. For purposes of the Securities and
Exchange Commission's Regulation G, a non-GAAP financial measure is a numerical
measure of a company's performance, financial position, or cash flows that
either excludes or includes amounts that are not normally excluded or included
in the most directly comparable measure calculated and presented in accordance
with accounting principles generally accepted in the United States ("GAAP"). In
the attached press release, Gartner, Inc. uses the non-GAAP measures of
normalized EPS. This non-GAAP financial measure is provided to enhance the
reader's overall understanding of Gartner's current financial performance and
prospects for the future. Gartner believes normalized EPS is an important
measure of Gartner's recurring operations as it excludes items that may not be
indicative of our core operating results. Normalized EPS is based on net income,
excluding other charges, gains and losses on investments, and gains from the
sale of certain assets. In the attached press release, a reconciliation of
normalized net income and normalized EPS to GAAP net income and GAAP net income
per share is provided under "Supplemental Information" at the end of the
release.
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 30, 2003 By: /s/ Christopher Lafond
-------------------------------
Christopher Lafond
Executive Vice President,
Chief Financial Officer
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------------------------------------------------------
99.1 Press Release issued October 30, 2003, with respect to
financial results for Gartner, Inc. for the quarter ended
September 30, 2003.
Exhibit 99.1
Gartner Reports Third Quarter 2003 Results
STAMFORD, Conn.--(BUSINESS WIRE)--Oct. 30, 2003--Gartner, Inc.
(NYSE:IT) (NYSE:ITB), the world's leading technology research and
advisory firm, today reported results for the third quarter and nine
months ended September 30, 2003.
Results for the recent quarter were in line with the Company's
prior guidance:
-- Total revenue was $197 million, an 11% decrease from the same
period of 2002.
-- Net income was $5 million, or $0.07 per diluted share on a
GAAP and normalized basis. Net income for the year ago quarter
was $16 million, or $0.15 per diluted share on a GAAP and
normalized basis.
-- Research contract value was $470 million, compared with $468
million in the June quarter. Client retention in Research
reached 76%, a one-point increase from the same period of
2002. Wallet share, a measure of dollar retention in the
Research business was 85%, compared with 80% in the same
period last year.
-- Consulting backlog was $93 million, an increase of $2 million
over the second quarter.
For the first nine months of 2003:
-- Total revenue was $615 million, a decrease of 7% from the
comparable 2002 period.
-- Net income was $17 million, or $0.21 per diluted share, on a
GAAP basis. For the same nine months of 2002, net income was
$30 million, or $0.30 per diluted share on a GAAP basis.
-- Normalized EPS was $0.21 and $0.39 per diluted share for the
nine-month periods of 2003 and 2002, respectively. See
"Non-GAAP Financial Measures" for a further discussion of
normalized EPS.
Michael Fleisher, Gartner's chairman and chief executive officer,
stated, "In the third quarter, we began to see an increase in Research
contract value and Consulting backlog, as well as strength in other
key business measures such as client retention and wallet share. These
are positive indications that we have begun to make inroads within our
target companies through our sales channel strategy."
Chris Lafond, executive vice president and chief financial
officer, commented, "Our recent note conversion eliminated our debt,
greatly strengthening our balance sheet. In addition our cash position
has nearly doubled since December bolstering our financial
flexibility."
Business Segment Highlights
Research revenue was $116 million for the 2003 third quarter, a 6%
decrease from the same period of 2002. For the first nine months of
2003, Research revenue totaled $349 million, a decrease of 5% from the
same period last year. Research contract value was $470 million at the
quarter end, an increase of $2 million over the June quarter and the
first sequential increase in contract value in two years. Client
retention in Research improved one percentage point over the second
quarter, to 76%. Wallet share, a measure of dollar retention in the
Research business, improved two percentage points over the June
quarter to 85%, and five percentage points over the same period last
year.
Consulting revenue was $63 million for the latest quarter, a
decline of 21% from the comparable 2002 period. For the first nine
months of 2003, Consulting revenue was $191 million, a 12% decrease
from a year ago. The Consulting backlog was $93 million at September
30, 2003, versus $91 million at June 30, 2003.
Events revenue was $16 million for the third quarter of 2003,
rising 6% from a year ago, on the strength of three successful new
events. There were three fewer events overall in the quarter compared
with the prior year. For the first nine months of 2003, Events revenue
totaled $65 million, an increase of 3% over the prior year period.
Gartner's cash position increased to $207 million at September 30,
2003, compared with $110 million at December 31, 2002. The Company
repurchased $9 million in common stock during the quarter and $32
million year to date. In October 2003 the Company completely
eliminated its debt as a result of the conversion into common stock of
Silver Lake Partners' convertible subordinated notes. The notes were
converted into approximately 49.4 million shares of Gartner Class A
common stock. The conversion will have no negative effect on reported
diluted earnings per share, as the shares issued already had been
factored into the Company's fully diluted EPS calculations.
Management
As previously announced, Maureen O'Connell, formerly executive
vice president and chief financial and administrative officer, was
named to the new position of president and chief operating officer,
with responsibility for all business units, and sales and marketing
functions. Chris Lafond succeeded Ms. O'Connell, as executive vice
president and chief financial officer. Mr. Lafond has held positions
of increasing responsibility in the finance organization since joining
Gartner in 1995, most recently head of worldwide financial operations.
Additionally, the Company announces that Robert Knapp, executive vice
president and chief strategy officer, will be leaving the Company to
pursue other opportunities, but will remain in place during a
transition period.
Business Outlook
For the fourth quarter ending December 31, 2003, the Company is
targeting:
-- Total revenue of approximately $230 million to $241 million.
-- Research revenue of approximately $112 million to $115
million.
-- Consulting revenue of approximately $63 million to $68
million.
-- Events revenue of approximately $52 million to $54 million.
-- Other revenue of approximately $3 million to $4 million.
-- GAAP and Normalized EPS of $0.16 to $0.20 per share on 129
million diluted shares. See "Non-GAAP Financial Measures" for
a further discussion of normalized EPS.
For the full year ending December 31, 2003, the Company is
targeting:
-- Total revenue of approximately $844 million to $855 million.
-- Research revenue of approximately $461 million to $464
million.
-- Consulting revenue of approximately $254 million to $259
million.
-- Events revenue of approximately $117 million to $119 million.
-- Other revenue of approximately $12 million to $13 million.
-- GAAP and Normalized EPS of $0.37 to $0.41 per share on 129
million diluted shares. See "Non-GAAP Financial Measures" for
a further discussion of normalized EPS.
Conference Call Information
The Company has scheduled a conference call at 10:00 a.m. ET on
Thursday, October 30, 2003, 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 following the call.
About Gartner:
Gartner, Inc. is a research and advisory firm that helps more than
10,000 clients leverage technology to achieve business success.
Gartner's businesses are Research, Consulting, Measurement, Events and
Executive Programs. Founded in 1979, Gartner is headquartered in
Stamford, Conn., and has more than 3,800 associates, including
approximately 1,000 research analysts and consultants, in more than 75
locations worldwide. Revenue for calendar year 2002 totaled $888
million. 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 and calculates earnings per share in a manner consistent with
prior periods by including the effect of debt conversion. Normalized
EPS is based on net income, excluding other charges, gains and losses
on investments, and gains from the sale of businesses. Normalized EPS
includes the effect of the convertible debt as if it had been
converted as of the beginning of each period. This calculation
reflects the expectation that the convertible debt will have a
dilutive effect on EPS for the full year of 2003. (See "Supplemental
Information" at the end of this release for a reconciliation of GAAP
net income and EPS to normalized net income and EPS.)
Safe Harbor Statement
This press release contains statements regarding the Company's
business outlook, the development of the Company's services, the
demand for the Company's products and services. 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, particularly as the Company
seeks to reduce its overall workforce; 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
Transitional Report on Form 10-KT for the three month transitional
period ended December 31, 2002. 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.
GARTNER, INC.
Condensed Consolidated Statements of Operations
(Unaudited, in thousands, except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
--------- --------- ---------- ---------
Revenues:
Research $115,830 $122,575 -6% $349,347 $366,929 -5%
Consulting 62,998 79,457 -21% 191,302 217,961 -12%
Events 15,904 14,987 6% 64,705 62,525 3%
Other 2,172 3,508 -38% 9,150 10,364 -12%
--------- --------- ---------- ---------
Total revenues 196,904 220,527 -11% 614,504 657,779 -7%
Costs and expenses:
Cost of services
and product
development 94,378 93,503 1% 300,151 287,889 4%
Selling, general
and
administrative 79,169 85,745 -8% 243,403 256,189 -5%
Depreciation 9,046 11,659 -22% 27,835 32,580 -15%
Amortization of
intangibles 320 499 -36% 1,063 1,447 -27%
Other charges (1) - - 5,426 17,246 -69%
--------- --------- ---------- ---------
Total costs and
expenses 182,913 191,406 -4% 577,878 595,351 -3%
--------- --------- ---------- ---------
Operating income 13,991 29,121 -52% 36,626 62,428 -41%
Gain (loss) on
investments (2) 102 5 F 5,624 (2,449) F
Interest (expense),
net (5,774) (5,318) 9% (16,928) (15,931) 6%
Other (expense)
income, net (148) (178) F 348 258 F
--------- --------- ---------- ---------
Income before income
taxes 8,171 23,630 -65% 25,670 44,306 -42%
Provision for income
taxes 2,697 8,034 F 8,854 14,771 F
--------- --------- ---------- ---------
Net income $5,474 $15,596 -65% $16,816 $29,535 -43%
========= ========= ========== =========
Basic income per
common share $0.07 $0.19 -63% $0.21 $0.35 -40%
Diluted income per
common share $0.07 $0.15 -53% $0.21 $0.30 -30%
Weighted average shares
outstanding:
Basic 78,026 82,130 -5% 79,251 83,487 -5%
Diluted 128,934 129,210 0% 128,363 131,355 -2%
SUPPLEMENTAL INFORMATION
------------------------
Normalized EPS (3) $0.07 $0.15 -53% $0.21 $0.39 -46%
(1) Other charges for 2003 are for costs associated with a
reduction in workforce. Other charges for 2002 include costs/losses
associated with a reduction in facilities ($10.0 million), a reduction
in workforce ($5.8 million), and the write-off of certain database
related assets ($1.4 million).
(2) The 2003 gain from investments includes a $5.5 million
insurance recovery relating to previous losses incurred associated
with the sale of a business. The 2002 loss from investments includes a
$2.5 million impairment charge on investments.
(3) Normalized net income and EPS is based on net income,
excluding other charges, gains and losses on investments, and gains
from the sale of certain assets. 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.
Consolidated Balance Sheets
(in thousands)
September December
30, 31,
2003 2002
------------ ---------
(unaudited)
ASSETS
Cash and cash equivalents $206,937 $109,657 89%
Fees receivable, net 221,347 283,068 -22%
Deferred commissions 23,267 25,016 -7%
Prepaid expenses and other current
assets 24,729 30,425 -19%
------------ ---------
TOTAL CURRENT ASSETS 476,280 448,166 6%
Property & equipment, net 61,451 71,006 -13%
Goodwill & intangible assets, net 227,777 226,114 1%
Other assets 71,850 71,018 1%
------------ ---------
TOTAL ASSETS $837,358 $816,304 3%
============ =========
Liabilities and Stockholders' Deficit
Accounts payable and accrued
liabilities $134,556 $140,891 -4%
Deferred revenues 301,681 305,887 -1%
------------ ---------
TOTAL CURRENT LIABILITIES 436,237 446,778 -2%
Other liabilities 48,927 46,688 5%
Convertible debt 367,625 351,539 5%
------------ ---------
TOTAL LIABILITIES 852,789 845,005 1%
Total Stockholders' Deficit (15,431) (28,701) -46%
------------ ---------
TOTAL LIABILITIES & STOCKHOLDERS' DEFICIT $837,358 $816,304 3%
============ =========
GARTNER, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited, in thousands)
Nine Months Ended
September 30,
2003 2002
--------- ---------
Operating activities:
Net income $16,816 $29,535
Adjustments to reconcile net income to net cash
provided by
operating
activities:
Depreciation and amortization of intangibles 28,898 34,027
Non-cash compensation 758 2,420
Tax benefit associated with employee exercise
of stock options 1,423 1,778
Deferred taxes 88 3,244
(Gain) loss from investments and sales of
assets, net (5,624) 1,956
Accretion of interest and amortization of debt
issue costs 17,909 16,696
Non-cash charges associated with impairment of
long-lived assets - 1,424
Changes in assets and liabilities:
Fees receivable, net 68,646 56,434
Deferred commissions 2,249 13,986
Prepaid expenses and other current assets 7,524 12,661
Other assets (2,014) 6,531
Deferred revenues (11,964) (27,576)
Accounts payable and accrued liabilities (8,781) (8,443)
--------- ---------
Cash provided by operating activities 115,928 144,673
--------- ---------
Investing activities:
Proceeds from insurance recovery 5,464 -
Purchases of businesses - (3,858)
Proceeds from sale of assets - 239
Investments (1,507) (1,508)
Additions to property, equipment and leasehold
improvements (16,401) (15,258)
--------- ---------
Cash used in investing activities (12,444) (20,385)
--------- ---------
Financing activities:
Proceeds from stock issued for stock plans 20,956 16,880
Payments for debt issuance costs (570) (238)
Purchase of treasury stock (32,380) (46,000)
--------- ---------
Cash used in financing activities (11,994) (29,358)
--------- ---------
Net increase in cash and cash equivalents 91,490 94,930
Effects of exchange rates on cash and cash
equivalents 5,790 2,432
Cash and cash equivalents, beginning of period 109,657 27,431
--------- ---------
Cash and cash equivalents, end of period $206,937 $124,793
========= =========
SELECTED STATISTICAL DATA
(Dollars In thousands)
September 30, September 30,
2003 2002
--------------- --------------
Research contract value $469,605 $495,962
Consulting backlog $92,804 $107,647
Research client organizations 8,698 9,166
BUSINESS SEGMENT DATA
(Dollars in thousands)
Direct Gross Contrib.
Revenue Expense Contribution Margin
--------- --------- ------------ --------
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%
========= ========= ============
Three Months Ended 9/30/02
Research $122,575 $43,426 $79,149 65%
Consulting 79,457 45,849 33,608 42%
Events 14,987 8,479 6,508 43%
Other 3,508 862 2,646 75%
--------- --------- ------------
TOTAL $220,527 $98,616 $121,911 55%
========= ========= ============
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%
========= ========= ============
Nine Months Ended 9/30/02
Research $366,929 $125,152 $241,777 66%
Consulting 217,961 134,064 83,897 38%
Events 62,525 34,046 28,479 46%
Other 10,364 3,820 6,544 63%
--------- --------- ------------
TOTAL $657,779 $297,082 $360,697 55%
========= ========= ============
SUPPLEMENTAL INFORMATION
EPS Reconciliation - GAAP to Normalized
(in thousands, except per share data)
Three Months Ended September 30,
-------------------------------------------------
2003 2002
------------------------ ------------------------
After- After-
Tax Tax
Income Shares EPS Income Shares EPS
-------- -------- ------ -------- -------- ------
GAAP Basic EPS $5,474 78,026 $0.07 $15,596 82,130 $0.19
Share equivalents
from stock
compensation shares - 1,878 (0.00) - 750 (0.00)
Convertible long-term
debt 3,341 49,030 (0.00) 3,149 46,330 (0.04)
-------- -------- ------ -------- -------- ------
GAAP Diluted EPS $8,815 128,934 $0.07 $18,745 129,210 $0.15
(Gain) loss from
investments (68) - (0.00) (3) - (0.00)
-------- -------- ------ -------- -------- ------
Normalized net income
& EPS $8,747 128,934 $0.07 $18,742 129,210 $0.15
======== ======== ====== ======== ======== ======
Nine Months Ended September 30,
-------------------------------------------------
2003 2002
------------------------ ------------------------
After- After-
Tax Tax
Income Shares EPS Income Shares EPS
-------- -------- ------ -------- -------- ------
GAAP Basic EPS $16,816 79,251 $0.21 $29,535 83,487 $0.35
Share equivalents
from stock
compensation shares - 797 (0.00) - 2,215 (0.01)
Convertible long-term
debt 9,908 48,315 (0.00) 9,339 45,653 (0.04)
-------- -------- ------ -------- -------- ------
GAAP Diluted EPS $26,724 128,363 $0.21 $38,874 131,355 $0.30
(Gain) loss from
investments (1) (3,386) - (0.03) 1,618 - 0.01
Other charges (2) 3,635 - 0.03 11,382 - 0.08
Gain from sale of
assets (3) - - - (325) - (0.00)
-------- -------- ------ -------- -------- ------
Normalized net income
and EPS $26,973 128,363 $0.21 $51,549 131,355 $0.39
======== ======== ====== ======== ======== ======
General Notes
-- Normalized net income and EPS is based on net income,
excluding other charges, gains and losses on investments, and
gains from the sale of certain assets. We believe normalized
EPS is an important measure of our recurring operations.
-- The normalized effective tax rate was 33% for 2003 periods and
34% for 2002 periods.
Footnotes
(1) 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. The 2002 loss from investments includes a
pre-tax $2.5 million impairment charge on investments.
(2) Other charges for 2003 are for costs associated with a
reduction in workforce. Other charges for 2002 include pre-tax
costs/losses associated with a reduction in facilities ($10.0
million), a reduction in workforce ($5.8 million), and the write-off
of certain database related assets ($1.4 million).
(3) The 2002 gain from the sale of assets was caused by the sale
of certain assets associated with a product line resulting in a $0.5
million pre-tax gain recorded in Other (expense) income, net during
the first calendar quarter of 2002.
CONTACT: Gartner, Inc.
Investors:
Heather McConnell, 203-316-6768
heather.mcconnell@gartner.com
www.gartner.com/investors
or
Media:
Allison Haines, 203-316-6216
allison.haines@gartner.com