item 14 exhibits financial statement schedules reports form 8k 1 financial statements presentation financial statements included item 8 consolidated financial statements supplementary data 2 financial statement schedule ii valuation qualifying accounts schedules listed omitted information required set forth therein applicable shown financial statements notes thereto 3 exhibits exhibit number description document 31a2 restated certificate incorporation 31b5 amendment dated march 18 1996 restated certificate incorporation 325 amended bylaws april 24 1997 41 article iv v restated certificate incorporation see exhibits 31a b 421 form certificate common stock 1011 form indemnification agreement 1021 amended restated registration rights agreement dated march 19 1993 among registrant dun bradstreet corporation db enterprises inc 1031 stockholders agreement dated march 19 1993 registrant dun bradstreet corporation 1042 lease dated december 29 1994 soundview farms registrant related premises 56 top gallant road 70 gatehouse road 88 gatehouse road stamford connecticut 105 lease dated may 16 1997 soundview farms registrant related premises 56 top gallant road 70 gatehouse road 88 gatehouse road 10 signal road stamford connecticut amendment lease dated december 29 1994 see exhibit 104 1061 long term incentive plan tenure plan including form employee stock purchase agreement 1074 1991 stock option plan amended restated february 24 1997 1081 1993 director stock option plan 1091 employee stock purchase plan 10104 1994 long term stock option plan amended restated february 24 1997 10112 forms master client agreement 10121 commitment letter dated july 16 1993 bank new york 10131 indemnification agreement dated april 16 1993 among registrant cognizant successor dun bradstreet corporation information partners capital fund 1015 3 commitment letter dated september 30 1996 chase manhattan bank 10164 1996 long term stock option plan amended restated february 24 1997 1017 promissory note manuel fernandez dated june 4 1997 1018 promissory note william clifford dated june 4 1997 1019 promissory note e follett carter dated june 4 1997 1020 promissory note john f halligan dated june 4 1997 1021 employment agreement manuel fernandez gartner group inc april 1 1997 111 computation net income per common share 131 annual report stockholders 211 subsidiaries registrant 231 auditors report schedule consent 232 accountants consent 233 report independent accountants 234 report independent accountants financial statement schedule 241 power attorney see signature page 271 financial data schedules management contract compensation plan arrangement required filed exhibit report form 10k pursuant item 14c report 1 incorporated reference registrants registration statement form s1 file 3367576 amended effective october 4 1993 2 incorporated reference registrants annual report form 10k filed december 21 1995 3 incorporated reference registrants annual report form 10k filed december 17 1996 4 incorporated reference registrants quarterly report form10q filed august 14 1997 5 incorporated reference registrants registration statement form s8 file 33335169 filed september 8 1997 b reports form 8k reports form 8k filed registrant fiscal quarter ended september 30 1997 c exhibits see financial statement schedule see signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report form 10k signed behalf undersigned thereunto duly authorized city stamford state connecticut 12th day december 1997 gartner group inc manuel fernandez manuel fernandez chairman board chief executive officer power attorney know person presents person whose signature appears hereby constitutes appoints manuel fernandez john f halligan acting individually attorneyinfact full power substitution capacities sign amendments report form 10k file exhibits thereto documents connection therewith securities exchange commission hereby ratifying confirming signatures may signed said attorney amendments said report pursuant requirements securities exchange act 1934 report form 10k signed following persons capacities dates indicated exhibit index exhibit number description document 31a2 restated certificate incorporation 31b5 amendment dated march 18 1996 restated certificate incorporation 325 amended bylaws april 24 1997 41 article iv v restated certificate incorporation see exhibits 31a b 421 form certificate common stock 1011 form indemnification agreement 1021 amended restated registration rights agreement dated march 19 1993 among registrant dun bradstreet corporation db enterprises inc 1031 stockholders agreement dated march 19 1993 registrant dun bradstreet corporation 1042 lease dated december 29 1994 soundview farms registrant related premises 56 top gallant road 70 gatehouse road 88 gatehouse road stamford connecticut 105 lease dated may 16 1997 soundview farms registrant related premises 56 top gallant road 70 gatehouse road 88 gatehouse road 10 signal road stamford connecticut amendment lease dated december 29 1994 see exhibit 104 1061 long term incentive plan tenure plan including form employee stock purchase agreement 1074 1991 stock option plan amended restated february 24 1997 1081 1993 director stock option plan 1091 employee stock purchase plan 10104 1994 long term stock option plan amended restated february 24 1997 10112 forms master client agreement 10121 commitment letter dated july 16 1993 bank new york 10131 indemnification agreement dated april 16 1993 among registrant cognizant successor dun bradstreet corporation information partners capital fund 1015 3 commitment letter dated september 30 1996 chase manhattan bank 10164 1996 long term stock option plan amended restated february 24 1997 1017 promissory note manuel fernandez dated june 4 1997 1018 promissory note william clifford dated june 4 1997 1019 promissory note e follett carter dated june 4 1997 1020 promissory note john f halligan dated june 4 1997 1021 employment agreement manuel fernandez gartner group inc april 1 1997 111 computation net income per common share 131 annual report stockholders 211 subsidiaries registrant 231 auditors report schedule consent 232 accountants consent 233 report independent accountants 234 report independent accountants financial statement schedule 241 power attorney see signature page 271 financial data schedules management contract compensation plan arrangement required filed exhibit report form 10k pursuant item 14c report 1 incorporated reference registrants registration statement form s1 file 3367576 amended effective october 4 1993 2 incorporated reference registrants annual report form 10k filed december 21 1995 3 incorporated reference registrants annual report form 10k filed december 17 1996 4 incorporated reference registrants quarterly report form10q filed august 14 1997 5 incorporated reference registrants registration statement form s8 file 33335169 filed september 8 1997item 14 exhibits financial statement schedules reports form 8k 1 financial statements presentation financial statements included item 8 consolidated financial statements supplementary data 2 financial statement schedule ii valuation qualifying accounts schedules listed omitted information required set forth therein applicable shown financial statements notes thereto 3 exhibits 1 incorporated reference registrants registration statement form s1 file 3367576 amended effective october 4 1993 2 incorporated reference registrants annual report form 10k filed december 21 1995 3 incorporated reference registrants annual report form 10k filed december 17 1996 4 incorporated reference registrants quarterly report form10q filed may 8 1998 5 incorporated reference registrants registration statement form s8 file 33335169 filed september 8 1997 b reports form 8k reports form 8k filed registrant fiscal quarter ended september 30 1998 c exhibits see financial statement schedule see signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report form 10k signed behalf undersigned thereunto duly authorized city stamford state connecticut 15th 16th day december 1998 gartner group inc manuel fernandez manuel fernandez chairman board chief executive officer power attorney know person presents person whose signature appears hereby constitutes appoints manuel fernandez john f halligan acting individually attorneyinfact full power substitution capacities sign amendments report form 10k file exhibits thereto documents connection therewith securities exchange commission hereby ratifying confirming signatures may signed said attorney amendments said report pursuant requirements securities exchange act 1934 report form 10k signed following persons capacities dates indicated index financial statements schedule gartner group inc consolidated financial statements independent auditors report board directors stockholders gartner group inc audited accompanying consolidated balance sheets gartner group inc subsidiaries september 30 1998 1997 related consolidated statements operations changes stockholders equity cash flows years threeyear period ended september 30 1998 consolidated financial statements responsibility companys management responsibility express opinion consolidated financial statements based audits conducted audits accordance generally accepted auditing standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements referred present fairly material respects financial position gartner group inc subsidiaries september 30 1998 1997 results operations cash flows years threeyear period ended september 30 1998 conformity generally accepted accounting principles kpmg peat marwick llp st petersburg florida october 30 1998 except note 18 november 12 1998 eighth paragraph note 3 interpose acquisition december 10 1998 gartner group inc consolidated balance sheets thousands except share data see notes consolidated financial statements gartner group inc consolidated statements operations thousands except per share data see notes consolidated financial statements gartner group inc consolidated statements changes stockholders equity thousands except share data see notes consolidated financial statements gartner group inc consolidated statements cash flows thousands see notes consolidated financial statements gartner group inc notes consolidated financial statements 1summary significant accounting policies principles consolidation consolidated financial statements include accounts gartner group inc ggi company majorityowned subsidiaries significant intercompany transactions balances eliminated minority interest represents minority stockholders proportionate share equity businesses owned less 100 results operations acquisitions companies accounted using purchase method included consolidated statements operations beginning effective date acquisition companys investments 20 50 owned companies ability exercise significant influence operating financial policies accounted equity method investments less 20 carried cost revenue commission expense recognition revenue advisory measurement learning aml contracts recognized products services delivered companys obligation client completed contract generally twelve months companys policy record time signing aml contract fees receivable related deferred revenues full amount contract billable date contracts noncancelable nonrefundable except government contracts 30day cancellation clause government contracts produced material cancellations date contracts billable upon signing absent special terms granted limited basis company also records related commission obligation upon signing contract amortizes corresponding deferred commission expense contract period related revenues earned amortized income revenue software licensing fees recognized products delivered collectibility probable related software license fees fixed determinable components revenues attributable future service deferred recognized services performed revenues consist principally revenues recognized earned consulting services conferences cash equivalents marketable securities marketable securities mature within three months purchase considered cash equivalents investments maturities three months classified marketable securities companys marketable securities consist marketable debt securities classified heldtomaturity valued amortized cost approximates market managements intent hold investments maturity inventories primarily consisted finished goods related companys training business gartnerlearning stated lower cost market cost determined firstin firstout basis inventories consist primarily material costs included balance sheet caption prepaid expenses current assets inventories 0 21 million september 30 1998 1997 respectively property equipment leasehold improvements property equipment leasehold improvements stated cost less accumulated depreciation amortization property equipment depreciated using straightline method estimated useful lives assets leasehold improvements amortized using straightline method shorter estimated useful lives asset remaining term related leases software development costs statement financial accounting standards 86 accounting costs computer software sold leased otherwise marketed capitalization computer software development costs begin upon establishment technological feasibility limited net realizable value software product cease software product available general release clients products reach technological feasibility costs related development efforts charged expense amortization capitalized computer software development costs begins products available general release customers software development costs subsequent technological feasibility prior general release material expensed intangible assets intangible assets include goodwill noncompete agreements tradenames intangibles goodwill represents excess purchase price acquired businesses estimated fair value tangible identifiable intangible net assets acquired amortization recorded using straightline method periods ranging seven thirty years amounts subject adjustment accordance provisions statement financial accounting standards 109 accounting income taxes fas 109 see note 9 income taxes noncompete agreements amortized straightline basis period agreement ranging three five years tradenames intangibles amortized straightline basis estimated useful lives ranging four thirty years end quarter company reviews events gartner group inc notes consolidated financial statementscontinued changes circumstances determine whether recoverability carrying value intangible asset assessed events circumstances indicate carrying value may recoverable based undiscounted future cash flows impairment loss measured difference discounted future cash flows another acceptable method determining fair value carrying value intangible would recognized company foreign currency translation assets liabilities foreign subsidiaries translated us dollars fiscal yearend exchange rates income expense items translated average exchange rates prevailing fiscal year resulting translation adjustments recorded component stockholders equity income taxes deferred tax assets liabilities recognized based differences book tax bases assets liabilities using presently enacted tax rates provision income taxes sum amount income tax paid payable year determined applying provisions enacted tax laws taxable income year net changes year companys deferred tax assets liabilities undistributed earnings subsidiaries outside us amounted approximately 121 million either indefinitely reinvested remitted substantially free tax accordingly material provision made taxes may payable upon remittance earnings practicable determine amount liability company credits additional paidin capital realized tax benefits arising stock transactions employees tax benefit nonqualified stock option equal tax effect difference market price share companys common stock exercise grant dates extent company incurs employment taxes direct result exercise stock options cost charged additional paidin capital computations income per share common stock february 1997 statement financial accounting standards 128 earning per share fas 128 issued statement sets forth guidance presentation earnings per share eps requires dual presentation basic diluted earnings per share face income statement basic eps computed dividing earnings available common stockholders weighted average number common shares outstanding period diluted eps reflects potential dilution securities could share earnings including stock options warrants eps amounts calculated presented provisions fas 128 following table sets forth required disclosures reconciliation basic diluted net earnings per share computations fiscal year ended september 30 1998 options purchase 22 million shares class common stock company exercise prices greater average fair market value companys stock period gartner group inc notes consolidated financial statementscontinued 3267 included calculation effect would antidilutive outstanding options fiscal years ended september 30 1997 1996 dilutive included calculation diluted earnings per share recently issued accounting standards june 1997 statement financial accounting standards 130 reporting comprehensive income fas 130 disclosures segments enterprise related information fas 131 issued fas 130 establishes standards reporting disclosure comprehensive income components full set generalpurpose financial statements statement requires items required recognized accounting standards components comprehensive income reported financial statement displayed prominence financial statements fas 131 establishes standards way public business enterprises report information operating segments annual financial statements requires enterprises report selected information operating segments interim financial reports issued stockholders currently required also establishes standards related disclosures products services geographic areas major customers company required adopt new disclosure standards first quarter fiscal 1999 march 1998 american institute certified public accountants issued statement position 981 sop 981 accounting costs computer software developed obtained internal use sop 981 requires companies capitalize certain costs computer software developed obtained internal use amortize costs softwares estimated useful life company required adopt sop 981 fiscal 2000 company currently evaluating effect adoption sop 981 companys financial position results operations june 1998 statement financial accounting standard 133 accounting derivative instruments hedging activities fas 133 issued fas 133 establishes new model accounting derivatives hedging activities statement requires derivatives recognized statement financial position either assets liabilities measured fair value company required adopt fas 133 fiscal 2000 company currently evaluating effect adoption fas 133 companys financial position results operations fair value financial instruments companys financial instruments including cash marketable securities trade receivables payables accruals shortterm nature accordingly carrying amount financial instruments approximates fair value see note 11 regarding forward purchase agreements concentrations credit risk financial instruments potentially subject company concentrations credit risk consist primarily cash marketable securities fees receivable company invests cash primarily diversified portfolio highlyrated municipal government bonds concentrations credit risk respect fees receivables limited due large number customers comprising companys customer base dispersion across many different industries geographic regions use estimates preparation financial statements conformity generally accepted accounting principles requires management make estimates assumptions affect reported amounts assets liabilities disclosures contingent assets liabilities dates financial statements reported amounts revenues expenses reporting periods actual results could differ estimates used accounting items allowance doubtful accounts depreciation amortization income taxes certain accrued liabilities 2related parties dun bradstreet corporation db investor information partners capital fund lp fund provided portion financing connection acquisition company october 1990 april 1993 db acquired majority outstanding voting securities company transactions among company db persons entities associated fund november 1 1996 db transferred ownership class b common stock company cognizant corporation cognizant spinoff db independent public company date transfer shares represented 51 companys outstanding common stock fiscal 1997 cognizants ownership companys outstanding common stock fell 50 june 30 1998 cognizant transferred ownership company ims health incorporated ims health spinoff cognizant independent public company see note 18subsequent event gartner group inc notes consolidated financial statementscontinued june 4 1997 board directors approval company provided loans totaling 72 million certain officers facilitate purchase common stock arising exercise stock options loans proceeds used fund option exercise price common stock acquired loans full recourse obligations officers secured shares companys stock loans bore interest annual rate 61 principal amount loans totaling 72 million included assets september 30 1997 consolidated balance sheets december 18 1997 board directors approval company provided additional loans purpose certain officers totaling 25 million loans bore interest annual rate 56 july 23 1998 board directors approval company received 302003 shares class common stock settlement loan balance accrued interest due 3acquisitions december 1 1995 company acquired outstanding shares dataquest whollyowned subsidiary db consideration 150 million cash 3000000 shares class common stock approximate fair market value 600 million five year warrant purchase 600000 shares class common stock 1642 per share dataquest provider information technology market research consulting vendor manufacturer financial communities complements ggi end user focus company accounted acquisition transfer exchange companies common control 3000000 shares assumed outstanding periods presented accordingly accounts dataquest combined companys historical cost manner similar pooling interests transaction costs 17 million relating acquisition included acquisitionrelated charges consolidated statement operations fiscal 1996 combined separate results company dataquest periods preceding merger follows thousands intercompany transactions two companies period july 31 1996 company acquired outstanding shares j3 learning corporation j3 consideration approximately 80 million cash 1065290 shares class common stock approximate fair market value 354 million options purchase class common stock value 13 million j3 publishes markets distributes software educational materials corporate individual training collectively known technology based training acquisition accounted purchase method purchase price allocated assets acquired liabilities assumed based upon estimated fair values date acquisition excess purchase price fair value amounts assigned net tangible assets acquired 511 million amount 322 million expensed acquisition purchased inprocess research development costs included acquisitionrelated charges consolidated statement operations fiscal 1996 substantially remaining excess purchase price allocated goodwill tradename following unaudited pro forma summary presents consolidated results operations company fiscal year ended september 30 1996 acquisition j3 occurred beginning year purport indicative would occurred acquisition made date thousands except per share data gartner group inc notes consolidated financial statementscontinued september 1 1998 company sold technology based training business see note 4sale gartnerlearning august 1 1997 company acquired outstanding shares datapro information services datapro unit mcgrawhill companies consideration approximately 250 million cash datapro provider information product specifications pricing product comparisons technology reports market overviews case studies user ratings surveys datapros services products provide feature sidebyside comparisons computer hardware software communications products acquisition accounted purchase method purchase price allocated assets acquired liabilities assumed based upon estimated fair values date acquisition excess purchase price fair value amounts assigned net tangible assets acquired 335 million recorded goodwill amortized 30 years addition 25 million purchase price allocated noncompete agreement amortized 4 years acquisition datapro occurred beginning fiscal year 1996 consolidated total revenues pro forma basis would 5366 million 4314 million fiscal years 1997 1996 respectively revenue purport indicative would occurred acquisition made date total revenues may occur future pro forma effect companys net income net income per common share fiscal 1997 1996 material october 22 1997 company acquired 32 membership interest jupiter communications llc jupiter 80 million cash september 16 1998 company increased membership interest jupiter 37 additional 13 million cash jupiter provider analystbased research strategic planning services consumer internet interactive industries investment accounted equity method accounting excess cost investment underlying proportionate share net assets goodwill jupiter totaling 93 million amortized 30 years included assets consolidated balance sheets january 30 1998 company acquired assets assumed liabilities interpose inc interpose 75 million cash 13746 shares class common stock company approximate fair market value 05 million interpose provider total cost ownership tco measurement analysis tools training acquisition accounted purchase method purchase price allocated assets acquired liabilities assumed based upon estimated fair values date acquisition excess purchase price fair value amounts assigned net tangible assets acquired 75 million amount 63 million expensed second quarter 1998 purchased inprocess research development costs presented acquisitionrelated charge consolidated statements operations december 10 1998 company revised amount expensed purchased inprocess research development costs 63 million 45 million change response recently developed guidance securities exchange commission remaining excess purchase price 23 million allocated goodwill amortized 12 years 09 million allocated noncompete agreement amortized 5 years may 18 1998 company acquired assets assumed liabilities research board inc 64 million cash 183945 shares class common stock company approximate fair market value 57 million research board compiles provides information technology research suppliers new technologies validated management practices best practices membership consist principally senior executives acquisition accounted purchase method purchase price allocated assets acquired liabilities assumed based upon estimated fair values date acquisition excess purchase price fair value amounts assigned net tangible assets acquired 135 million 129 million recorded goodwill amortized 30 years addition 06 million purchase price allocated noncompete agreement amortized 5 years september 4 1998 company acquired outstanding shares vision events international inc 205 million cash vision events international inc produces premiere channel events serve bring information technology vendors valueadded resellers system integrators together vendors distributors selling channels acquisition accounted purchase method purchase price allocated assets acquired liabilities assumed based upon estimated fair values date acquisition excess purchase price fair value amounts assigned net tangible assets acquired 240 million 236 million recorded goodwill amortized 30 years addition 04 million purchase price allocated noncompete agreement amortized 3 years fiscal 1998 company completed additional acquisitions consideration 128 million cash 28236 shares class common stock company approximate fair market value 07 million gartner group inc notes consolidated financial statementscontinued fiscal 1997 company completed additional acquisitions 81 million cash acquisitions accounted purchase method substantially purchase price assigned goodwill pro forma results operations fiscal years 1998 1997 assuming fiscal 1998 acquisitions made beginning year would differ significantly historical results october 7 1998 company acquired assets assumed liabilities griggsanderson inc 109 million cash 306475 shares class common stock company approximate fair market value 73 million griggsanderson inc provides custom market research vendors technology marketplace research surveys evaluation web sites effectiveness content technical performance ease navigation impact graphics demographic profiles users acquisition accounted purchase method 4sale gartnerlearning september 1 1998 company sold gartnerlearning division company provides technology based training services information technology professionals netg inc netg subsidiary harcourt brace company 50 million cash 8 equity interest netg addition company received put option allows company sell 8 equity interest affiliate harcourt brace company 480 million cash put option may exercised two years beginning september 1 2002 certain conditions met companys 8 interest netg independently appraised fair value 425 million included assets consolidated balance sheets including transaction costs related sale 38 million pretax loss sale gartnerlearning approximately 20 million also see note 10income taxes impact sale income tax provision 5nonrecurring charges fiscal 1998 company recorded nonrecurring charges primarily consisting relocation severance costs totaling approximately 28 million related companys relocation certain accounting order processing operations stamford connecticut new financial services center ft myers florida expenses recorded nonrecurring charges consolidated statements operations 6property equipment leasehold improvements property equipment leasehold improvements carried cost less accumulated depreciation amortization consist following thousands 7intangible assets net intangible assets net carried cost less accumulated amortization consist following thousands gartner group inc notes consolidated financial statementscontinued 8commitments contingencies company leases various facilities furniture computer equipment lease arrangements expiring fiscal 1999 2022 future minimum annual payments operating lease agreements september 30 1998 follows thousands rental expense operating leases net sublease income 213 168 110 million fiscal years ended september 30 1998 1997 1996 respectively company commitments two facilities management companies printing copying mail room related services minimum annual obligations service agreements 48 million fiscal 1998 1999 2000 42 million fiscal 2001 2002 11 million fiscal year 2003 company involved legal proceedings litigation arising ordinary course business company believes outcome current proceedings claims litigation material effect companys financial position results operations resolved future period 9longterm obligations company available two unsecured credit lines bank new york chase manhattan bank 50 million 250 million respectively borrowings bank new york line accrue interest charges libor plus 2 alternatively rate shall higher prime commercial lending rate bank federal funds rate plus 12 1 event libor unavailable chase manhattan bank line carries interest rate equal either prime rate chase manhattan bank libor plus 25 periods 30 60 90 days company may choose fixed option rate commitment fees associated lines may canceled banks time without prior notice penalty borrowings outstanding either line september 30 1998 1997 letters credit issued company ordinary course business company outstanding letters credit chase manhattan bank 41 million 20 million bank new york september 30 1998 10income taxes following summary components income provision income taxes thousands gartner group inc notes consolidated financial statementscontinued provision income consists following components thousands current longterm deferred tax assets liabilities comprised following thousands current longterm net deferred tax assets 18 million 62 million september 30 1998 51 million 47 million september 30 1997 respectively included prepaid expenses current assets respectively consolidated balance sheets valuation allowance relates domestic foreign tax loss carryforwards likely expire unutilized net increase valuation allowance approximately 15 million current year results primarily increase state tax carryforwards approximately 20 million net utilization foreign tax loss carryforwards approximately 05 million net decrease valuation allowance approximately 16 million fiscal 1997 due primarily utilization foreign tax loss carryforwards tax benefit tax loss carryforwards 12 17 10 million fiscal years 1998 1997 1996 respectively approximately 34 million valuation allowance would reduce paidincapital upon subsequent recognition related tax benefits gartner group inc notes consolidated financial statementscontinued differences us federal statutory income tax rate companys effective rate sale gartnerlearning resulted additional tax provision 42 million primarily due reversal nondeductible goodwill effective tax rate less impact sale gartnerlearning 39 september 30 1998 company us federal tax loss carryforwards 100 million expire ten twelve years state local tax loss carryforwards 576 million majority expire three five years us federal tax loss carryforwards subject limitations use internal revenue code addition company foreign tax loss carryforwards 46 million 05 million expire within three five years 41 million carried forward indefinitely 11capital stock repurchase program company effected twoforone stock split class b common stock means stock dividend march 1996 june 1995 august 1994 earnings per share data presented herein restated retroactively reflect splits september 30 1997 company recorded conversion class b common stock class common stock one basis pursuant provision articles incorporation requires conversion class b common stockholders voting equity falls certain ownership percentage considering exercisable options warrants outstanding class common stock stockholders entitled one vote per share matters voted stockholders election directors prior conversion class b common stock class b common stockholders certain preferential voting rights respect election members board directors beginning fiscal 1997 company entered series forward purchase agreements class common stock agreements settled quarterly companys option net basis either shares class common stock cash extent market price companys class common stock settlement date higher lower forward purchase price net differential received paid company fiscal 1997 two settlements resulted company receiving 449932 shares class common stock recorded treasury stock cost paying approximately 120 million cash recorded reduction additional paidin capital fiscal 1998 four settlements resulted company receiving 365949 shares class common stock paying approximately 120 million cash september 30 1998 forward purchase agreement place covered approximately 272 million 984119 shares class common stock forward purchase prices established 2763 per share market priced portion agreement settled based september 30 1998 market price class common stock 2194 per share company would settle terms forward purchase agreement payment either 56 million cash 255142 shares class common stock august 24 1998 companys board directors approved repurchase 2500000 shares class common stock repurchase program intended offset dilutive effect companys stockbased employee compensation plans september 30 1998 company repurchased 655800 shares class common stock cost approximately 162 million gartner group inc notes consolidated financial statementscontinued 12employee stock purchase plans january 1993 company adopted employee stock purchase plan 1993 employee stock purchase plan reserved aggregate 4000000 shares class common stock issuance plan permits eligible employees purchase class common stock payroll deductions may exceed 10 employees compensation 21250 calendar year price equal 85 class common stock price reported nyse beginning end offering period whichever lower fiscal year 1998 195904 shares issued treasury stock average purchase price 3098 per share conjunction plan september 30 1998 2078933 shares available offering plan 13stock options warrants terms 1991 stock option plan option plan board directors may grant nonqualified incentive options entitling employees purchase shares companys common stock fair market value date grant board determine date options vest become exercisable total 32800000 22800000 shares class common stock reserved issuance option plan september 30 1998 1997 respectively april 1998 board directors adopted amendment subject final shareholder approval option plan increase number shares reserved issuance thereunder 10000000 shares september 30 1998 1997 9001508 2955416 options available grant respectively january 1993 company adopted stock option plan directors 1993 director option plan reserved aggregate 1200000 shares class common stock issuance plan provided automatic grant 120000 options purchase shares class common stock nonemployee director upon first becoming director february 1 1993 automatic grant option purchase additional 24000 options purchase shares class common stock annually based continuous service director january 1996 plan amended provide automatic grant 15000 options purchase shares class common stock nonemployee director upon first becoming director automatic grant option purchase additional 3000 options purchase shares class common stock annually based continuous service director exercise price option granted plan equal fair value class common stock date grant options granted subject cumulative yearly vesting three year period date grant number shares granted amended terms adjusted future stock splits september 30 1998 1997 603000 621000 options available grant respectively october 1994 board directors stockholders company approved adoption longterm stock option plan 1994 longterm plan reservation aggregate 6560000 shares class common stock issuance thereunder purpose plan provide senior personnel longterm equity participation company incentive promote longterm success company exercise price option granted plan equal fair value class common stock date grant options granted plan vest become fully exercisable five years following date grant based continued employment term ten years date grant assuming continued employment vesting exercisability accelerates upon achievement certain financial performance targets determined board directors financial performance targets met timely accordance parameters set board sole discretion 25 shares granted become exercisable first anniversary date following date grant subsequent financial performance targets met first second fiscal years following date grant second 25 become exercisable three years following date grant financial performance targets met consecutively three fiscal years following date grant third 25 become exercisable fourth anniversary date following date grant final 25 become exercisable fifth anniversary following date grant failure achieve specified target targets one fiscal year consecutive fiscal years remedied achievement cumulative target succeeding fiscal year years based fiscal 1996 1997 1998 performance 1048280 shares exercisable september 30 1998 additional 1475000 options became exercisable october 10 1998 september 30 1998 1997 287500 810000 shares available grant respectively october 1996 company adopted 1996 long term stock option plan 1996 longterm plan terms plan board directors may grant nonqualified incentive options entitling employees purchase shares companys common stock fair market value date option grant total 1800000 shares class common stock reserved issuance plan options granted plan vest become fully exercisable six years following date grant based continued employment term ten years date grant assuming continued employment vesting exercisability accelerates upon achieve gartner group inc notes consolidated financial statementscontinued ment certain financial performance targets determined board directors financial performance targets met timely accordance parameters set board sole discretion 25 shares granted become exercisable third anniversary date following date grant subsequent financial performance targets met first second years following date grant second 25 become exercisable four years following date grant financial performance targets met consecutively three years following date grant third 25 become exercisable fifth anniversary date following date grant final 25 become exercisable sixth anniversary following date grant based fiscal 1997 1998 performance 815250 options exercisable february 24 2000 september 30 1998 1997 169500 25000 options purchase common stock available grant april 4 1997 company repriced certain stock options granted october 1995 january 1997 1991 option plan 1994 longterm plan total options purchase 1647000 shares common stock repriced exercise price 23875 per share original vesting schedules expiration dates associated stock options also amended coincide stock option repricing date amounts included granted canceled options fiscal 1997 summary activity table shown summary stock option activity plans agreement september 30 1998 follows options purchase 4317310 3492390 shares exercisable september 30 1998 1997 respectively following table summarizes information stock options outstanding september 30 1998 gartner group inc notes consolidated financial statementscontinued warrant expiring december 1 2000 purchase 600000 shares class common stock 1642 per share held ims health warrant issued connection acquisition dataquest company chosen continue applying apb 25 related interpretations accounting plans accordingly compensation cost recognized fixed stock option plans pursuant requirements statement financial accounting standards 123 accounting stockbased compensation fas 123 following pro forma net income net income per share years ended september 30 1998 1997 1996 compensation cost companys stockbased compensation plans determined based fair value grant date grants plans pro forma disclosures shown reflect options granted fiscal 1995 likely representative effects net income net income per common share future years fair value companys stock plans used compute pro forma net income diluted earnings per share disclosures estimated fair value grant date using blackscholes option pricing model following weightedaverage assumptions stock options granted modified weighted average fair values companys stock options granted fiscal 1998 1997 1996 1200 1232 556 respectively 14employee benefit deferred compensation plans company savings investment plan covering substantially domestic employees company contributes amounts plan based upon level employee contributions addition company also contributes fixed discretionary amounts based employee participation attainment operating margins specified board amounts expensed connection plan totaled 54 46 32 million years ended september 30 1998 1997 1996 respectively 15geographic data companys consolidated revenues generated primarily direct sales clients domestic international sales forces network independent international distributors lesser extent international joint venture partners company defines europe revenues attributable clients located england european region international revenues attributable areas located outside united states european identifiable tangible assets consist primarily assets european subsidiaries include accounts receivable balances carried directly subsidiaries located england france germany european customer receivables maintained therefore included identifiable assets us operations gartner group inc notes consolidated financial statementscontinued summarized information geographic location follows thousands excluding acquisitionrelated nonrecurring charges operating income united states 815 million fiscal 1998 613 million fiscal 1996 16selected consolidated balance sheet statements operations data summary selected consolidated balance sheets statements operations data set forth thousands description companys revenue recognition policies see note 1significant accounting policies aml revenues shown 5128 4175 3187 million fiscal 1998 1997 1996 respectively recognized services products delivered companys obligation client completed contract period included aml revenue catchup adjustments also shown fiscal years 1998 1997 1996 249 gartner group inc notes consolidated financial statementscontinued 182 221 million respectively account certain renewals catchup adjustments occur lag month contract expires month renewed company continues provide services certain period time expiration based companys historical experience clients renew prior expiration retroactive basis company recognizes revenues however period client renews service retroactive basis company records previously unrecognized revenue catchup adjustment 17quarterly financial data unaudited thousands except per share data 1 aggregate four quarters diluted earnings per common share total reported full fiscal year amount due rounding 18subsequent event november 12 1998 companys board directors approved agreement principle ims health inc ims health owns 476 million 47 companys class common stock undertake recapitalization company facilitate taxfree spinoff ims health equity position gartner group inc shareholders part recapitalization ims health exchange 407 million shares class common stock equal number shares new class b common stock company prior spinoff new class common stock entitled elect least 80 companys board directors otherwise substantially identical existing class common stock class b common stock distributed ims health shareholders taxfree distribution ims health continue hold 69 million shares class common stock spinoff intention ims health sell shares within one year spinoff subject certain conditions addition company agreed would pay onetime special cash dividend 3000 million shareholders record immediately prior ims health spinoff company also agreed would repurchase 3000 million class common stock open market spinoff exchange spinoff special cash dividend expected completed third quarter fiscal 1999 subject approval irs taxfree status spinoff approval recapitalization plan nonims health shareholders company share repurchase program commence spinoff expected completed within one year independent auditors report schedule board directors stockholders gartner group inc audits referred report dated october 30 1998 except note 18 november 12 1998 eighth paragraph note 3 interpose acquisition december 10 1998 included related financial statement schedule threeyear period ended september 30 1998 contained 1998 annual report form 10k financial statement schedule responsibility companys management responsibility express opinion financial statement schedule based audit opinion financial statement schedule considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein kpmg peat marwick llp st petersburg florida october 30 1998 gartner group inc schedule iivaluation qualifying accounts amounts thousands 1 allowances 319 121 assumed upon acquisitions entities fiscal 1997 1996 respectivelyitem 14 exhibits financial statement schedules reports form 8k signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report form 10k signed behalf undersigned thereunto duly authorized city stamford state connecticut 20th day december 1999 gartner group inc michael fleisher michael fleisher president chief executive officer power attorney know person presents person whose signature appears hereby constitutes appoints michael fleisher regina paolillo acting individually attorneyinfact full power substitution capacities sign amendments report form 10k file exhibits thereto documents connection therewith securities exchange commission hereby ratifying confirming signatures may signed said attorney amendments said report pursuant requirements securities exchange act 1934 report form 10k signed following persons capacities dates indicated gartner group inc schedule ii valuation qualifying accounts amounts thousands 1 allowances 274 319 assumed upon acquisitions entities year ended september 30 1999 1997 respectively 2 amounts written offitem 14 exhibits consolidated financial statement schedules reports form 8k 1 2 consolidated financial statements schedules independent auditors report consolidated financial statements financial statement schedule listed index consolidated financial statements schedule page hereof filed part report beginning page hereof financial statement schedules listed index omitted information required applicable shown financial statements notes thereto 3 exhibits management compensation plan arrangement 1 incorporated reference companys registration statement form s1 file 3367576 amended effective october 4 1993 2 incorporated reference companys annual report form 10k filed december 21 1995 3 incorporated reference companys annual report form 10k filed december 17 1996 4 incorporated reference companys annual report form 10k filed december 22 1999 5 incorporated reference companys form 8k dated march 1 2000 filed march 7 2000 6 incorporated reference companys quarterly report form 10q filed may 12 2000 7 incorporated reference companys form 8k dated april 17 2000 filed april 25 2000 8 incorporated reference companys annual report form 10k filed december 29 2000 b reports form 8k reports form 8k filed company fiscal quarter ended september 30 2001 index consolidated financial statements schedule gartner inc consolidated financial statements report management managements responsibility financial reporting management prepared responsible integrity objectivity consolidated financial statements related information included annual report consolidated financial statements include amounts based managements best judgments estimates prepared conformity generally accepted accounting principles financial information elsewhere annual report consistent consolidated financial statements company maintains system internal controls designed provide reasonable assurance reasonable cost assets safeguarded transactions properly executed recorded preparation reliable financial information internal control system augmented written policies procedures organizational structure providing division responsibilities careful selection training qualified financial people program internal audits audit committee board directors composed solely nonemployee directors meets regularly management internal auditors independent accountants ensure meeting responsibilities discuss matters concerning internal controls financial reporting independent internal auditors unrestricted access audit committee independent auditors fiscal 2001 2000 1999 kpmg llp audit render opinion financial statements accordance generally accepted auditing standards include assessment systems internal controls tests transactions extent considered necessary support opinion michael fleisher michael fleisher chairman board chief executive officer regina paolillo regina paolillo chief financial officer independent auditors report board directors stockholders gartner inc audited accompanying consolidated balance sheets gartner inc subsidiaries september 30 2001 2000 related consolidated statements operations changes stockholders equity deficit cash flows years threeyear period ended september 30 2001 consolidated financial statements responsibility companys management responsibility express opinion consolidated financial statements based audits conducted audits accordance auditing standards generally accepted united states america standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements referred present fairly material respects financial position gartner inc subsidiaries september 30 2001 2000 results operations cash flows years threeyear period ended september 30 2001 conformity accounting principles generally accepted united states america kpmg llp new york new york october 29 2001 gartner inc consolidated balance sheets see notes consolidated financial statements gartner inc consolidated statements operations see notes consolidated financial statements gartner inc consolidated statements changes stockholders equity deficit gartner inc consolidated statements changes stockholders equity deficit continued see notes consolidated financial statements gartner inc consolidated statements cash flows see notes consolidated financial statements gartner inc notes consolidated financial statements 1 summary significant accounting policies basis presentation fiscal year gartner inc company represents period october 1 september 30 references 2001 2000 1999 unless otherwise indicated respective fiscal year certain prior year amounts reclassified conform current year presentation restated reflect disposition previously reported techrepublic segment discontinued operation see note 3 discontinued operation principles consolidation consolidated financial statements include accounts company majorityowned subsidiaries significant intercompany transactions balances eliminated companys investments companies owns less 50 ability exercise significant influence operating financial policies accounted using equity method investments company ability exercise significant influence readily determinable market value accounted cost method accounting results operations acquisitions companies accounted using purchase method included consolidated statements operations beginning closing date acquisition revenue commission expense recognition company typically enters annually renewable subscription contracts research products revenue research products deferred recognized ratably contract term consulting revenues primarily derived consulting measurement strategic advisory services paid oneday analyst engagements recognized work performed contract basis events revenue deferred recognized upon completion related symposium conference exhibition addition company defers certain costs directly related events expenses costs period related symposium conference exhibition occurs companys policy defer costs primarily prepaid site production services costs incremental directly attributable specific event costs organizing producing companys events primarily company personnel nonevent specific expenses expensed period incurred end fiscal quarter management assesses eventbyevent basis whether expected direct costs producing scheduled event exceed expected revenues costs expected exceed revenues company records expected loss period determined revenues includes software licensing fees recognized signed noncancellable software license exists delivery occurred collection probable companys fees fixed determinable revenue software maintenance deferred recognized ratably term maintenance agreement typically twelve months research contracts billable upon signing absent special terms granted limited basis time research contracts noncancelable nonrefundable except government contracts 30day cancellation clause produced material cancellations date exception certain government contracts permit termination companys policy record time signing contract entire amount contract billable fee receivable represents legally enforceable claim corresponding amount deferred revenue government contracts permit termination company bills client full amount billable contract records receivable equal earned portion contract addition company records deferred revenue contracts cash received deferred revenues attributable government contracts 245 million 338 million september 30 2001 2000 respectively addition september 30 2001 company recognized receivables deferred revenues relating government contracts permit termination 133 million billed yet collected company also records commission obligation related research contracts upon signing contract amortizes corresponding deferred commission expense contract period related revenues earned cash equivalents highly liquid investments original maturities three months less considered cash equivalents carrying value investments approximates fair value based upon shortterm maturity investments maturities three months classified marketable securities investments equity securities company accounts investments publicly traded equity securities statement financial accounting standards 115 accounting certain investments debt equity securities fas 115 investments meet criteria classification available sale recorded fair value included marketable equity securities consolidated balance sheets given companys ability intent sell investments within one year period unrealized gains losses marketable investments recorded net tax component accumulated comprehensive income loss net stockholders equity deficit section consolidated balance sheets realized gains losses recorded net gain loss sale investments within consolidated statements operations cost equity securities sold based specific identification company assesses need record impairment losses investments records losses impairment investment determined temporary nature impairment losses reflected net loss minorityowned investments within consolidated statements operations investments publicly traded company ability exercise significant influence operating financial policies accounted cost method accordingly investments carried lower cost net realizable value included assets consolidated balance sheets see note 5 investments equity method used account investments entities majorityowned company control ability exercise significant influence property equipment leasehold improvements property equipment leasehold improvements stated cost less accumulated depreciation amortization property equipment depreciated using straightline method estimated useful lives assets leasehold improvements amortized using straightline method shorter estimated useful lives assets remaining term related leases software development costs company capitalizes certain computer software development costs enhancements upon establishment technological feasibility limited net realizable value software product ceases software product available general release clients products reach technological feasibility costs related development efforts charged expense technological feasibility determined additional costs incurred development including coding testing documentation capitalized amortization software development costs provided productbyproduct basis estimated economic life software generally two years using straightline method amortization capitalized computer software development costs begins products available general release customers additionally company capitalizes certain costs incurred purchase create implement internal use software company performs periodic reviews ensure unamortized capitalized software development costs remain recoverable future revenue intangible assets intangible assets include goodwill noncompete agreements tradenames intangibles goodwill represents excess purchase price acquired businesses estimated fair value tangible identifiable intangible net assets acquired amortization recorded using straightline method periods ranging three thirty years noncompete agreements amortized straightline basis period agreement ranging two five years tradenames amortized straightline basis estimated useful lives ranging nine twelve years impairment longlived assets intangible assets company reviews longlived assets intangible assets impairment whenever events changes circumstances indicate carrying amount respective asset may recoverable evaluation may based number factors including current projected operating results cash flows changes managements strategic direction well economic market variables managements policy regarding longlived assets intangible assets evaluate recoverability assets determining whether amortization goodwill balance remaining life recovered undiscounted future operating cash flows events circumstances indicate carrying value may recoverable based undiscounted future operating cash flows impairment loss would recognized company amount impairment measured based difference projected discounted future operating cash flows using discount rate reflecting companys average cost funds carrying value asset see note 6 charges foreign currency translation assets liabilities foreign subsidiaries translated us dollars fiscal yearend exchange rates resulting translation adjustments recorded component stockholders equity income expense items translated average exchange rates prevailing year currency transaction gains losses arising transactions company currencies functional currency included results operations within expense net income taxes deferred tax assets liabilities recognized based differences book tax basis assets liabilities using presently enacted tax rates provision income taxes sum amount income tax paid payable year determined applying provisions enacted tax laws taxable income year net changes year companys deferred tax assets liabilities undistributed earnings subsidiaries outside us amounted approximately 09 million september 30 2001 either indefinitely reinvested remitted substantially free us tax accordingly material provision made taxes may payable upon remittance earnings practicable determine amount liability company credits additional paidin capital realized tax benefits arising stock transactions employees tax benefit nonqualified stock option equal tax effect difference market price share companys common stock exercise grant dates fair value financial instruments companys financial instruments include cash equivalents fees receivable accounts payable accruals shortterm nature accordingly carrying amounts financial instruments approximate fair value see note 12 stockholders equity deficit regarding forward purchase agreements investments publicly traded equity securities valued based quoted market prices investments equity securities publicly traded valued lower cost net realizable value approximates fair market value longterm convertible debt consists 6 convertible subordinated notes see note 10 debt addition september 30 2001 150 million outstanding senior revolving credit facility carrying amount senior revolving credit facility approximates fair value rates interest revolving credit facility approximate current market rates interest similar instruments comparable maturities concentrations credit risk financial instruments potentially subject company concentrations credit risk consist primarily cash equivalents marketable equity securities fees receivable concentrations credit risk respect fees receivable limited due large number clients comprising companys client base dispersion across many different industries geographic regions use estimates preparation consolidated financial statements conformity generally accepted accounting principles united states america requires management make estimates assumptions affect reported amounts assets liabilities disclosures contingent assets liabilities dates financial statements reported amounts revenues expenses reporting periods actual results could differ estimates used accounting items allowance doubtful accounts investments depreciation amortization income taxes certain accrued liabilities recently issued accounting standards june 2001 statement financial accounting standards 141 business combinations fas 141 statement financial accounting standards 142 goodwill intangible assets fas 142 issued fas 141 requires purchase method accounting used business combinations initiated andor completed june 30 2001 fas 141 also specifies criteria intangible assets acquired must meet recognized reported apart goodwill company anticipate adoption fas 141 material effect company fas 142 requires goodwill intangible assets indefinite lives longer amortized instead measured impairment least annually events indicate may impairment connection fas 142 transitional goodwill impairment evaluation company required perform assessment whether indication goodwill impaired date adoption accomplish company must identify reporting units determine carrying value reporting unit assigning assets liabilities including existing goodwill intangible assets reporting units date adoption company six months date adoption determine fair value reporting unit compare carrying amount reporting unit extent carrying amount reporting unit exceeds fair value reporting unit indication exists reporting unit goodwill may impaired company must perform second step transitional impairment test second step company must compare implied fair value reporting unit goodwill carrying amount reporting unit goodwill would measured date adoption implied fair value goodwill determined allocating fair value reporting unit assets recognized unrecognized liabilities reporting unit manner similar purchase price allocation accordance statement 141 residual fair value allocation implied fair value reporting unit goodwill second step required completed soon possible later end year adoption transitional impairment loss recognized cumulative effect change accounting principle companys statement operations fas 142 effective fiscal years beginning december 15 2001 early adoption permitted companies fiscal years beginning march 15 2001 although company required adopt statement first quarter fiscal 2003 expects adopt fas 142 first quarter ended december 31 2001 extensive effort needed comply adopting fas 142 practicable reasonably estimate impact companys financial statements specifically whether required recognize transitional impairment losses cumulative effect change accounting principle september 30 2001 company unamortized goodwill 2168 million unamortized identifiable intangible assets 54 million amortization expense related goodwill identifiable intangible assets 91 million 33 million respectively fiscal year ended september 30 2001 june 2001 statement financial accounting standards 143 accounting asset retirement obligations fas 143 issued fas 143 addresses financial accounting reporting legal obligations associated retirement tangible longlived assets associated retirement costs result acquisition construction development normal operation longlived asset upon initial recognition liability asset retirement obligation fas 143 requires increase carrying amount related longlived asset retirement cost subsequently allocated expense using systematic rational method assets useful life fas 143 effective fiscal years beginning june 15 2002 adoption statement expected material impact companys financial position results operations august 2001 statement financial standards 144 accounting impairment disposal longlived assets fas 144 issued fas 144 supersedes statement financial accounting standards 121 accounting impairment longlived assets disposed accounting reporting provisions apb opinion 30 reporting results operations reporting effects disposal segment business extraordinary unusual infrequently occurring events transactions fas 144 also amends arb accounting research bulletins 51 consolidated financial statements eliminate exception consolidation subsidiary control likely temporary fas 144 retains fundamental provisions fas 121 recognizing measuring impairment losses longlived assets held use longlived assets disposed sale resolving significant implementation issues associated fas 121 among things fas 144 provides guidance longlived assets used part group evaluated impairment establishes criteria longlived assets held sale prescribes accounting longlived assets disposed sale fas 144 effective fiscal years beginning december 15 2001 company currently evaluating effect adoption fas 144 companys financial position results operations 2 business acquisitions october 2 2000 company acquired assets assumed liabilities solista global llc solista approximately 90 million cash solista provider strategic consulting services merge technology business expertise help clients build strategies digital world acquisition accounted purchase method purchase price allocated assets acquired liabilities assumed based upon estimated fair values date acquisition excess purchase price fair value amounts assigned net tangible assets acquired approximately 65 million 60 million allocated goodwill amortized 20 years addition 05 million purchase price allocated noncompete agreements amortized three years see note 6 charges december 10 1999 company acquired assets assumed liabilities rendall associates inc rendall 120 million cash rendall provides strategic planning advice feasibility competitive analysis research telecommunications market technologies regulation public policies additionally rendall provides technical expertise broadband technologies acquisition accounted purchase method purchase price allocated assets acquired liabilities assumed based upon estimated fair values date acquisition excess purchase price fair value amounts assigned net tangible assets acquired approximately 111 million 99 million allocated goodwill amortized 20 years addition 12 million purchase price allocated noncompete agreement amortized 5 years november 30 1999 company acquired outstanding shares computer financial consultants limited cfc 160 million cash cfc provides senior executives purchasing assistance intended enhance procurement related products services acquisition accounted purchase method purchase price allocated assets acquired liabilities assumed based upon estimated fair values date acquisition excess purchase price fair value amounts assigned net tangible assets acquired approximately 116 million 110 million allocated goodwill amortized 30 years addition 06 million purchase price allocated noncompete agreement amortized 5 years fiscal 2000 company completed additional acquisitions consideration 97 million cash 10 million note payable july 30 1999 company acquired outstanding shares warner group warner 180 million cash warner leading management consulting firm specializing information technology communications technology performance improvement government agency clients acquisition accounted purchase method purchase price allocated assets acquired liabilities assumed based upon estimated fair values date acquisition excess purchase price fair value amounts assigned net tangible assets acquired approximately 152 million 143 million recorded goodwill amortized 30 years addition 09 million purchase price allocated noncompete agreements amortized 2 5 years january 1 1999 company acquired assets assumed liabilities g2r inc g2r 78 million cash 358333 shares class common stock company approximate fair market value 78 million g2r provider research consulting services product vendors professional services outsourcing firms acquisition accounted purchase method purchase price allocated assets acquired liabilities assumed based upon estimated fair values date acquisition excess purchase price fair value amounts assigned net tangible assets acquired approximately 134 million 126 million recorded goodwill amortized 30 years addition 08 million purchase price allocated noncompete agreement amortized 4 years november 13 1998 company acquired outstanding shares wentworth research limited wentworth 83 million cash wentworth provides research advisory services chief information officers senior information technology management community united kingdom hong kong acquisition accounted purchase method purchase price allocated assets acquired liabilities assumed based upon estimated fair values date acquisition excess purchase price fair value amounts assigned net tangible assets acquired approximately 105 million 97 million recorded goodwill amortized 30 years addition 08 million purchase price allocated noncompete agreement amortized 2 years october 7 1998 company acquired assets assumed liabilities griggsanderson inc 109 million cash 305808 shares class common stock company approximate fair market value 73 million griggsanderson inc provides custom market research vendors technology marketplace research surveys evaluation web sites effectiveness content technical performance ease navigation impact graphics demographic profiles users acquisition accounted purchase method purchase price allocated assets acquired liabilities assumed based upon estimated fair values date acquisition excess purchase price fair value amounts assigned net tangible assets acquired 169 million 155 million recorded goodwill amortized 30 years addition 14 million purchase price allocated noncompete agreement amortized 5 years 1999 company completed additional acquisitions consideration 161 million cash acquisitions accounted purchase method substantially purchase price assigned goodwill 3 discontinued operation july 2 2001 company sold subsidiary techrepublic cnet networks inc cnet approximately 230 million cash common stock cnet reduction certain termination benefits proceeds 143 million cash 755058 shares cnet common stock fair market value 1221 per share july 2 2001 consolidated financial statements company restated reflect disposition techrepublic segment discontinued operation accordance apb opinion 30 accordingly revenues costs expenses assets liabilities cash flows techrepublic excluded respective captions consolidated statements operations consolidated balance sheets consolidated statements cash flows reported date disposition loss discontinued operation net assets discontinued operation net cash used discontinued operation periods presented 2001 company recorded pretax loss 664 million 399 million tax recognize loss sale pretax loss includes writedown 424 million assets primarily goodwill net realizable value operating losses date sale 65 million severance related benefits 83 million salerelated costs expenses including costs associated closure facilities 92 million summarized financial information discontinued operation follows thousands statements operations data balance sheet data 4 net gain loss sale investments year ended september 30 2001 company sold remaining 1922795 shares jupiter media metrix jupiter net cash proceeds 75 million average price 391 per share pretax loss 56 million addition company received additional stock distributions investment si venture associates llc si venture fund ii lp si ii year ended september 30 2001 company sold portion shares received si ii net cash proceeds 60 million pretax gain 49 million june 30 2000 company sold 8 investment netg inc netg 360 million cash affiliate harcourt inc resulting pretax loss approximately 66 million company received cash proceeds july 7 2000 addition company recorded additional loss connection negotiated settlement joint venture agreement associated sale gartnerlearning approximately 67 million october 7 1999 jupiter communications inc jupiter completed initial public offering 2100 per share common stock upon completion jupiters initial public offering company owned 4028503 shares jupiters outstanding common stock change companys proportionate share jupiters equity resulted companys writeup investment approximately 154 million increases deferred tax liability additional paidin capital approximately 71 million 83 million respectively quarter ended june 30 2000 companys investment decreased 20 jupiters outstanding common stock company concluded longer exercised significant influence jupiter changed method accounting investment equity method cost method year ended september 30 2000 company sold 1995950 shares net cash proceeds 555 million average price 2781 per share pretax gain 429 million september 2000 jupiter merged media metrix inc creating jupiter media metrix jupiter shareholders received 0946 shares jupiter share jupiter owned date merger company owned 2032553 shares former jupiter exchanged shares jupiter media metrix september 30 2000 companys investment 1922795 shares jupiter fair market value 306 million recorded fair value included marketable equity securities consolidated balance sheets september 30 2000 5 investments summary companys investments marketable equity securities investments september 30 2001 2000 follows thousands september 30 2001 marketable equity securities comprised 755058 shares cnet received connection sale techrepublic july 2 2001 fair value 1221 per share 92 million closing date since july 2 2001 market value cnet shares declined substantially accordingly company recorded 39 million impairment charge net loss minorityowned investments representing temporary decline market value cnet common stock september 30 2001 shares reflected september 30 2001 consolidated balance sheet fair market value 32 million giving effect additional 20 million unrealized losses addition equity securities owned directly company si wholly owned affiliate company owns 34 si ii entities venture capital funds engaged making investments early midstage itbased internetenabled companies entities managed pursuant management contract si services company llc entity controlled former chairman board company continues employee company certain former officers employees company accounts si included companys consolidated financial statements company total original investment commitment si ii 100 million 300 million respectively 74 million commitment si ii remained unfunded september 30 2001 commitment expected funded fiscal 2002 companys investment si ii recorded equity method equity method investments represent investments held si ii companys share equity losses 03 million 01 million fiscal 2001 2000 respectively investments comprised various costbased equitybased investments fiscal 2001 company wrotedown certain investments recognized impairment charge 226 million temporary declines value certain investments reflected net loss minorityowned investments 2001 consolidated statement operations company made assessment carrying value investments determined certain investments excess fair value due significance duration decline valuation comparable companies operating internet technology sectors impairment factors evaluated management may change subsequent periods given entities underlying investments operate volatile business environment addition entities may require additional financing meet cash operational needs however assurance funds available extent needed terms acceptable entities could result additional material noncash impairment charges future 6 charges 2001 company recorded charges 466 million charges 248 million associated companys workforce reduction announced april 2001 workforce reduction resulted elimination 383 positions approximately 8 companys workforce approximately 143 million charges associated writedown goodwill longlived assets net realizable value result companys decision discontinue certain unprofitable products 75 million charge associated primarily writeoff internally developed systems connection launch gartnercom seatbased pricing september 30 2001 66 million termination benefits relating workforce reduction remain paid primarily first quarter fiscal 2002 company funding costs operating cash flows 1999 company recorded charges related reorganization recapitalization approximately 234 million pretax basis approximately 142 million charge related certain job eliminations associated certain strategic reduction force initiatives approximately 92 million charge pertained legal advisory fees associated companys recapitalization see note 16 recapitalization 7 property equipment leasehold improvements net property equipment leasehold improvements less accumulated depreciation amortization consist following thousands september 30 2001 2000 capitalized development costs internal use software 273 million 263 million respectively net accumulated amortization 247 million 103 million respectively amortization capitalized internal software development costs totaled 143 million 72 million 23 million fiscal 2001 2000 1999 respectively 8 intangible assets net intangible assets less accumulated amortization consist following thousands 9 accounts payable accrued liabilities accounts payable accrued liabilities consist following thousands 10 debt july 16 1999 company entered unsecured credit agreement jpmorgan chase bank administrative agent participating financial institutions thereunder providing maximum 5000 million credit facilities consisting 3500 million term loan 1500 million senior revolving credit facility february 25 2000 company modified certain financial covenants permit issuance convertible debt loans revolving facility available five years subject certain customary conditions date loan july 17 2000 company entered second amendment credit agreement amendment company agreed refinance existing indebtedness repay full terminate term loans drawn existing credit agreement september 30 2001 company senior revolving credit facility amended totaling maximum aggregate principal amount 2000 million connection extinguishment 3500 million term loan company wrote 17 million net related tax benefit 12 million deferred debt issuance costs fourth quarter fiscal 2000 charge recorded extraordinary loss debt extinguishment september 30 2001 150 million outstanding revolving credit facility commitment fee 030 050 paid unused revolving credit amount pursuant certain financial covenants revolving credit facility company 1237 million available borrowings september 30 2001 weighted average interest rate borrowings 68 year ended september 30 2001 april 17 2000 company issued private placement transaction 3000 million 6 convertible subordinated notes convertible notes silver lake partners lp silver lake certain silver lakes affiliates convertible notes mature april 2005 accrue interest 6 per annum interest accrues semiannually corresponding increase face amount convertible notes commencing september 15 2000 accordingly 262 million added face amount convertible notes balance outstanding september 30 2001 part transaction two silver lake representatives elected companys tenmember board directors company also granted silver lake right acquire 5 company subsidiary spun 80 initial public offering price company valued option 10 million recorded discount convertible notes amortized interest expense fiveyear term april 18 2000 million proceeds used pay term loan borrowings credit agreement jpmorgan chase bank company incurred 79 million transaction advisory fees related transaction fees accounted debt issuance costs amortized fiveyear term debt using effective interest method convertible notes originally convertible shares companys class common stock commencing april 17 2003 initial price 1587 per share accordance original terms note first anniversary date issuance convertible notes april 17 2001 conversion price adjusted reset equal lower initial conversion price 1587 per share average closing price thirty trading day period ending april 17 2001 less 1443 price equal 10 premium average closing price period april 17 2001 conversion price reduced 745 per share number shares class common stock issuable upon conversion notes september 30 2001 439 million shares total market value 3972 million using companys september 30 2001 market price 905 per share april 17 2003 subject satisfaction certain customary conditions company may redeem convertible notes cash provided 1 average closing price class common stock twenty consecutive trading days immediately preceding date redemption notice given equals exceeds 150 adjusted conversion price 745 per share 2 closing price class common stock trading day immediately preceding date redemption notice given also equals exceeds 150 adjusted conversion price redemption price face amount notes plus accrued interest company initiates redemption silver lake option receiving payment cash stock combination cash stock commencing april 18 2003 silver lake may elect convert portion notes stock silver lake initiates conversion company option redeeming notes cash price based number shares notes would converted market price date notice conversion given maturity date april 17 2005 company must satisfy remaining notes cash letters credit issued company ordinary course business september 30 2001 company outstanding letters credit bank new york 20 million jpmorgan chase bank 08 million 11 commitments contingencies company leases various facilities furniture computer equipment operating lease arrangements expiring 2001 2026 future minimum annual payments noncancelable operating lease agreements september 30 2001 follows thousands rental expense operating leases net sublease income 269 million 224 million 184 million years ended september 30 2001 2000 1999 respectively company commitments two facilities management companies printing copying mailroom related services minimum annual obligations service agreements 49 million 2002 16 million 2003 company involved legal proceedings litigation arising ordinary course business company believes outcome current proceedings claims litigation material effect companys financial position results operations resolved future period 12 stockholders equity deficit capital stock class common stock class b common stock stockholders entitled one vote per share matters voted stockholders vote together single class respect election directors class common stock stockholders entitled one vote per share election class directors constitute 20 directors class b common stock stockholders entitled one vote per share election class b directors constitute least 80 directors stock option plans companys 1991 stock option plan expired april 25 2001 result september 30 2001 options available future grant plan september 30 2000 1354876 options available grant january 1993 company adopted 1993 director option plan stock option plan directors reserved aggregate 1200000 shares class common stock issuance plan currently provides automatic grant 15000 options purchase shares class common stock nonemployee director upon first becoming outside director automatic grant option purchase additional 7000 shares class common stock annually based continuous service outside director exercise price option granted plan equal fair market value class common stock date grant options granted subject yearly vesting threeyear period date grant directors also compensated common stock equivalents payable plan september 30 2001 2000 420738 464635 options available grant respectively october 1994 board directors stockholders company approved adoption longterm stock option plan reservation aggregate 6560000 shares class common stock issuance thereunder purpose plan provide senior personnel longterm equity participation company incentive promote longterm success company exercise price option granted plan equal fair market value class common stock date grant options granted plan vest become fully exercisable five years following date grant based continued employment term ten years date grant assuming continued employment vesting exercisability accelerates upon achievement certain financial performance targets determined board directors financial performance targets met year grant accordance parameters set board sole discretion 25 shares granted become exercisable first anniversary date following date grant cumulative financial performance targets met first second years following date grant second 25 become exercisable three years following date grant cumulative financial performance targets met three years following date grant third 25 become exercisable fourth anniversary date following date grant final 25 become exercisable fifth anniversary following date grant based cumulative performance 2001 1652770 shares exercisable september 30 2001 september 30 2001 2000 419250 600250 options available grant respectively october 1996 company adopted 1996 long term stock option plan terms plan board directors may grant nonqualified incentive options entitling employees purchase shares companys common stock fair market value date option grant total 1800000 shares class common stock reserved issuance plan options granted plan vest become fully exercisable six years following date grant based continued employment term ten years date grant assuming continued employment vesting exercisability accelerates upon achievement certain financial performance targets determined board directors financial performance targets met year grant accordance parameters set board sole discretion 25 shares granted become exercisable third anniversary date following date grant cumulative financial performance targets met first second years following date grant second 25 become exercisable three years following date grant financial performance targets met cumulatively three years following date grant third 25 become exercisable fourth anniversary date following date grant final 25 become exercisable fifth anniversary following date grant based 1997 1998 performance 638000 options exercisable september 30 2001 based 1999 performance additional 172375 vest 2002 based 2000 2001 performance additional acceleration vesting september 30 2001 2000 952125 812000 options purchase common stock available grant respectively october 1998 company adopted 1998 long term stock option plan terms plan board directors may grant nonqualified incentive options entitling employees purchase shares companys common stock fair market value date option restricted stock grant total 2500000 shares class common stock reserved issuance plan options currently granted plan generally vest become fully exercisable six years following date grant based continued employment term ten years date grant assuming continued employment vesting exercisability accelerates upon achievement certain financial performance targets determined board directors financial performance targets met year grant accordance parameters set board sole discretion 25 shares granted become exercisable third anniversary date following date grant cumulative financial performance targets met first second years following date grant second 25 become exercisable three years following date grant financial performance targets met cumulatively three years following date grant third 25 become exercisable fourth anniversary date following date grant final 25 become exercisable fifth anniversary following date grant based cumulative 2001 performance vesting accelerated september 30 2001 2000 838509 662001 options purchase common stock available grant respectively december 15 1998 company adopted option exchange program allowed exchange certain stock options granted april 1998 july 1998 options exercise price 2046 total options purchase 4737400 shares common stock exchanged program original vesting schedules expiration dates associated stock options also amended commence stock option exchange program date amounts included granted canceled options 1999 summary activity table shown connection recapitalization see note 16 recapitalization substantially options exercise price fair market value stock effective date reduced maintain ratio exercise price fair market value stock prior special nonrecurring cash dividend 11945 per share exercise prices options exercise price equal greater fair market value stock effective date reduced amount equal dividend per share paid company changes made either number shares common stock covered vesting schedule options november 1999 company adopted 1999 stock option plan terms plan board directors may grant nonqualified incentive stock options awards eligible employees consultants companys directors highly compensated executive officers eligible awards plan total 20000000 shares class common stock reserved issuance plan substantially options currently granted plan vest become fully exercisable year three years equal installments following date grant based continued employment term ten years date grant assuming continued employment september 30 2001 2000 2767349 9776090 options purchase common stock available grant respectively summary stock option activity plans agreement september 30 2001 follows options purchase 12935484 6754574 shares class common stock exercisable september 30 2001 2000 respectively following table summarizes information stock options outstanding september 30 2001 employee stock purchase plans january 1993 company adopted employee stock purchase plans reserved aggregate 4000000 shares class common stock issuance plan eligible employees permitted purchase class common stock payroll deductions may exceed 10 employees compensation 21250 calendar year price equal 85 class common stock price reported nyse beginning end offering period whichever lower eligible international employees purchase shares price calculated monthly corresponding discount years ended september 30 2001 2000 769085 394279 shares issued treasury stock average purchase price 701 1272 per share respectively conjunction plan september 30 2001 2000 676994 1429406 shares available purchase plan respectively restricted stock awards beginning 1998 company granted restricted stock awards 1991 stock option plan 1998 long term stock option plan restricted stock awards vest six equal installments first installment vesting two years grant annually thereafter recipients required provide consideration company rendering service right vote shares receive dividends restricted stock may sold employee vesting period 1999 company also granted 40500 stock options 1998 long term stock option plan exercise price 100 per share vest basis restricted stock awards certain international employees stock options weighted average fair market value 2281 per stock option date grant september 30 2001 total 271616 restricted shares class common stock outstanding weighted average market value original grant date 2314 per share september 30 2000 total 417499 restricted shares class common stock outstanding weighted average market value original grant date 2226 per share 2000 company granted restricted stock award 50000 shares fair market value 1300 per share 2001 forfeitures acceleration grants 64593 shares 9581 shares respectively september 30 2001 aggregate unamortized compensation expense restricted stock awards 1 stock option grants 51 million 2000 forfeitures acceleration grants 77501 shares 7833 shares respectively total compensation expense recognized restricted stock awards option grants 11 million 11 million 17 million 2001 2000 1999 respectively deferred compensation employee stock trust company supplemental deferred compensation arrangements benefit certain officers managers key employees arrangements funded life insurance contracts purchased company plan permits participants diversify marketable equity securities value assets held managed invested pursuant agreement 78 million 72 million september 30 2001 2000 respectively included assets corresponding deferred compensation liability 88 million 82 million september 30 2001 2000 respectively recorded fair market value shares held rabbi trust adjusted corresponding charge credit compensation cost reflect fair value amount owned employee due declines fair value shares held rabbi trust company recorded compensation expense fiscal 2001 total compensation expense recognized plan fiscal 2000 10 million forward purchase agreements beginning 1997 company entered series forward purchase agreements effect repurchase 1800000 class common stock agreements settled quarterly companys option net basis either shares class common stock cash extent market price companys class common stock settlement date higher lower forward purchase price net differential received paid company year ended september 30 1999 four settlements resulted company receiving 155962 shares class common stock paying approximately 109 million cash year ended september 30 2000 four settlements resulted company receiving 155792 shares class common stock paying approximately 82 million cash year ended september 30 2001 two settlements resulted company delivering 491789 shares class common stock paying approximately 64000 cash june 2001 company terminated forward purchase agreement reacquiring 1164154 shares class common stock approximately 97 million stock repurchases july 19 2001 companys board directors approved repurchase 750 million class b common stock repurchases made time next two years open market purchases subject availability stock prevailing market conditions market price stock companys financial performance repurchases funded cash flow operations possible borrowings companys existing credit facility repurchases made proportionately shares two classes common stock august 29 2001 company purchased 1867149 shares class common stock 988 per share ims health inc fourth quarter fiscal 2001 company purchased additional 451000 shares class common stock 7960 shares class b common stock open market average price 942 per share stock based compensation company applies provisions apb opinion 25 accounting stock issued employees related interpretations accounting stockbased compensation plans accordingly compensation cost recognized fixed stock option plans pursuant requirements statement financial accounting standards 123 accounting stockbased compensation following pro forma net income loss net income loss per share years ended september 30 2001 2000 1999 compensation cost companys stockbased compensation plans determined based fair value grant date grants plans thousands except per share data pro forma disclosures shown reflect options granted year ended september 30 1995 likely representative effects net income loss net income loss per common share future years fair value companys stock plans used compute pro forma net income diluted earnings per share disclosures estimated fair value grant date using blackscholes option pricing model following weightedaverage assumptions utilized stock options granted modified weighted average fair values companys stock options granted years ended september 30 2001 2000 1999 377 663 1019 respectively 13 computation earnings per share common stock continuing operations basic earnings per share eps computed dividing earnings available common stockholders weighted average number common shares outstanding period diluted eps reflects potential dilution securities could share earnings exercise stock options antidilutive excluded calculation following table sets forth reconciliation basic diluted net earnings per share computations thousands except per share year ended september 30 2001 options purchase 350 million shares class common stock company included computation diluted loss per share effect would antidilutive year ended september 30 2000 options purchase 143 million shares class common stock company exercise prices greater average fair market value 1378 included computation diluted net income per share effect would antidilutive years ended september 30 2001 2000 unvested restricted stock awards included computation diluted earnings loss per share effect would antidilutive additionally convertible notes outstanding year ended september 30 2001 2000 representing 305 million 88 million common shares converted related interest expense 188 million 82 million respectively included computation diluted net income loss per share effect would antidilutive 14 income taxes following summary components income provision income taxes loss discontinued operations extraordinary loss thousands provision income tax income consists following components thousands current longterm deferred tax assets liabilities comprised following thousands current longterm net deferred tax assets 99 million 294 million september 30 2001 02 million 22 million september 30 2000 respectively included prepaid expenses current assets consolidated balance sheets current longterm net deferred tax liabilities 95 million 03 million september 30 2000 included accounts payable accrued liabilities consolidated balance sheet 2001 company recorded 275 million current tax receivable result ability recover federal income taxes capital loss foreign tax credit carrybacks amount included prepaid expenses current assets consolidated balance sheet valuation allowance relates domestic foreign tax net operating loss capital loss carryforwards likely expire unutilized net increase valuation allowance approximately 160 million current year results primarily increase federal state local tax capital loss carryforwards 148 million 72 million respectively net decrease federal state local net operating losses 46 million 19 million respectively net increase foreign tax loss carryforwards approximately 05 million approximately 24 million valuation allowance reduce additional paidincapital upon subsequent recognition related tax benefits differences us federal statutory income tax rate companys effective tax rate income continuing operations september 30 2001 company us federal tax net operating loss carryforwards 02 million expire fifteen twenty years federal capital loss carryforwards 185 million expire five years foreign tax credit carryforwards 86 million expire five years federal tax credit carryforwards 17 million carried forward indefinitely company state local tax net operating loss carryforwards 838 million 209 million expire within one five years 73 million expire within six fifteen years 556 million expire within sixteen twenty years company also 689 million state local capital loss carryforwards expire five years lastly company foreign tax loss carryforwards 54 million 24 million expire two years 30 million carried forward indefinitely 2001 company generated onetime tax benefit 145 million due utilization foreign tax credits 2001 company also recorded valuation reserve 83 million deferred tax assets generated losses minorityowned investments 15 employee benefits company savings investment plan covering substantially domestic employees company contributes amounts plan based upon level employee contributions addition company also contributes fixed discretionary amounts based employee participation attainment operating margins set board directors amounts expensed connection plan totaled 105 million 85 million 66 million years ended september 30 2001 2000 1999 respectively 16 recapitalization dun bradstreet corporation db investor information partners capital fund lp fund provided portion financing connection acquisition company october 1990 april 1993 db acquired majority outstanding voting securities company transactions among company db persons entities associated fund november 1 1996 db transferred ownership common stock company cognizant corporation cogni zant spinoff db independent public company date transfer shares represented 51 companys outstanding common stock year ended september 30 1997 cognizants ownership companys outstanding common stock fell 50 june 30 1998 cognizant transferred ownership company ims health incorporated ims health spinoff cognizant independent public company july 16 1999 companys stockholders approved series transactions resulted separation company ims health accomplished part recapitalization companys outstanding common stock two classes common stock consisting class common stock class b common stock issuance aggregate 40689648 shares class b common stock ims health exchange like number shares class common stock held ims health separation effected part july 26 1999 taxfree distribution ims health stockholders newly issued class b common stock company owned ims health class b common stock identical respects class common stock except class b common stock entitled elect least 80 members companys board directors companys stockholders also approved amendment companys certificate incorporation create classified board directors three classes staggered threeyear terms company also declared special nonrecurring cash dividend 11945 per share payable company stockholders record july 16 1999 cash dividend totaling approximately 1250 million paid july 22 1999 funded existing cash august 29 2001 company purchased 1867149 shares class common stock 988 per share ims health company also confirmed date ims health sold remaining shares companys class common stock 988 per share direct placement several institutional investors transactions divest ims health remaining ownership company terms recapitalization agreement company required indemnify ims health additional taxes certain circumstances actions company cause distribution become taxable ims health stockholders actions include use stock substantial acquisitions issuance without regulatory approval stock options set limitations twoyear period following recapitalization addition company indemnified ims health tax liabilities associated spinoff may result acquisition company monitors compliance regard believes unlikely within matters companys control incur significant costs result indemnity 17 segment information company previously managed business four reportable segments organized basis differences related products services discontinuance sale techrepublic see note 3 discontinued operation three reportable segments remain research consulting events research consists primarily subscriptionbased research products consulting consists primarily consulting measurement engagements strategic advisory services events consists various symposia conferences exhibitions company evaluates reportable segment performance allocates resources based gross contribution margin gross contribution presented defined operating income excluding certain selling general administrative expenses depreciation amortization intangibles charges accounting policies used reportable segments used company earns revenue clients many countries united states companys country domicile individual country revenues external clients represent 10 companys consolidated revenues additionally single client accounted 10 total revenue loss single client managements opinion would material adverse effect revenues company identify allocate assets including capital expenditures operating segment accordingly assets reported segment information available segment reviewed evaluation performance making decisions allocation resources following tables present information reportable segments thousands column includes certain revenues corporate expenses primarily selling general administrative unallocated reportable segments expenses allocated operations meet segment reporting quantitative threshold charges intersegment revenues companys consolidated revenues generated primarily direct sales clients domestic international sales forces network independent international distributors company defines europe revenues attributable clients located england european region international revenues attributable areas located outside united states canada europe products services company provided integrated worldwide basis integration products services delivery practical separate precisely revenues operating income company geographic location accordingly separation set forth table based upon internal allocations involve certain management estimates judgments european identifiable tangible assets consist primarily assets european subsidiaries include accounts receivable balances carried directly subsidiaries located england france germany european customer receivables maintained therefore included identifiable assets united states operations summarized information geographic location follows thousands 18 quarterly financial data unaudited 1 includes charges 311 million 155 million quarters ended march 31 2001 september 30 2001 respectively 2 includes net losses minority owned investments 17 million 34 million 66 million 151 million four quarters fiscal year ended september 30 2001 also includes benefits income taxes utilization foreign tax credits 29 million quarter ended june 30 2001 116 million quarter ended september 30 2001 3 aggregate four quarters diluted earnings per common share total reported full fiscal year amount due rounding independent auditors report consolidated financial statement schedule board directors stockholders gartner inc date october 29 2001 reported consolidated balance sheets gartner inc subsidiaries september 30 2001 2000 related consolidated statements operations changes stockholders equity deficit cash flows years threeyear period ended september 30 2001 included september 30 2001 annual report form 10k connection audits aforementioned consolidated financial statements also audited related consolidated financial statement schedule valuation qualifying accounts form 10k financial statement schedule responsibility companys management responsibility express opinion financial statement schedule based audits opinion financial statement schedule considered relation basic consolidated financial statements taken whole present fairly material respects information set forth therein kpmg llp new york new york october 29 2001 s1 gartner inc schedule ii valuation qualifying accounts 1 allowance 46000 274000 assumed upon acquisitions entities fiscal 2000 1999 respectively s2 signatures pursuant requirements securities exchange act 1934 registrant caused report form 10k signed behalf undersigned duly authorized stamford connecticut december 28 2001 gartner inc michael fleisher michael fleisher chairman board chief executive officer president date december 28 2001 power attorney person whose signature appears appoints michael fleisher regina paolillo acting individually attorneyinfact full power substitution capacities sign amendments report form 10k file appropriate exhibits related documents securities exchange commission undersigned ratifies confirms signatures may signed attorneyinfact amendments report pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated ii1 ii2item 14 controls procedures evaluation disclosure controls procedures established disclosure controls procedures designed ensure information required disclose reports filed securities exchange act 1934 amended act recorded processed summarized reported timely manner specifically controls procedures ensure information accumulated communicated executive management team including chief executive officer chief financial officer allow timely decisions regarding required disclosure within 90 days prior filing annual report form 10k fiscal year ended september 30 2002 company conducted evaluation supervision participation management including chief executive officer chief financial officer effectiveness design disclosure controls procedures based upon evaluation chief executive officer chief financial officer concluded companys disclosure controls procedures effective alerting timely manner material company information required disclosed us reports filed act b changes internal controls subsequent date evaluation significant changes companys internal controls factors could significantly affect internal controls procedures corrective actions required regard significant deficiencies material weaknesses part iv item 15item 14 principal accountant fees services information required furnished pursuant item set forth caption principal accountant fees services proxy statement proxy statement filed commission april 30 2004 information included amendment annual report filed april 30 2004 10k29 part iv item 15item 14 principal accountant fees services kpmg llp audited financial statements since september 1996 2004 kpmg performed recurring audit services including examination annual financial statements limited reviews quarterly financial information certain statutory audits kpmg also performed services us business areas following table sets forth fees billed professional services 2004 2003 1 audit fees consisted audit work performed consolidated financial statements well work normally performed independent auditors connection statutory regulatory filings 2 auditrelated fees consisted primarily audits employee benefit plan well audit foreign subsidiary required statute regulation 3 tax fees associated tax compliance foreign locations tax advice tax planning audit committee’s policy preapprove audit permissible nonaudit services provided independent auditors services may include audit services auditrelated services tax services preapproval generally provided one year preapproval detailed particular service category services generally subject specific budget independent auditors management required periodically report audit committee regarding extent services provided independent auditors accordance preapproval fees services performed date audit committee may also preapprove particular services casebycase basis services relating fees set forth table preapproved audit committee part iv item 15item 14 principal accountant fees services information required furnished pursuant item set forth caption “principal accountant fees services” proxy statement proxy statement filed commission april 30 2006 information included amendment annual report filed april 30 2006 part iv item 15item 14 principal accountant fees services information required furnished pursuant item set forth caption “principal accountant fees services” company’s proxy statement filed sec later april 30 2007 proxy statement filed sec april 30 2007 information included amendment annual report filed april 30 2007 part iv item 15item 14 principal accountant fees services information required furnished pursuant item set forth caption “principal accountant fees services” company’s proxy statement filed sec later april 29 2008 proxy statement filed sec april 29 2008 information included amendment annual report filed april 29 2008 part iv item 15item 14 principal accountant fees services information required furnished pursuant item set forth caption “principal accountant fees services” company’s proxy statement filed sec later april 30 2011 proxy statement filed sec april 30 2011 information included amendment annual report filed april 30 2011 part iv item 15item 14 principal accountant fees services information required furnished pursuant item set forth caption “principal accountant fees services” company’s proxy statement filed sec later april 30 2012 proxy statement filed sec april 30 2012 information included amendment annual report filed april 30 2012 part iv item 15item 14 principal accountant fees services information required furnished pursuant item set forth caption “principal accountant fees services” company’s proxy statement filed sec later april 30 2013 proxy statement filed sec april 30 2013 information included amendment annual report filed april 30 2013 part iv item 15item 14 principal accountant fees services information required furnished pursuant item set forth caption “principal accountant fees services” company’s proxy statement filed sec later april 30 2014 proxy statement filed sec april 30 2014 information included amendment annual report filed april 30 2014 part iv item 15item 14 principal accountant fees services information required furnished pursuant item set forth caption “principal accountant fees services” company’s proxy statement filed sec later april 30 2015 proxy statement filed sec april 30 2015 information included amendment annual report filed april 30 2015 part iv item 15item 14 principal accountant fees services information required furnished pursuant item set forth caption “principal accountant fees services” company’s proxy statement filed sec later april 30 2017 proxy statement filed sec april 30 2017 information included amendment annual report filed april 30 2017 part iv item 15item 14 principal accountant fees services information required furnished pursuant item set forth caption “principal accountant fees services” company’s proxy statement filed sec later april 30 2018 proxy statement filed sec april 30 2018 information included amendment annual report filed april 30 2018 part iv item 15item 14 principal accountant fees services information required furnished pursuant item set forth caption “proposal three ratification appointment independent registered public accounting firm” “proposal three ratification appointment independent registered public accounting firm principal accountant fees services” company’s proxy statement filed sec later april 30 2019 proxy statement filed sec april 30 2019 information included amendment annual report filed april 30 2019 part iv item 15item 14 principal accountant fees services information required furnished pursuant item set forth caption “proposal three ratification appointment independent registered public accounting firm” company’s proxy statement filed sec later april 29 2020 proxy statement filed sec april 29 2020 information included amendment annual report filed april 29 2020 part iv item 15item 14 principal accountant fees services information required furnished pursuant item set forth caption “proposal three ratification appointment independent registered public accounting firm” company’s proxy statement filed sec later april 30 2021 proxy statement filed sec april 30 2021 information included amendment annual report filed april 30 2021 part iv item 15item 14 exhibits financial statement schedules reports form 8k 1 financial statements presentation financial statements included item 8 consolidated financial statements supplementary data 2 supplemental schedules ii valuation qualifying accounts see attached schedules listed omitted information required set forth therein applicable shown financial statements notes thereto 3 exhibits exhibit number description document 314 restated certificate incorporation 321 bylaws amended 411 article iii restated certificate incorporation see exhibit 31 421 form certificate common stock 1011 form indemnification agreement 1021 amended restated registration agreement dated march 19 1993 among registrant dun bradstreet corporation db enterprises inc 1031 stockholders agreement dated march 19 1993 registrant dun bradstreet corporation 1044 lease dated december 29 1994 soundview farms registrant related premises 56 top gallant road 70 gatehouse road 88 gatehouse road stamford connecticut 1061 long term incentive plan tenure plan including form employee stock purchase agreement 1072 1991 stock option plan amended including form stock option agreement 1081 1993 director stock option plan 1091 employee stock purchase plan 10103 1994 long term stock option plan 10114 forms master client agreement 10121 commitment letter dated july 16 1993 bank new york 10131 indemnification agreement dated april 16 1993 among registrant cognizant successor dun bradstreet corporation fund 10144 research sharing agreement dated may 17 1995 registrant soundview financial group 1015 commitment letter dated september 30 1996 chase manhattan bank 111 computation net income per common share 13 managements discussion analysis financial condition results operations consolidated financial statements supplementary data 1615 letter regarding change certifying accountants 211 subsidiaries registrant 231 independent auditors report schedule 232 accountants consent 233 report independent accountants 234 report independent accountants financial statement schedule 241 power attorney management contract compensation plan arrangement required filed exhibit report form 10k pursuant item 14c report 1 incorporated reference registrants registration statement form s1 file 3367576 amended effective october 4 1993 2 incorporated reference registrants registration statement form s8 filed november 3 1994 3 incorporated reference registrants registration statement form s8 filed may 18 1995 4 incorporated reference registrants registration statement form 10k filed december 21 1995 5 incorporated reference current report form 8k filed october 1 1996 b reports form 8k company filed report form 8k dated october 1 1996 c exhibits see financial statement schedules see signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report form 10k signed behalf undersigned thereunto duly authorized city stamford state connecticut 17th day december 1996 gartner group inc manuel fernandez manuel fernandez president chairman board chief executive officer power attorney know person presents person whose signature appears hereby constitutes appoints manuel fernandez john f halligan acting individually attorneyinfact full power substitution capacities sign amendments report form 10k file exhibits thereto documents connection therewith securities exchange commission hereby ratifying confirming signatures may signed said attorney amendments said report pursuant requirements securities exchange act 1934 registration statement signed following persons capacities dates indicated gartner group inc schedule ii valuation qualifying accounts amounts thousands 1 allowances 121000 27000 162000 assumed upon acquisitions entities fiscal 1996 1995 1994 respectivelyitem 14 exhibits financial statement schedules reports form 8k 1 financial statements following consolidated financial statements incorporated herein reference 2000 annual report stockholders company response item 8 thereof independent auditors report ii consolidated balance sheets september 30 2000 1999 iii consolidated statements operations fiscal years ended september 30 2000 1999 1998 iv consolidated statements changes stockholders equity fiscal years ended september 30 2000 1999 1998 v consolidated statements cash flows fiscal years ended september 30 2000 1999 1998 vi notes consolidated financial statements 2 financial statement schedule ii valuation qualifying accounts schedules listed omitted information required applicable shown financial statements notes thereto 3 exhibits 1015 addendum 1 employment agreement manual fernandez gartner group inc april 14 2000 10169 employment agreement michael fleisher gartner group inc november 1 1999 1017 employment agreement regina paolillo gartner group inc july 1 2000 10186 employment agreement william r mcdermott gartner group inc dated august 7 2000 1019 employment agreement robert e knapp gartner group inc dated august 7 2000 131 annual report stockholders 211 subsidiaries registrant 231 independent auditors report financial statement schedule 232 independent auditors consent 241 power attorney see signature page 271 financial data schedules management compensation plan arrangement 1 incorporated reference companys registration statement form s1 file 3367576 amended effective october 4 1993 2 incorporated reference companys annual report form 10k filed december 21 1995 3 incorporated reference companys annual report form 10k filed december 17 1996 4 incorporated reference companys registration statement form 8a filed july 7 1999 5 incorporated reference companys annual report form 10k filed december 22 1999 6 incorporated reference companys quarterly report form 10q filed august 14 2000 7 incorporated reference companys form 8k dated february 9 2000 filed march 7 2000 8 incorporated reference companys tender offer statement schedule 13e4 filed july 27 1999 9 incorporated reference companys quarterly report form 10q filed may 12 2000 10 incorporated reference companys form 8k dated april 17 2000 filed april 25 2000 b reports form 8k reports form 8k filed company fiscal quarter ended september 30 2000 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant caused report signed behalf undersigned thereunto duly authorized december 29 2000 gartner group inc michael fleisher michael fleisher chief executive officer power attorney person whose signature appears constitutes appoints michael fleisher regina paolillo acting individually attorneyinfact full power substitution capacities sign amendments report form 10k file appropriate exhibits related documents securities exchange commission undersigned ratifies confirms signatures may signed attorney amendments said report pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated gartner group inc schedule ii valuation qualifying accounts amounts thousands 1 allowances 46 274 recorded upon acquisitions entities years ended september 30 2000 1999 respectively 2 amounts written exhibit index 1015 addendum 1 employment agreement manual fernandez gartner group inc april 14 2000 10169 employment agreement michael fleisher gartner group inc november 1 1999 1017 employment agreement regina paolillo gartner group inc july 1 2000 10186 employment agreement william r mcdermott gartner group inc dated august 7 2000 1019 employment agreement robert e knapp gartner group inc dated august 7 2000 131 annual report stockholders 211 subsidiaries registrant 231 independent auditors report financial statement schedule 232 independent auditors consent 241 power attorney see signature page 271 financial data schedules management compensation plan arrangement 1 incorporated reference companys registration statement form s1 file 3367576 amended effective october 4 1993 2 incorporated reference companys annual report form 10k filed december 21 1995 3 incorporated reference companys annual report form 10k filed december 17 1996 4 incorporated reference companys registration statement form 8a filed july 7 1999 5 incorporated reference companys annual report form 10k filed december 22 1999 6 incorporated reference companys quarterly report form 10q filed august 14 2000 7 incorporated reference companys form 8k dated february 9 2000 filed march 7 2000 8 incorporated reference companys tender offer statement schedule 13e4 filed july 27 1999 9 incorporated reference companys quarterly report form 10q filed may 12 2000 10 incorporated reference companys form 8k dated april 17 2000 filed april 25 2000item 14 principal accountant fees services information required furnished pursuant item set forth caption “principal accountant fees services” company’s proxy statement filed sec later april 29 2016 proxy statement filed sec april 29 2016 information included amendment annual report filed april 29 2016 part iv item 15item 14 principal accountant fees services information required furnished pursuant item set forth caption “principal accountant fees services” company’s proxy statement filed sec later april 30 2009 proxy statement filed sec april 30 2009 information included amendment annual report filed april 30 2009 part iv item 15item 14 principal accountant fees services information required furnished pursuant item set forth caption “principal accountant fees services” company’s proxy statement filed sec later april 30 2010 proxy statement filed sec april 30 2010 information included amendment annual report filed april 30 2010 part iv item 15 item 7 managements discussion analysis financial condition results operations managements discussion analysis financial condition results operations contained pages 13 19 1997 annual report stockholders registrant incorporated herein reference item 8item 7 managements discussion analysis financial condition results operations overview total revenues gartner group inc company fiscal 1998 6420 million 26 5112 million fiscal 1997 current year revenue growth consisted 25 increase advisory excluding consulting measurement services 15 decrease learning revenue 38 increase revenue principally consulting services conferences advisory measurement services encompass products ongoing basis highlight industry developments review new products technologies provide quantitative market research analyze industry trends within particular technology market sector provide comparative analysis information technology operations organizations company enters annually renewable contracts advisory measurement services revenues advisory measurement services learning recognized products services delivered companys obligation client completed contract period revenue increases advisory measurement services revenue came combined successes numerous new product introductions delivery platforms sales penetration new existing clients incremental revenue acquisitions decrease learning revenue primarily result sale gartnerlearning fourth quarter fiscal 1998 contract value increased 18 approximately 5967 million september 30 1998 versus date last year excluding contract value related gartnerlearning company believes contract value calculated annualized value advisory measurement contracts effect given point time without regard duration contracts outstanding time significant measure companys volume business historically company experienced substantial portion client companies renewed services equal higher level total payments year date annual revenues services fiscal year approximated contract value beginning fiscal year september 30 1998 approximately 85 companys clients renewed one services last twelve months however renewal rate necessarily indicative rate retention companys revenue base contract value time may indicative future advisory measurement revenues cash flows rate renewal advisory measurement services timing new business significantly change following twelve months compared historic patterns total deferred revenues 2911 million 2573 million september 30 1998 1997 respectively presented companys consolidated balance sheets represent unamortized revenues billed advisory measurement including learning gartnerlearning sold plus unamortized revenues certain billed products services included advisory measurement services deferred revenues directly correlate contract value date since contract value represents annualized value outstanding contracts without regard duration contracts deferred revenue represents unamortized revenue remaining outstanding billed contracts including advisory measurement services certain products services included advisory measurement revenue backlog september 30 1998 approximately 1220 million represents future revenues recognized multiyear early renewed advisory measurement contracts inprocess consulting engagements revenues recognized services products delivered backlog included deferred revenues contract value historically company realized significant renewals growth contract value end quarters fourth quarter fiscal year typically fastest growth quarter contract value first quarter fiscal year typically represents slowest growth quarter largest amount contact renewals due result quarterly trends contract value overall business volume fees receivable deferred revenues deferred commissions payable reflect activity typically show substantial increases quarter end particularly fiscal year end contracts billable upon signing absent special terms granted limited basis time contracts noncancelable nonrefundable except government contracts 30day cancellation clause produced material cancellations date companys policy record time signing advisory measurement contract entire amount contract billable deferred revenue fees receivable company also records related commission obligation upon signing contract amortizes corresponding deferred commission expense contract period related advisory measurement revenues earned amortized income historically advisory measurement revenues increased first quarter ensuing fiscal year immediately preceding quarter primarily due amount increase contract value end prior fiscal year revenues increased similarly due annual conferences exhibition events held first quarter additionally operating income margin operating income percentage total revenues typically improves first quarter fiscal year versus immediately preceding quarter operating income margin improvement first quarter fiscal year due part increase advisory measurement revenue upon company able leverage selling general administrative expenses plus operating income generated first quarter symposium itxpo exhibition events operating income margin generally high remaining quarters especially third fourth quarters fiscal year compared first quarter fiscal year operating income margins itxpo conferences first fiscal quarter higher conferences held later fiscal year additionally company historically increase level spending first quarter fiscal year rate growth contract value becomes known result growth operating expenses typically lagged behind growth revenues within given year operating income margin generally higher earlier quarters fiscal year operating income rose 23 1435 million fiscal 1998 22 total revenues 1166 million 23 total revenues fiscal 1997 fiscal 1998 company recorded two onetime costs reduced reported operating income first acquisitionrelated charge 45 million writeoff purchased inprocess research development costs connection acquisition interpose inc second nonrecurring charges 28 million relating costs associated relocation certain accounting order processing functions new facilities excluding charges operating income fiscal 1998 increased 29 1508 million compared prior year 23 total revenue fiscal 1998 operating income excluding charges increased result solid revenue growth coupled controlled spending allowed company gain economies scale leveraging resources additional revenues generated using essentially resources companys continued focus margin improvement favorably impacted operating results diluted net income per common share 084 fiscal 1998 compared last fiscal years 071 per common share excluding acquisitionrelated nonrecurring charges loss sale gartnerlearning diluted net income per common share 093 31 increase compared fiscal 1997 companys strong cash generation also continued fiscal 1998 company 2623 million total cash equivalents marketable securities september 30 1998 735 million 1887 million september 30 1997 analysis operations following table sets forth certain results operations percentage revenues fiscal year ended september 30 1998 versus fiscal year ended september 30 1997 total revenues increased 26 6420 million fiscal 1998 compared 5112 million fiscal 1997 revenues advisory excluding consulting measurement services increased 25 fiscal 1998 4947 million compared 3962 million fiscal 1997 comprised approximately 77 78 total revenues fiscal 1998 1997 respectively revenue learning business decreased 15 fiscal 1998 181 compared 213 fiscal 1997 comprised approximately 3 revenues fiscal 1998 versus 4 fiscal 1997 increase revenues advisory measurement services reflects continued client acceptance new products services sales penetration new existing clients incremental revenue acquisitions completed fiscal 1998 fiscal 1997 primarily datapro information services inc decrease learning revenue primarily result sale gartnerlearning fourth quarter fiscal 1998 revenues consisting principally revenues consulting services conferences increased 38 1292 million fiscal 1998 compared 937 million prior year increase primarily attributable companys symposia conferences itxpo exhibition events held annually first quarter fiscal year revenue new events acquired businesses well increased consulting revenues rate growth advisory measurement revenues continued strong two three defined geographic market areas company united states europe revenues sales united states clients increased 21 4030 million fiscal 1998 3330 million fiscal 1997 revenues sales european clients increased 51 1838 million fiscal 1998 1220 million fiscal 1997 sales international clients primarily asian south american markets areas decreased slightly 2 552 million fiscal 1998 562 million fiscal 1997 decrease caused primarily unfavorable exchange rate impact client concerns financial crisis asia companys sales strategy continues extend companys sales channels clients revenues ranging 150 million 2 billion addition companys historic focus larger customers europe international markets additional investment direct sales personnel distributor relationships also contributed overall revenue growth company intends continue expansion operations outside united states fiscal 1999 operating income increased 23 1435 million fiscal 1998 compared 1166 million fiscal 1997 excluding acquisitionrelated nonrecurring charges operating income fiscal 1998 increased 29 united states europe geographic areas experienced growth operating income fiscal 1998 18 44 increase respectively international geographic areas experienced slight decline operating income fiscal 1998 3 operating income percentage total revenues 23 fiscal 1998 1997 excluding mentioned charges operating income increased result solid revenue growth coupled controlled spending allowed company gain economies scale leveraging resources additional revenues generated using essentially resources companys continued focus margin improvement favorably impacted operating results costs expenses excluding acquisitionrelated nonrecurring charges increased 4911 million fiscal 1998 3946 million fiscal 1997 77 total revenues fiscal years cost services product development expenses 2479 million 2028 million fiscal 1998 1997 respectively increase expenses prior fiscal year reflects need provide additional support growing client base costs associated acquired business continued product development costs decrease cost services product development expenses percentage total revenues primarily attributable improved gross margins conferences lower delivery cost per dollar revenue due increased electronic delivery products well controlled discretionary spending reduced variable costs linked financial performance selling general administrative expenses 2159 million 1736 million fiscal 1998 1997 respectively increased result companys continuing expansion worldwide distribution channels resulting commissions earned revenue generated increase primarily result continued expansion worldwide distribution channels impact acquisitions although company added general administrative resources support growing revenue base selling general administrative expenses remained consistent 34 total revenues fiscal 1998 1997 respectively fiscal 1998 company incurred onetime charges reflected costs expenses february 1998 company acquired net assets interpose inc interpose provider total cost ownership measurement analysis tools training connection acquisition company recorded acquisitionrelated charge 63 million writeoff purchased inprocess research development costs december 10 1998 company revised amount expensed purchased inprocess research development costs 63 million 45 million change response recently developed guidance securities exchange commission second quarter fiscal 1998 company recorded nonrecurring charges primarily consisting relocation severance costs totaling approximately 28 million related companys relocation certain accounting order processing operations stamford connecticut new financial services center ft myers florida depreciation expense increased 179 million fiscal 1998 118 million fiscal 1997 primarily due capital spending required support business growth additionally amortization intangibles increased 29 million fiscal 1998 compared fiscal 1997 reflecting primarily goodwill associated fiscal 1998 1997 acquisitions september 1 1998 company sold gartnerlearning division company provided technology based training services netg inc netg subsidiary harcourt brace company 50 million cash 8 equity interest netg addition company received put option allows company sell 8 interest affiliate harcourt brace company 480 million cash put option may exercised two years beginning september 1 2002 certain conditions met companys 8 interest netg independently appraised value 425 million including related transaction costs 38 million pretax loss sale gartnerlearning approximately 20 million interest income net increased 96 million fiscal 1998 versus 73 million fiscal 1997 improvement resulted interest income accumulating higher balances cash equivalents marketable securities 2623 million september 30 1998 versus 1887 million september 30 1997 provision income taxes increased 24 120 million 628 million fiscal 1998 507 million fiscal 1997 effective tax rate 42 41 fiscal 1998 1997 respectively result sale gartnerlearning additional taxes 42 million incurred primarily due reversal nondeductible goodwill excluding additional taxes companys effective rate fiscal 1998 39 decrease two percentage points fiscal 1997 decrease due primarily ongoing tax planning initiatives detailed analysis changes provision income taxes provided note 10 notes consolidated financial statements fiscal year ended september 30 1997 versus fiscal year ended september 30 1996 total revenues increased 30 5112 million fiscal 1997 compared 3947 million fiscal 1996 revenues advisory excluding consulting measurement services increased 29 fiscal 1997 3962 million compared 3065 million fiscal 1996 comprised approximately 78 total revenues fiscal 1997 fiscal 1996 revenue learning increased 74 fiscal 1997 213 compared 122 fiscal 1996 comprised approximately 4 revenues fiscal 1997 versus 3 fiscal 1996 increase revenues advisory measurement learning services reflects primarily strong market acceptance new services introduced 1996 first half 1997 volume increases result increased geographic client penetration continuation volume pricing strategy provides value dollars year expansion electronic distribution within client companies incremental revenues acquisitions completed fiscal 1997 fiscal 1996 primarily datapro information services inc datapro j3 learning inc revenues consisting principally revenues conferences consulting services increased 23 937 million fiscal 1997 compared 759 million prior year increase primarily attributable additional conferences held fiscal 1997 increased revenue versus fiscal 1996 certain conferences expansion consulting services new geographic regions rate growth advisory measurement learning revenues continued strong three defined geographic market areas company united states europe international revenues sales united states clients increased 31 3330 million fiscal 1997 2535 million fiscal 1996 revenues sales european clients increased 24 1220 million fiscal 1997 988 million fiscal 1996 revenues sales international clients increased 33 562 million fiscal 1997 424 million fiscal 1996 increases reflect primarily continued results companys sales strategy extend companys sales channels clients revenues ranging 500 million 2 billion addition companys historic focus larger customers europe international markets additional investment direct sales personnel distributor relationships also contributed revenue growth company intends continue expansion operations outside united states operating income 1166 million fiscal 1997 compared 494 million fiscal 1996 excluding 349 million acquisitionrelated charges consisting primarily 322 million writeoff purchased inprocess research development costs connection acquisition j3 learning corporation operating income fiscal 1997 increased 38 three geographic areas experienced growth operating income fiscal 1997 139 130 138 increase united states europe international geographic areas respectively operating income percentage total increased 23 revenues fiscal 1997 versus 21 fiscal 1996 revenues excluding mentioned charges operating income increased result solid revenue growth coupled controlled spending allowed company gain economies scale leveraging resources additional revenues generated using essentially resources companys continued focus margin improvement favorably impacted operating results costs expenses excluding acquisitionrelated charges increased 3946 million fiscal 1997 3103 million fiscal 1996 costs decreased 77 total revenues 79 fiscal 1996 cost services product development expenses 2028 million 1530 million fiscal 1997 1996 respectively increase expenses prior fiscal year reflects need provide additional support growing client base including investment strategic areas electronic internet distribution costs associated implementation companys new client inquiry process quickpath product development costs particularly technologybased training products decrease cost services product development expenses percentage total revenues primarily attributable improved gross margins conferences compared prior year lower delivery cost per dollar revenue generated due increased electronic delivery services products selling general administrative expenses 1736 million 1445 million fiscal 1997 1996 respec tively increased result companys continuing expansion worldwide distribution channels resulting commissions earned revenue generated increase commission expense offset partially elimination andor reduction redundant general administrative expenses including personnel reductions facility rationalization relating acquisitions although company added general administrative resources support growing revenue base benefited economies scale leveraging general administrative staff facilities consequently selling general administrative expenses 34 total revenues fiscal 1997 compared 37 fiscal 1996 acquisitionrelated charges 349 million fiscal 1996 acquisitions dataquest inc dataquest j3 recurring fiscal 1997 depreciation expense increased 118 million fiscal 1997 91 million fiscal 1996 primarily due capital spending required support business growth additionally amortization intangibles increased 26 million fiscal 1997 compared fiscal 1996 reflecting primarily goodwill associated fiscal 1996 1997 acquisitions interest income net increased 73 million fiscal 1997 versus 37 million fiscal 1996 improvement resulted interest income accumulating companys cash equivalents marketable securities 1887 million september 30 1997 versus 1299 million september 30 1996 changes mix investments higher yielding investments reduced interest expense remaining debt related fiscal 1993 1994 acquisitions paid fiscal 1996 interest rates significant factor increase interest income earned fiscal 1997 versus fiscal 1996 provision income taxes increased 140 million 507 million fiscal 1997 367 million fiscal 1996 effective rate 41 69 fiscal 1997 1996 respectively absent nondeductible writeoff purchased inprocess research development costs effective tax rate fiscal 1996 43 decrease effective tax rate fiscal 1996 excluding acquisitionrelated charges due ongoing tax planning initiatives detailed analysis changes provision income taxes provided note 10 notes consolidated financial statements proposed recapitalization special cash dividend share repurchase november 12 1998 companys board directors approved agreement principle ims health inc ims health owns 476 million 47 companys class common stock undertake recapitalization company facilitate taxfree spinoff ims health equity position gartner group inc shareholders part recapitalization ims health exchange 407 million shares class common stock equal number shares new class b common stock company prior spinoff new class common stock entitled elect least 80 companys board directors otherwise substantially identical existing class common stock class b common stock distributed ims health shareholders taxfree distribution ims health continue hold 69 million shares class common stock spinoff intention ims health sell shares within one year spinoff subject certain conditions addition company agreed would pay onetime special cash dividend 3000 million shareholders record immediately prior ims health spinoff company also agreed would repurchase 3000 million class common stock open market spinoff exchange spinoff special cash dividend expected completed third quarter fiscal 1999 subject approval irs taxfree status spinoff approval recapitalization plan nonims health shareholders company share repurchase program commence spinoff expected completed within one year factors may affect future performance companys future operating results depend upon companys ability continue compete successfully market information products services company faces competition significant number independent providers similar services well internal marketing planning organizations companys clients company also competes indirectly information providers including electronic print media companies consulting firms addition limited barriers entry companys market additional new competitors could readily emerge assurance company able continue provide products services meet client needs information technology market rapidly evolves company otherwise continue compete successfully regard companys ability compete largely dependent upon quality staff analysts competition qualified analysts intense assurance company able hire additional qualified analysts may required support evolving needs customers growth companys business failure maintain premier staff analysts could adversely affect quality companys products services therefore future business operating results additionally may increased business risk company expands product service offerings smaller domestic companies companys operating results subject risks inherent international sales including changes market demand result exchange rate fluctuations tariffs barriers challenges staffing managing foreign sales operations higher levels taxation foreign income domestic income expansion would also require additional management attention financial resources liquidity capital resources company primarily financed operations date cash provided operating activities combination revenue growth operating margin improvements contributed increases cash provided operating activities fiscal 1998 1997 1996 addition cash flow enhanced companys continuing management working capital requirements support increased sales volumes growth preexisting businesses growth due acquisitions cash provided operating activities fiscal 1998 978 million compared 872 million prior fiscal year reflecting primarily impact increased operating income changes balance sheet accounts particularly fees receivable deferred revenues deferred commissions prepaid current assets cash used investing activities totaled 1452 million fiscal 1998 compared 843 million fiscal 1997 fiscal 1998 company used 475 million cash acquisitions primarily purchase vision events international inc 205 million interpose 75 million research board inc 64 million additionally company used 150 million investments unconsolidated businesses company also used 243 million purchase capital assets net purchases marketable securities 582 million cash provided financing activities totaled 629 million fiscal 1998 compared 446 million fiscal 1997 increase fiscal 1998 driven primarily 473 million credit additional paidin capital tax benefits received stock transactions employees 357 million issuance common stock upon exercise employee stock options tax benefit stock transactions employees due reduction corporate income tax liability based imputed compensation deduction equal employees gain upon exercise stock options exercise price fair market additional stock options become exercisable fiscal year companys stock option plans volumes option exercises increased thereby resulting significant tax benefits realized fiscal 1998 1997 increases partially offset net cash settlement 120 million forward purchase agreement companys common stock 139 million purchase treasury stock effect exchange rates reduced cash equivalents 02 million year ended september 30 1998 due strengthening us dollar versus certain foreign currencies fiscal 1997 effect exchange rates reduced cash equivalents 18 million september 30 1998 cash equivalents marketable securities totaled 2623 million addition company available two unsecured credit lines bank new york chase manhattan bank 50 million 250 million respectively lines may cancelled banks time without prior notice penalty additionally company issues letters credit ordinary course business company outstanding letters credit chase manhattan bank 41 million 20 million bank new york september 30 1998 company believes current cash balances maturing marketable debt securities together cash anticipated provided operating activities borrowings available existing lines credit sufficient expected shortterm cash needs company including possible acquisitions additionally mentioned company seeking recapitalization completed would require significant amount cash fund special dividend repurchase common shares company believes current cash balances maturing marketable debt securities expected cash generated operations companys ability borrow beyond current lines credit sufficient provide liquidity required company currently material capital commitments safe harbor statement private securities litigation reform act 1995 portions foregoing discussion include descriptions companys expectations regarding future trends affecting business forwardlooking statements made annual report well forwardlooking statements information provided company employees whether written oral made reliance upon safe harbor provisions private securities litigation reform act 1995 forwardlooking statements future results subject considered light risks uncertainties factors may affect future results including limited competition rapid changing technology regulatory requirements uncertainties international trade set forth factors may affect future performance common stock information since september 15 1998 companys class common stock listed trading new york stock exchange symbol prior september 15 1998 listed nasdaq national market company effected twoforone stock splits means stock dividends march 29 1996 june 28 1995 august 26 1994 earnings per share data presented herein restated retroactively reflect splits september 30 1997 company recorded conversion class b common stock class common stock one basis pursuant provision articles incorporation required conversion class b common stockholders voting equity fell certain ownership percentage considering exercisable options warrants outstanding fiscal 1998 companys class common stock traded within range daily closing prices 2194 4081 per share quarterly common stock prices september 30 1998 company paid cash dividends common stock discussed agreement principal recapitalize company includes special onetime cash dividend 3000 million paid shareholders record immediately prior planned spinoff ims health except proposed special onetime cash dividend subject certain irs shareholder approvals company currently intends retain future earnings use business anticipate additional cash dividends declared paid common stock foreseeable future year 2000 issues year 2000 problem results fact many technology systems designed using twodigit representation year portion date potential cause errors failures systems depend correct interpretation year cannot necessarily correctly interpret 00 year 2000 two issues generally considered part year 2000 problem fact year 2000 special case leap year b certain dates next years 9999 could misinterpreted codes special meanings 9999 means invalid record simple description common cause year 2000 problem many complete descriptions examples year 2000 guide practitioners problem manifest january 1 2000 year 2000 problem often described computer problem growing recognition issue extends far beyond conventional computers affects virtually every facet modern companys operations interfaces third parties companys year 2000 efforts organized around understanding addressing businesscritical functions six major areas could potentially affected year 2000 issues businesscritical functions defined whose failure significant disruption would material adverse impact companys business financial condition results operations involve safety risk employees customers supply chainsuppliers customers financial affiliates government agencies products servicesgoods created company customers information technology applicationsinhouse vendor business computer programs infrastructurecomputers communications call center systems nonit process systemssystems used create deliver companys products services nonit facilities systemssystems used monitor control companys places work office equipment potential ramifications year 2000 issue significant company believes taking full advantage internal resources necessary external resources understand identify correct year 2000 issues within control company recognizes significant unknowns hence potential risks outside control also take reasonable steps minimize impact exposures company made available timely information status year 2000 efforts employees status products customers absence significant factors outside control company expects fully prepared meet year 2000 minimal impact employees customers company expects made essential nonit systems year 2000 ready known failure dates january 1 2000 whichever sooner products company expected year 2000 ready known failure dates january 1 2000 whichever sooner daterelated problems revealed point fixed extra charge customer replaced product equal value company established global inquiry response process ensure timely clear consistent accurate documented responses requests information products services company expects take prudent reasonable steps validate year 2000readiness direct supply chain interfaces believes area continue represent significant level uncertainty business risk least first half year 2000 significant portion supply chain suffers year 2000related business disruption could material impact companys financial condition results operations companys definition year 2000 readiness definition year 2000 conformity requirements published british standards institution disc pd 200011998 expectations successful outcome based incorporation number best practices addressing year 2000 problem company formal global year 2000 program office headed chief information officer reports directly president staffed core project team senior managers representatives key worldwide business units year 2000 remediation work performed combination inhouse vendor personnel consistent normal business operations year 2000 progress issues reviewed regularly senior management team including legal counsel audit committee ensure timely appropriate management attention general employee communication programs increasing program office using compliancereporting riskassessment methodology provides classification system checklist domains including infrastructure applications procedures process systems facilities equipment products services supply chains methodology uses combined insights knowledge bases gartner groups research benchmarking consulting organizations company established standards compliance date testing document retention contingency plans company begun formal prioritization communication program material suppliers ascertain readiness significant company products undergo testing determine ability function correctly according date testing standards core suite accounting finance human resources applications replaced year 2000 compliant vendor packages remaining key inhouse developed applications analyzed potential date problems process remediated many components infrastructure nonit process systems nonit facilities systems replaced upgraded believed remaining noncompliant key components identified planned replacement upgrade accordance normal maintenance schedules company used standard cost accounting principles possible activitybased costing assign costs year 2000 activities company expects establish separate year 2000 account budget track significant fiscal 1999 year 2000 expenditures maintenance modification costs expensed incurred cost new systems capitalized according generally accepted accounting principles identified year 2000 expenses amounted 19 million fiscal 1998 forecast 52 million fiscal 1999 costs predominantly budgeted replacement upgrades nonit systems also include prorated personnel standard unit costs estimates include companys potential share year 2000 costs may incurred relation recent acquisitions need replace upgrade systems applications subject year 2000 errors anticipated factored regular improvements companys nonit technological environment result source funding year 2000 remediation efforts expected predominantly cash flow operations perhaps isolated incidences shortterm deferral discretionary projects company incurred expect material impact future earnings financial condition result year 2000 repair replacement activities company examined business impact associated six major areas described company believes limited products services exposure due nature products services well efforts expended todate area potential greatest risk supply chain risk somewhat mitigated diverse distributed characteristics suppliers customers fact company material single vendor source suppliers company contacted key suppliers customers ascertain year 2000 readiness questionnaires andor personal followup appropriate company developed reasonably likely worst case scenario based exploring wide range possible results year 2000 problems note expected relatively small probability reasonably likely worst case scenario would actually occur company believes scenario would result general economic downturn coupled sporadic problems basic infrastructure services scenario would probably affect companys revenues could change demand services note also possibility increased demand companys services related year 2000 company begun process identifying potential variants scenario expects develop business contingencies deal situations undiscovered issues related year 2000 issue potential adverse impact companys financial condition company plans carefully monitor developments key third party organizations identify alternatives needed promote integrity supply chain information sharing appropriate addition company begun process developing standards year 2000 contingency plans use guide process preparing likely case reasonably anticipated scenario companys plans address year 2000 problem based managements best judgments together information available date managements position based assumptions future events including continued availability certain resources third party modification plans factors assurance estimates prove accurate actual results could differ materially currently anticipated unanticipated failures resulting limited essential third parties b companys ability identify datesensitive systems c companys ability execute remediation efforts could materially impact companys business financial condition recently issued accounting standards june 1997 statement financial accounting standards 130 reporting comprehensive income fas 130 131 disclosures segments enterprise related information fas 131 issued fas 130 establishes standards reporting disclosure comprehensive income components full set generalpurpose financial statements statement requires items required recognized accounting standards components comprehensive income reported financial statement displayed prominence financial statements fas 131 establishes standards way public business enterprises report information operating segments annual financial statements requires enterprises report selected information operating segments interim financial reports issued stockholders currently required also establishes standards related disclosures products services geographic areas major customers company required adopt new disclosure standards first quarter fiscal 1999 march 1998 american institute certified public accountants issued statement position 981 sop 981 accounting costs computer software developed obtained internal use sop 981 requires companies capitalize certain costs computer software developed obtained internal use amortize costs softwares estimated useful life company required adopt sop 981 fiscal 2000 company currently evaluating effect adoption sop 981 companys financial position results operations june 1998 statement financial accounting standards 133 accounting derivative instruments hedging activities fas 133 issued fas 133 establishes new model accounting derivatives hedging activities statement requires derivatives recognized statement financial position either assets liabilities measured fair value company required adopt fas 133 fiscal 2000 company currently evaluating effect adoption fas 133 companys financial position results operations item 7aitem 7 managements discussion analysis financial condition results operations managements discussion analysis financial condition results operations contained pages 18 25 1999 annual report stockholders registrant incorporated herein reference item 7aitem 7 managements discussion analysis financial condition results operations forwardlooking statements addition historical information annual report contains forwardlooking statements within meaning section 27a securities act 1933 amended section 21e securities exchange act 1934 amended forwardlooking statements historical fact including statements regarding companys expectations beliefs hopes intentions strategies regarding future cases forwardlooking statements identified use words may expects believes plans anticipates estimates predicts potential continue words similar meaning forwardlooking statements subject risks uncertainties could cause actual results differ materially discussed implied forwardlooking statements factors might cause difference include limited discussed factors may affect future results readers place undue reliance forwardlooking statements reflect managements opinion date made except required law company disclaims obligation review update forwardlooking statements reflect events circumstances occur readers also carefully review risk factors described company reports filed securities exchange commission business strategy gartner research advisory firm helps business professionals use technology build guide grow enterprises company employs diversified business model leveraging unparalleled breadth depth research intellectual capital maintain enhance marketleading position brand franchise companys primary objective consistent revenue growth higher predictable profit moderated investment focused improving profitability free cash flow three core business segments maintaining position market leader among research advisory firms growing business relationships valuable clients profitability cash flow company number strategies improving operating margins increasing free cash flow including rigorous analysis assessment client product market portfolio reducing selling general administrative expenses percentage revenue 1 leveraging companys global infrastructure tightly control worldwide costs 2 maximizing inside sales model lower cost selling 3 focusing client growth valuable clients enhancing analyst productivity consultant utilization managing capital expenditures foreign exchange exposure tax planning selectively investing new initiatives aligned core competencies capable driving nearterm returns market leadership gartner far leading provider proprietary research analysis industry worlds preeminent source insight technology purchasing deployment companys global network professionals unrivalled brain trust provocative thought leadership gartner employs analysts data points competitor analysts advise 1000 executives day across 80 countries hundreds experienced gartner consultants combine objective independent research practical soughtafter business perspective focused market gartners events worlds largest kind gathering one highly qualified audiences senior business executives professionals purchasers vendors products services business relationships gartner serves approximately 10000 client organizations roughly half fortune 1000 great strength intimate understanding clients industries technologies employ expertise redefine transform businesses key strategy increase business volume valuable clients identifying relationships greatest sales potential expanding relationships possible offering strategically relevant research analysis diversified business model provides multiple entry points synergies facilitate increased client spending gartner research consulting events specific growth opportunities fiscal 2002 include gartnerg2 new research service designed specifically business executives gartner executive programs gartner exp conciergequality service personalized programs senior executives business measures research encompasses products ongoing basis highlight industry developments review new products technologies provide quantitative market research analyze industry trends within particular technology market sector provide comparative analysis operations organizations company typically enters annually renewable subscription contracts research products revenues research products deferred recognized ratably contract term consulting revenues primarily derived consulting measurement engagements strategic advisory services recognized work performed contract basis events revenues deferred recognized upon completion related symposium conference exhibition revenues includes software licensing fees recognized signed noncancellable software license exists delivery occurred collection probable companys fees fixed determinable revenue software maintenance deferred recognized ratably term maintenance agreement typically twelve months company believes following business measurements important indicators future revenues significant business segments contract value significant measure companys volume business companys past experience substantial portion client companies renew subscription products equal higher level year addition company able increase multiyear contracts 48 total contract value september 30 2001 40 september 30 2000 total research contract value decreased 7 approximately 5560 million september 30 2001 5992 million september 30 2000 decrease due primarily less favorable economic conditions led constrained spending september 11th terrorist attacks occurred three weeks companys fiscal year end impact foreign currency adjustments adjusting foreign exchange research contract value 4 total research deferred revenues 2635 million 2969 million september 30 2001 2000 respectively represent unamortized revenues billed products services deferred revenues directly correlate contract value date since contract value represents annualized value outstanding contracts without regard duration contracts deferred revenue represents unamortized revenue remaining outstanding billed contracts research contracts billable upon signing absent special terms granted limited basis time research contracts noncancelable nonrefundable except government contracts 30day cancellation clause produced material cancellations date exception certain government contracts permit termination companys policy record time signing contract entire amount contract billable fee receivable represents legally enforceable claim corresponding amount deferred revenue government contracts permit termination company bills client full amount billable contract records receivable equal earned portion contract addition company records deferred revenue contracts cash received deferred revenues attributable government contracts 245 million 338 million september 30 2001 2000 respectively addition september 30 2001 company billed yet collected 133 million government contracts permit termination accordingly company recorded receivable associated deferred revenue contracts company records commission obligation related research contracts upon signing contract amortizes corresponding deferred commission expense contract period related revenues earned consulting backlog increased 13 approximately 1190 million september 30 2001 1055 million september 30 2000 increase backlog reflects primarily growth strategic advisory services engagements deferred revenue events decreased 2 approximately 705 million september 30 2001 722 million september 30 2000 decrease due primarily less favorable economic conditions september 11th attacks including related impacts clients willingness travel historically research revenues typically increase first quarter fiscal year immediately preceding quarter primarily due increase contract value end prior fiscal year events revenues increased similarly due annual conferences exhibition events held first quarter additionally operating income margin operating income percentage total revenues typically improves first quarter fiscal year immediately preceding quarter due increase research revenue upon company able leverage selling general administrative expenses plus operating income generated first quarter symposium itxpo exhibition events although operating income margins generally high remaining quarters full year impact acquisitions strategic initiatives may result operating margin trends future comparable historical trends results operations fiscal year ended september 30 2001 versus fiscal year ended september 30 total revenues increased 11 9520 million fiscal 2001 compared 8546 million fiscal 2000 research revenue increased 5 fiscal 2001 5351 million compared 5098 million fiscal 2000 comprised approximately 56 60 total revenues fiscal 2001 2000 respectively consulting revenue increased 27 2655 million fiscal 2001 compared 2088 million fiscal 2000 comprised approximately 28 24 total revenues fiscal 2001 2000 respectively events revenue 1327 million fiscal 2001 increase 22 1086 million fiscal 2000 comprised approximately 14 total revenues fiscal 2001 versus 13 fiscal 2000 revenues consisting principally software licensing maintenance fees decreased 31 188 million fiscal 2001 274 million fiscal 2000 although growth rate total revenues declined slightly fiscal 2001 increase total revenues reflects ability company gain client acceptance new products services deliver high value consultative services increase sales penetration new existing clients develop incremental revenues prior year acquisitions see discussion segment results revenue grown three defined geographic market areas company united states canada europe international revenues sales united states canadian clients increased 12 6337 million fiscal 2001 5636 million fiscal 2000 revenues sales european clients increased 8 2482 million fiscal 2001 2303 million fiscal 2000 revenues sales international clients increased 16 702 million fiscal 2001 607 million fiscal 2000 companys sales strategy maintain focus large customers expand sales product service offerings different user bases within existing potential client companies key components strategy focus companys valuable accounts ensure relationships maintained expanded emphasis gartnerg2 gartner exp seat retention penetration amongst fortune 1000 companies company continues invest direct sales personnel distributor relationships europe international markets intends pursue continued expansion operations outside united states fiscal 2002 costs expenses excluding charges fiscal 2001 increased 8630 million 7705 million fiscal 2000 increase costs expenses reflects additional support required growing client base incremental costs associated conferences strategic investments included hiring additional project executives sales personnel first half fiscal 2001 spending sales productivity tools interactive initiatives fiscal 2001 company implemented certain measures including workforce reduction second half year reduce ongoing costs expenses cost services product development expenses 4396 million 3877 million fiscal 2001 fiscal 2000 respectively costs services product development expenses increased percentage total revenues 46 45 increase attributable growth personnel costs associated development delivery products services selling general administrative expenses increased 3701 million fiscal 2001 3419 million fiscal 2000 increase due recruiting facilities costs related growth company personnel well increases sales costs associated revenue growth depreciation expense increased 409 million fiscal 2001 278 million fiscal 2000 primarily due capital spending internal use software development costs required support business growth including launch new gartnercom web site january 2001 amortization intangibles 124 million fiscal 2001 130 million fiscal 2000 2001 company recorded charges 466 million charges 248 million associated companys workforce reduction announced april 2001 workforce reduction resulted elimination 383 positions approximately 8 companys workforce approximately 143 million charges associated writedown goodwill longlived assets net realizable value result companys decision discontinue certain unprofitable products 75 million charge associated primarily writeoff internally developed systems connection launch gartnercom seatbased pricing september 30 2001 66 million termination benefits relating workforce reduction remain paid primarily first quarter fiscal 2002 company funding costs operating cash flows operating income decreased 49 425 million fiscal 2001 compared 841 million fiscal 2000 fiscal 2001 united states canada europe markets experienced declines operating income 49 21 respectively international markets experienced operating loss year operating results impacted charges recorded fiscal 2001 consolidated basis operating income percentage total revenues 4 10 respectively fiscal 2001 2000 operating income impacted part charges costs associated rearchitecture companys web capabilities research methodology delivery processes higher growth lower margin consultative services excluding charges operating income fiscal 2001 94 total revenues company decreased staff approximately 8 second half fiscal 2001 fourth quarter decreased expense revenue ratio selling general administrative expense 24 percentage points compared fourth quarter last year result companys cost reduction initiatives operating margin improved 79 first six months fiscal year 108 second half excluding charges net loss sale investments fiscal 2001 06 million includes sale companys remaining 1922795 shares jupiter media metrix jupiter net cash proceeds 75 million pretax loss 56 million offset part sale shares received companys venture capital funds si venture associates si venture fund ii si ii net cash proceeds 60 million pretax gain 49 million net gain sale investments fiscal 2000 reflects sale 1995950 shares jupiter net cash proceeds 555 million pretax gain 429 million gain partially offset sale companys 8 investment netg inc subsidiary harcourt inc affiliate harcourt inc 360 million cash resulted pretax loss approximately 66 million company acquired investment consideration sale gartnerlearning september 1998 addition fiscal 2000 company settled claim arising sale gartnerlearning netg inc claim asserted company breached contractual commitment joint venture coproduce product business sold claim settled approximately 67 million recorded loss sale investments net loss minorityowned investments fiscal 2001 268 million primarily result impairment losses related investments owned company si ii directly owned investments temporary declines value investments comprised early midstage itbased internetenabled companies company made assessment carrying value investments determined certain investments excess fair value due significance duration decline valuation comparable companies operating internet technology sectors see note 5 investments notes consolidated financial statements impairment factors evaluated management may change subsequent periods given entities underlying investments operate volatile business environment addition entities may require additional financing meet cash operational needs however assurance funds available extent needed terms acceptable entities could result additional material noncash impairment charges future interest expense decreased 224 million fiscal 2001 249 million fiscal 2000 decrease related primarily lower interest rates lower revolving credit borrowings compared fiscal 2000 interest income 16 million fiscal 2001 39 million fiscal 2000 due lower average balance funds available investment due lower interest rates expense net increased 37 million fiscal 2001 07 million fiscal 2000 increase relates primarily foreign currency exchange losses provision income taxes continuing operations benefit 92 million fiscal 2001 compared provision 364 million fiscal 2000 effective tax rate 2001 less impact onetime tax benefit 145 million due utilization foreign tax credits second half year charges losses investments related tax impact 37 compared 40 fiscal 2000 decrease effective tax rate fiscal 2000 due ongoing tax planning initiatives detailed analysis changes provision benefit income taxes provided note 14 notes consolidated financial statements diluted income loss per common share continuing operations decreased 000 per share fiscal 2001 compared 062 per share fiscal 2000 084 per share fiscal 1999 excluding effect charges 466 million losses investments 275 million net tax benefits 186 million aggregate items certain onetime tax benefits 145 million diluted income per common share continuing operations 047 per share fiscal 2001 excluding effect net gain investments 289 million net taxes 116 million diluted net income per common share continuing operations 042 per share fiscal 2000 excluding effect charges related companys recapitalization 234 million net tax benefits 60 million items plus onetime tax benefit 25 million diluted income per common share continuing operations 098 per common share fiscal 1999 basic income loss per common share continuing operations 000 per common share fiscal 2001 compared 063 per common share fiscal 2000 087 per common share fiscal 1999 july 2 2001 company sold subsidiary techrepublic cnet networks inc cnet approximately 230 million cash common stock cnet reduction certain termination benefits proceeds 143 million cash 755058 shares cnet common stock fair market value 1221 per share july 2 2001 july 2 2001 september 30 2001 market value cnet shares declined substantially accordingly company recorded 39 million impairment charge net loss minorityowned investments representing temporary decline market value cnet common stock consolidated financial statements company restated reflect disposition techrepublic segment discontinued operation accordance apb opinion 30 accordingly revenues costs expenses assets liabilities cash flows techrepublic excluded respective captions consolidated statements operations consolidated balance sheets consolidated statements cash flows reported date disposition loss discontinued operation net assets discontinued operation net cash used discontinued operation periods presented 2001 company recorded pretax loss 664 million 399 million tax recognize loss sale techrepublic pretax loss includes writedown 424 million assets primarily goodwill net realizable value operating losses date sale 65 million severance related benefits 83 million salerelated costs expenses including costs associated closure facilities 92 million segment analysis company evaluates reportable segment performance allocates resources based gross contribution margin gross contribution defined operating income excluding certain selling general administrative expenses depreciation amortization intangibles charges research revenues grew 5 5351 million fiscal 2001 compared 5098 million prior fiscal year increase due primarily higher client retention north america continued successful migration clients legacy seatbased pricing increased penetration new buying centers within existing clients continued focus growth gartnerg2 gartner exp new pricing structure provides broader access research compared traditional individual research subscription fiscal 2001 company launched gartnerg2 new research service designed specifically help business executives grow companies company expects gartnercom web site launch gartnerg2 facilitate continued penetration within existing client base well ability add new clients research gross contribution fiscal 2001 increased 3526 million 3411 million fiscal 2000 gross contribution margin decreased slightly 66 fiscal 2001 67 fiscal 2000 primarily result investments gartnercom launch gartnerg2 gross contribution margin increased 67 second half fiscal 2001 64 first half due large part cost reduction measures instituted year consulting revenues grew 27 2655 million fiscal 2001 compared 2088 million prior fiscal year increase due primarily increase number projects increased project size increases billing rates consulting gross contribution increased 15 869 million fiscal 2001 757 million fiscal 2000 consulting gross contribution margin 33 fiscal 2001 decreased 36 fiscal 2000 primarily due increases compensation expense related hiring additional personnel first half fiscal 2001 coupled increase nonbillable services training participation annual symposia events increased selling activity gross contribution margin increased 40 second half fiscal 2001 23 first half due large part cost reduction measures instituted year company intends reduce rate investment consulting improve consultant productivity effort improve profitability events revenues grew 22 1327 million fiscal 2001 compared 1086 million prior fiscal year increase due greater attendance existing new events increased sponsorships exhibit revenues events gross contribution increased 26 636 million fiscal 2001 506 million fiscal 2000 gross contribution margin 48 2001 compared 47 fiscal 2000 increase gross contribution margin due ability company leverage existing events overall increase sponsorship exhibitor sales fiscal year ended september 30 2000 versus fiscal year ended september 30 total revenues increased 16 8546 million fiscal 2000 compared 7342 million fiscal 1999 research revenue increased 6 fiscal 2000 5098 million compared 4790 million fiscal 1999 comprised approximately 60 65 total revenues fiscal 2000 1999 respectively consulting revenue increased 39 2088 million fiscal 2000 compared 1498 million fiscal 1999 comprised approximately 24 total revenue fiscal 2000 versus 20 fiscal 1999 events revenue 1086 million fiscal 2000 increase 44 756 million fiscal 1999 revenues consisting principally software licensing maintenance fees experienced slight decrease 24 million 274 million fiscal 2000 298 million fiscal 1999 revenue grew three defined geographic market areas company united states canada europe international revenues sales united states canadian clients increased 19 5636 million fiscal 2000 4718 million fiscal 1999 revenues sales european clients increased 9 2303 million fiscal 2000 2121 million fiscal 1999 although european revenues increased fiscal 2000 rate growth less fiscal 1999 decrease growth rate attributable part research revenues remaining relatively unchanged fiscal 1999 result foreign exchange rates constant dollar basis revenues europe would increased 16 compared fiscal 1999 revenues sales international clients increased 21 607 million fiscal 2000 503 million fiscal 1999 increase reflected primarily general recovery economic climate asian markets fiscal 2000 compared fiscal 1999 costs expenses excluding charges fiscal 1999 increased 7705 million fiscal 2000 5774 million fiscal 1999 increase costs expenses reflected additional support required growing client base incremental costs associated conferences costs associated acquired businesses previously planned strategic investments included hiring additional consultants analysts project executives sales personnel spending sales productivity tools gartnercom initiatives cost services product development expenses 3877 million 2936 million fiscal 2000 fiscal 1999 respectively increase costs services product development expenses percentage total revenues 45 40 primarily attributable continuing growth personnel costs associated development delivery products services hiring personnel association planned strategic investments costs expenses fiscal 2000 also impacted amounts earned employees retention bonus program well performancerelated variable compensation expense incurred fiscal 2000 contrast costs expenses fiscal 1999 favorably impacted elimination variable compensation costs linked financial performance selling general administrative expenses increased 3419 million fiscal 2000 2522 million fiscal 1999 result companys continued expansion worldwide distribution channels additional general administrative resources needed meet expanding infrastructure requirements growing revenue base fiscal 2000 fiscal 1999 acquisitions infrastructure requirements involved information systems support telecommunication facilities human capital costs fiscal 1999 company recorded pretax charges totaling 92 million legal advisory fees related recapitalization see note 16 recapitalization notes consolidated financial statements 142 million costs primarily severance related incurred part strategic reduction workforce initiatives depreciation expense increased 278 million fiscal 2000 216 million fiscal 1999 primarily due capital spending required support business growth additionally amortization intangibles increased 30 million fiscal 2000 compared fiscal 1999 reflecting primarily goodwill associated fiscal 2000 1999 acquisitions operating income decreased 37 841 million fiscal 2000 compared 1334 million fiscal 1999 fiscal 2000 united states canada europe international markets experienced declines operating income 13 64 71 respectively consolidated basis operating income percentage total revenues 10 18 respectively fiscal 2000 1999 operating income impacted part expenditures related planned investments rearchitecture companys web capabilities research methodology delivery processes hiring analysts consultants higher growth lower margin consultative services net gain sale investments fiscal 2000 reflects sale 1995950 shares jupiter communications inc known jupiter media metrix net cash proceeds 555 million pretax gain 429 million gain partially offset sale companys 8 investment netg inc subsidiary harcourt inc affiliate harcourt inc 360 million cash resulted pretax loss approximately 66 million company acquired investment consideration sale gartnerlearning september 1998 addition gartner settled claim arising sale gartnerlearning netg inc claim asserted company breached contractual commitment joint venture arrangement coproduce product business sold claim settled approximately 67 million recorded loss sale investments interest expense increased 249 million fiscal 2000 13 million fiscal 1999 increase related primarily debt facility borrowings proceeds used primarily fund companys recapitalization prior fiscal year interest income decreased fiscal 2000 due primarily lower average balance investable funds compared prior fiscal year provision income taxes decreased 29 146 million 364 million fiscal 2000 510 million fiscal 1999 effective tax rate 40 37 fiscal 2000 fiscal 1999 respectively increase effective rate principally reflected impact nondeductible goodwill related acquisitions detailed analysis changes provision income taxes provided note 14 notes consolidated financial statements fiscal 2000 company entered second amendment credit agreement amendment company agreed refinance existing indebtedness repay full terminate term loans drawn existing credit agreement connection extinguishment term loan company wroteoff 29 million deferred debt issuance costs fourth quarter fiscal 2000 charge recorded net tax benefit 12 million extraordinary loss segment analysis company evaluates reportable segment performance allocates resources based gross contribution margin gross contribution defined operating income excluding certain selling general administrative expenses depreciation amortization intangibles charges research revenues grew 6 5098 million fiscal 2000 compared 4790 million prior fiscal year due increased sales penetration new existing clients contributing growth sales introduction new pricing architecture launched third quarter fiscal 2000 pricing plan provides broad access gartner research price per seat basis research gross contribution fiscal 2000 increased slightly 3411 million 3369 million fiscal 1999 gross contribution margin decreased 67 fiscal 2000 70 fiscal 1999 due primarily slower revenue growth increases compensation expenses associated headcount annual merit increases consulting revenues grew 39 2088 million fiscal 2000 compared 1498 million prior fiscal year due primarily increase demand consulting also contributing revenue growth full year impact prior year current year acquisitions consulting gross contribution increased 35 757 million fiscal 2000 559 million fiscal 1999 consulting gross contribution margin 36 fiscal 2000 decreased 37 fiscal 1999 primarily due impact integration costs lower margins associated new strategic consulting practices recent consulting related acquisitions events revenues grew 44 1086 million fiscal 2000 compared 756 million prior fiscal year due growth attendance existing new events increased sponsorships exhibit revenues events gross contribution increased 56 506 million fiscal 2000 325 million fiscal 1999 gross contribution margin increasing 47 2000 43 fiscal 1999 increase events gross contribution margin due ability company leverage existing event infrastructure selected price adjustments overall increase sponsorship exhibitor sales liquidity capital resources cash provided operating activities fiscal 2001 735 million compared 1043 million prior fiscal year decrease primarily due lower operating income impacted termination payments associated workforce reduction changes balance sheet accounts cash used investing activities totaled 446 million fiscal 2001 compared 986 million used investing activities fiscal 2000 cash used investing activities fiscal 2001 2000 included 575 million 546 million respectively additions property equipment leasehold improvements additions property equipment leasehold improvements primarily result investments gartnercom infrastructure systems partially offset proceeds sale marketable securities discontinued operations 144 million 105 million respectively cash used investing activities fiscal 2000 included 1152 million cash used acquisitions primarily purchase techrepublic inc 785 million computer financial consultants limited 160 million rendall associates inc 120 million partially offset proceeds sale marketable securities investments 555 million 360 million respectively cash used financing activities totaled 189 million fiscal 2001 compared 10 million cash provided financing activities fiscal 2000 cash used financing activities fiscal 2001 resulted primarily purchase treasury stock 379 see discussion stock repurchases net proceeds borrowings companys credit facility 150 million 91 million proceeds issuance common stock employee stock purchase plan exercise stock options partially offset cash used financing activities fiscal 2000 included 4200 million borrowings credit facility issuance convertible notes see note 10 debt notes consolidated financial statements offset repayments 3700 million borrowings credit facility additionally company paid 499 million repurchase shares terms recapitalization plan well 82 million settlement forward purchase agreement companys common stock see discussion stock repurchases cash provided financing activities fiscal 2000 also includes 131 million proceeds issuance common stock upon exercise employee stock options employee stock purchase plan total cash used discontinued operations 342 million fiscal 2001 301 million fiscal 2000 stock repurchases company completed required open market purchases pursuant recapitalization plan 54 million purchase fiscal 2001 662363 shares class common stock 4128 shares class b common stock shares purchased open market since july 1999 plan totaled 5166691 shares july 19 2001 companys board directors approved repurchase 750 million class b common stock repurchases made time next two years subject availability stock prevailing market conditions market price stock companys financial performance repurchases funded cash flow operations possible borrowings companys existing credit facility repurchases made proportionately shares two classes common stock part repurchase program august 29 2001 company purchased 1867149 shares class common stock 988 per share ims health inc fourth quarter fiscal 2001 company purchased additional 451000 shares class common stock 7960 shares class b common stock open market average price 942 per share purchases taken together cost 229 million addition fiscal 2001 company also purchased 1164154 shares class common stock early termination forward purchase agreement cost 97 million fiscal 2000 company paid 499 million repurchase 2493500 shares class common stock 2006700 shares class b common stock terms recapitalization plan september 30 2001 cash equivalents totaled 371 million effect exchange rates reduced cash equivalents 04 million year ended september 30 2001 due strengthening us dollar certain foreign currencies fiscal 2000 effect exchange rates reduced cash equivalents 38 million company 2000 million unsecured senior revolving credit facility jpmorgan chase bank september 30 2001 150 million outstanding facility company subject certain customary affirmative negative financial covenants credit facility continued compliance covenants could preclude company borrowing maximum amount credit facilities result covenants companys borrowing availability september 30 2001 1237 million company also issues letters credit ordinary course business september 30 2001 company letters credit outstanding jpmorgan chase bank 08 million bank new york 20 million company also outstanding convertible notes principal amount 3262 million september 30 2001 notes due payable april 17 2005 april 17 2003 subject satisfaction certain customary conditions company may redeem convertible notes cash provided 1 average closing price class common stock twenty consecutive trading days immediately preceding date redemption notice given equals exceeds 150 adjusted conversion price 2 closing price class common stock trading day immediately preceding date redemption notice given also equals exceeds 150 adjusted conversion price 745 per share redemption price face amount notes plus accrued interest company initiates redemption silver lake option receiving payment cash stock combination cash stock commencing april 18 2003 silver lake may elect convert portion notes stock silver lake initiates conversion company option redeeming notes cash price based number shares notes would converted market price date notice conversion given maturity date april 17 2005 company must satisfy remaining notes cash letters credit issued company ordinary course business september 30 2001 company outstanding letters credit bank new york 20 million jpmorgan chase bank 08 million company total remaining investment commitment si ii venture capital fund 74 million september 30 2001 remaining commitment expected funded fiscal 2002 company believes current cash balances together cash anticipated provided operating activities sale marketable equity securities borrowings available existing credit facility sufficient expected shortterm foreseeable longterm cash needs company ordinary course business company require substantial amounts additional capital pursue business opportunities may arise involving substantial investments additional capital assurances capital available company available commercially reasonable terms factors may affect future results company operates competitive rapidly changing environment involves numerous risks uncertainties beyond companys control addition company clients affected condition general economy following section discusses many risks uncertainties general economic conditions companys revenues results operations influenced general economic conditions general economic downturn recession anywhere world could negatively effect demand companys products services may substantially reduce existing potential client information technologyrelated budgets economic downturn may materially adversely affect companys business financial condition results operations including ability achieve continued customer renewals achieve new contract value backlog deferred events revenue recent less favorable economic conditions september 11th terrorist attacks occurred three weeks fiscal year end led constrained spending unwillingness part clients travel thereby impacting events business competitive environment company faces competition significant number independent providers information products services well internal marketing planning organizations companys clients company also competes indirectly consulting firms information providers including electronic print media companies indirect competitors could choose compete directly company future addition limited barriers entry exist markets company competes result additional new competitors may emerge existing competitors may start provide additional complementary services although companys market share increasing increased competition may result loss market share diminished value companys products services reduced pricing increased marketing expenditures company may successful cannot compete effectively quality research analysis timely delivery information customer service ability offer products meet changing market needs information analysis price hiring retention employees companys success depends heavily upon quality senior management sales personnel analysts consultants key personnel company faces competition qualified professionals among others technology companies market research firms consulting firms electronic print media companies personnel company attempts hire subject noncompetition agreements could impede companys shortterm recruitment efforts failure retain key personnel hire additional qualified personnel required support evolving needs clients growth companys business could adversely affect quality companys products services therefore future business operating results maintenance existing products services company operates rapidly evolving market companys success depends upon ability deliver high quality timely research analysis clients anticipate understand changing needs clients failure continue provide credible reliable information useful clients could material adverse effect future business operating results companys predictions prove wrong substantiated appropriate research companys reputation may suffer demand products services may decline introduction new products services market companys products services characterized rapidly changing needs information analysis maintain competitive position company must successfully continue enhance improve products services develop acquire new products services timely manner appropriately position price products services failure successfully could material adverse effect companys business results operations financial position addition company must continue improve methods delivering products services failure increase improve companys internet capabilities could adversely affect companys future business operating results technological advances may provide increased competition variety sources international operations substantial portion companys revenues derived international sales result companys operating results subject risks inherent international business activities including general political economic conditions country changes market demand result exchange rate fluctuations tariffs challenges staffing managing foreign operations changes regulatory requirements compliance numerous foreign laws regulations different overlapping tax structures higher levels united states taxation foreign income difficulty enforcing client agreements protecting intellectual property rights international jurisdictions additionally company relies local distributors sales agents international locations arrangements terminated company may able replace arrangement beneficial terms timely basis clients local distributor sales agent may want continue business company new agent branding company believes gartner brand critical companys efforts attract retain clients importance brand recognition increase competition increases company expects expand marketing activities promote strengthen gartner brand may need increase marketing budget hire additional marketing public relations personnel expend additional sums protect brand otherwise increase expenditures create maintain brand loyalty among clients company fails effectively promote maintain gartner brand incurs excessive expenses attempting companys future business operating results could materially adversely impacted investment activities company maintains investments equity securities private publicly traded companies direct ownership wholly partially owned venture capital funds companies invested primarily early midstage itbased internetenabled businesses risks related investments due nature volatile public markets include possibilities anticipated returns may materialize could significantly delayed addition entities may require additional financing meet cash operational needs however assurance funds available extent needed terms acceptable entities result companys financial results could materially impacted indebtedness company incurred significant indebtedness associated debt service could impair future operating results outstanding debt could limit amount cash additional credit available company turn could restrain companys ability expand enhance products services respond competitive pressures pursue business opportunities may arise future involve substantial investments additional capital pursuant terms 3000 million convertible notes issued company april 2000 see note 10 debt notes consolidated financial statements conversion price per share 745 result number shares class common stock issuable upon conversion notes 439 million shares class common stock september 30 2001 although company right redeem notes certain circumstances assurance company able obtain sufficient capital commercially reasonable basis order fund redemption turn could impact future business operating results organizational product integration related acquisitions company made may continue make acquisitions significant investments businesses offer complementary products services risks involved acquisition investment include possibility paying value company derives acquisition assumption undisclosed liabilities unknown unforeseen risks ability integrate successfully operations personnel acquired business ability retain key personnel acquired company time train sales force market sell products acquired company potential disruption companys ongoing business distraction management companys business enforcement companys intellectual rights company relies combination copyright patent trademark trade secrets confidentiality contractual procedures protect intellectual property rights despite companys efforts protect intellectual property rights may possible unauthorized third parties obtain use technology information company regards proprietary addition companys intellectual property rights may survive legal challenge validity provide significant protection company furthermore laws certain countries protect companys proprietary rights extent laws united states accordingly company may able protect intellectual property unauthorized thirdparty copying use could adversely affect companys competitive position agreements ims health incorporated connection recapitalization july 1999 company agreed certain restrictions business activity reduce risk ims health inc stockholders substantial tax liabilities associated spinoff ims health inc equity interest company also agreed assume risk tax liabilities company undertake certain business activities give rise liabilities result company may limited ability undertake acquisitions involving issuance significant amount stock unless company seek obtain ruling irs transaction give rise tax liabilities addition company certain limits purchasing common stock terms recapitalization possibility infringement claims third parties may assert infringement claims company regardless merits responding claim could time consuming result costly litigation require company enter royalty licensing agreements may offered available terms acceptable company successful claim made company fails develop license substitute technology companys business results operations financial position could materially adversely affected potential fluctuations operating results companys quarterly operating income may fluctuate future result number factors including timing execution research contracts performance consulting engagements timing symposia events amount new business generated company mix domestic international business changes market demand companys products services timing development introductions marketing new products services competition industry inability generate sufficient earnings cash flow achieve forecasts may impact operating activities share repurchase program activities euro conversion january 1 1999 eleven fifteen member countries european union established fixed conversion rates sovereign currencies new currency called euro adopted euro common legal currency 2001 twelfth country joined established fixed conversion rate sovereign currency euro 2002 participating countries adopt euro single currency participating countries issue new eurodenominated bills coins use cash transactions legacy currency longer legal tender transactions beginning july 1 2002 making conversion euro complete september 30 2001 company believe translation financial transactions euros significant effect companys results operations liquidity financial condition additionally company anticipate material impact euro conversion companys financial information systems currently accommodate multiple currencies costs associated adoption euro expected significant expensed incurred recently issued accounting standards june 2001 statement financial accounting standards 141 business combinations fas 141 statement financial accounting standards 142 goodwill intangible assets fas 142 issued fas 141 requires purchase method accounting used business combinations initiated completed june 30 2001 fas 141 also specifies criteria intangible assets acquired must meet recognized reported separately goodwill company anticipate adoption fas 141 material effect company fas 142 requires goodwill intangible assets indefinite lives longer amortized instead measured impairment least annually events indicate may impairment connection fas 142 transitional goodwill impairment evaluation company required perform assessment whether indication goodwill impaired date adoption accomplish company must identify reporting units determine carrying value reporting unit assigning assets liabilities including existing goodwill intangible assets reporting units date adoption company six months date adoption determine fair value reporting unit compare carrying amount reporting unit extent carrying amount reporting unit exceeds fair value reporting unit indication exists reporting unit goodwill may impaired company must perform second step transitional impairment test second step company must compare implied fair value reporting unit goodwill carrying amount reporting unit goodwill would measured date adoption implied fair value goodwill determined allocating fair value reporting unit assets recognized unrecognized liabilities reporting unit manner similar purchase price allocation accordance statement 141 residual fair value allocation implied fair value reporting unit goodwill second step required completed soon possible later end year adoption transitional impairment loss recognized cumulative effect change accounting principle companys statement operations fas 142 effective fiscal years beginning december 15 2001 early adoption permitted companies fiscal years beginning march 15 2001 company expects adopt fas 142 first quarter ended december 31 2001 extensive effort needed comply adopting fas 142 practicable reasonably estimate impact companys financial statements specifically whether required recognize transitional impairment losses cumulative effect change accounting principle september 30 2001 company unamortized goodwill 2168 million unamortized identifiable intangible assets 54 million amortization expense related goodwill identifiable intangible assets 91 million 33 million respectively fiscal year ended september 30 2001 june 2001 statement financial accounting standards 143 accounting asset retirement obligations fas 143 issued fas 143 addresses financial accounting reporting legal obligations associated retirement tangible longlived assets associated retirement costs result acquisition construction development normal operation longlived asset upon initial recognition liability asset retirement obligation fas 143 requires increase carrying amount related longlived asset retirement cost subsequently allocated expense using systematic rational method assets useful life fas 143 effective fiscal years beginning june 15 2002 adoption statement expected material impact companys financial position results operations august 2001 statement financial standards 144 accounting impairment disposal longlived assets fas 144 issued fas 144 supersedes statement financial accounting standards 121 accounting impairment longlived assets disposed accounting reporting provisions apb opinion 30 reporting results operationsreporting effects disposal segment business extraordinary unusual infrequently occurring events transactions fas 144 also amends arb accounting research bulletins 51 consolidated financial statements eliminate exception consolidation subsidiary control likely temporary fas 144 retains fundamental provisions fas 121 recognizing measuring impairment losses longlived assets held use longlived assets disposed sale resolving significant implementation issues associated fas 121 among things fas 144 provides guidance longlived assets used part group evaluated impairment establishes criteria longlived assets held sale prescribes accounting longlived assets disposed sale fas 144 effective fiscal years beginning december 15 2001 company currently evaluating effect adoption fas 144 companys financial position results operations item 7aitem 7 managements discussion analysis financial condition results operations forwardlooking statements addition historical information annual report contains forwardlooking statements forwardlooking statements historical fact including statements regarding expectations beliefs hopes intentions strategies regarding future cases forwardlooking statements identified use words may expects believes plans anticipates estimates predicts potential continue words similar meaning forwardlooking statements subject risks uncertainties could cause actual results differ materially discussed implied forwardlooking statements factors might cause difference include limited discussed factors may affect future results readers place undue reliance forwardlooking statements reflect managements opinion date made except required law disclaim obligation review update forwardlooking statements reflect events circumstances occur readers review carefully risk factors described reports filed securities exchange commission business strategy convergence business technology become increasingly important technology professionals also business executives independent objective research advisory firm helps business executives use technology build guide grow enterprises employ diversified business model leverages breadth depth research intellectual capital enabling us maintain grow marketleading position brand franchise strategy align resources infrastructure leverage intellectual capital additional revenue streams effective packaging campaigning crossselling products services diversified business model provides multiple entry points synergies facilitate increased client spending research consulting events key strategy increase business volume valuable clients identifying relationships greatest sales potential expanding relationships possible offering strategically relevant research analysis intend maintain balance 1 generating profitability streamlined cost structure 2 pursuing opportunities applying resources strict focus growing core research business primary objectives rigorous expense control leverage global infrastructure effectively control worldwide costs broaden use inside deskbased sales channel lower cost sales channels eliminate nonstrategic less profitable products processes geographic markets reduce cost delivery enhanced productivity client satisfaction continually analyze assess client product market portfolios optimize analyst productivity consultant utilization measures strengthen client retention rates indicators client satisfaction longterm research growth invest modestly initiatives aligned core competencies capable delivering results including limited gartner exp gartnerg2 refine product packaging delivery marketing sales account management capabilities increase percentage multiservice client relationships leverage expand existing client relationships key decisionmakers products services identify gain new clients within important target audience financial management increase liquidity strengthen balance sheet manage capital expenditures foreign exchange exposure tax planning business measures research revenues derived subscription contracts research products revenues research products deferred recognized ratably contract term consulting revenues recognized primarily percentage completion basis time materials basis work performed services provided contractbycontract basis events revenues deferred recognized upon completion related symposium conference exhibition revenues includes software licensing fees recognized signed noncancelable software license exists delivery occurred collection probable fees fixed determinable revenue software maintenance deferred recognized ratably term maintenance agreement typically twelve months believe following business measurements important performance indicators business segments revenue category business measurements research contract value represents value attributable subscriptionrelated research products recognize revenue ratable basis contract value calculated annualized value subscription research contracts effect specific point time without regard duration contract client retention rate represents measure client satisfaction renewed business relationships specific point time client retention calculated percentage basis dividing current clients also clients year ago clients year ago consulting backlog represents future revenue derived inprocess consulting measurement strategic advisory services engagements events deferred events revenue represents billings relates directly future symposia conferences exhibitions events revenues deferred recognized upon completion related symposium conference exhibition fluctuations quarterly operating results quarterly annual revenue operating income fluctuate result many factors including timing execution research contracts extent completion consulting engagements timing symposia events occur greater extent quarter ended december 31 amount new business generated mix domestic international business changes market demand products services timing development introduction marketing new products services competition industry potential fluctuations operating income could cause periodtoperiod comparisons operating results meaningful could provide unreliable indication future operating results critical accounting policies estimates preparation financial statements requires application appropriate accounting policies significant accounting policies described note 1 notes consolidated financial statements management considers policies discussed critical understanding financial statements application requires complex subjective judgements estimates specific risks critical accounting policies described revenue recognition recognize revenue accordance sec staff accounting bulletin 101 revenue recognition financial statements sab 101 revenue significant source accounted follows revenues research products deferred recognized ratably applicable contract term consulting revenues recognized primarily percentage completion basis time materials basis work performed services provided contractbycontract basis events revenues deferred recognized upon completion related symposium conference exhibition revenues principally software licensing fees recognized signed noncancelable software license exists delivery occurred collection probable fees fixed determinable uncollectible accounts receivable provisions bad debts recognized incurred measurement likely probable losses allowance uncollectible accounts receivable based historical loss experience aging outstanding receivables assessment current economic conditions financial health specific clients evaluation inherently judgmental requires material estimates valuation reserves periodically reevaluated adjusted information ultimate collectibility accounts receivable becomes available circumstances could cause valuation reserves increase include changes clients liquidity credit quality factors negatively impacting clients ability pay obligations come due quality collection efforts total trade receivables september 30 2002 2718 million allowance losses approximately 70 million provided total trade receivables september 30 2001 3059 million allowance losses approximately 56 million provided impairment investment securities charge earnings made market decline cost temporary management regularly reviews investment security impairment based criteria include length time extent market value less cost financial condition nearterm prospects issuer valuation comparable companies intent ability retain investment period time sufficient allow anticipated recovery market value total investments equity securities 127 million 185 million september 30 2002 2001 respectively see note 5 investments notes consolidated financial statements impairment goodwill intangible assets evaluation goodwill performed accordance sfas 142 goodwill intangible assets among requirements standard eliminated goodwill amortization upon adoption required initial assessment goodwill impairment within six months adoption least annually thereafter evaluation intangible assets performed periodic basis losses recorded assets carrying value recoverable future cash flows assessments require management estimate future business operations market economic conditions developing longterm forecasts goodwill evaluated impairment least annually whenever events changes circumstances indicate carrying value may recoverable factors consider important could trigger review impairment include following significant underperformance relative historical projected future operating results significant changes manner use acquired assets strategy overall business significant negative industry economic trends significant decline stock price sustained period market capitalization relative net book value accounting income taxes prepare consolidated financial statements estimate income taxes jurisdictions operate process involves estimating current tax exposure together assessing temporary differences resulting differing treatment items tax accounting purposes differences result deferred tax assets liabilities included within consolidated balance sheet assess likelihood deferred tax assets recovered future taxable income establish valuation allowance extent believe recovery likely contingencies loss reserves establish reserves severance costs contract terminations asset impairments result actions undertake streamline organization reposition certain businesses reduce ongoing costs estimates costs incurred complete actions future lease payments sublease income fair value assets severance related benefits based assumptions time actions initiated extent actual costs differ estimates reserve levels may need adjusted addition actions may revised due changes business conditions foresee time plans approved results operations fiscal year ended september 30 2002 versus fiscal year ended september 30 2001 total revenues decreased 6 9072 million fiscal 2002 compared 9629 million fiscal 2001 fiscal 2001 revenues cost services consulting segment reclassified include reimbursable outofpocket expenses accordance new accounting requirements adopted 2002 research revenue decreased 7 fiscal 2002 4964 million compared 5351 million fiscal 2001 comprised approximately 55 56 total revenues fiscal 2002 2001 respectively consulting revenue decreased 1 2737 million fiscal 2002 compared 2763 million fiscal 2001 comprised approximately 30 29 total revenues fiscal 2002 2001 respectively events revenue 1220 million fiscal 2002 decrease 8 1327 million fiscal 2001 comprised approximately 13 total revenues fiscal 2002 versus 14 fiscal 2001 revenues consisting principally software licensing maintenance fees decreased 20 151 million fiscal 2002 188 million fiscal 2001 revenue declined three defined geographic market areas united states canada europe international revenues sales united states canadian clients decreased 7 5953 million fiscal 2002 6419 million fiscal 2001 revenues sales european clients decreased 3 2421 million fiscal 2002 2500 million fiscal 2001 revenues sales international clients decreased 2 697 million fiscal 2002 711 million fiscal 2001 cost services product development expenses 4037 million 4505 million fiscal 2002 fiscal 2001 respectively cost services product development expenses decreased percentage total revenues 45 47 decrease attributable reduced personnel costs associated headcount reductions effective cost management events cost savings including reduced travel selling general administrative expenses decreased 3454 million fiscal 2002 3701 million fiscal 2001 decrease due reduced payroll associated lower headcount reduced travel telephone infrastructure costs across entire company depreciation expense increased 425 million fiscal 2002 409 million fiscal 2001 primarily due depreciation significant capital expenditures previous year internal use software development required support business also due amortization costs associated launch gartnercom january 2001 amortization intangibles 19 million fiscal 2002 124 million fiscal 2001 primary reason decrease early adoption sfas 142 year ended september 30 2001 goodwill amortization 95 million aftertax basis 84 million result adoption diluted earnings per share year ended september 30 2002 improved 009 fiscal 2002 recorded charges 172 million charges 100 million relates costs losses associated elimination excess facilities principally leased facilities ongoing lease costs losses associated sublease arrangements addition approximately 58 million charges associated workforce reduction announced january 2002 employee termination severance payments related benefits workforce reduction resulted elimination approximately 100 positions approximately 2 workforce time payment 53 million termination benefits fiscal year ended september 30 2002 remaining 14 million relates impairment certain databaserelated assets charges totaled 466 million fiscal year ended september 30 2001 charges 248 million associated workforce reduction announced april 2001 workforce reduction resulted elimination 383 positions approximately 8 workforce time payment 64 million 182 million termination benefits fiscal years ended september 30 2002 2001 respectively 248 million charge comprised employee termination severance payments related benefits approximately 143 million charges associated writedown goodwill longlived assets net realizable value result decision discontinue certain unprofitable products 75 million charge associated primarily writeoff internally developed systems retired connection launch gartnercom seatbased pricing september 30 2002 47 million remains paid relating charges recorded 2001 2002 payments expected made primarily next two three years funding costs operating cash flows operating income increased 964 million fiscal 2002 compared 425 million fiscal 2001 fiscal 2002 united states canadian european businesses experienced increase operating income 119 113 respectively international business experienced operating loss year slightly lower year ago consolidated basis operating income percentage total revenues 11 4 respectively fiscal 2002 2001 operating income impacted part charges 172 million 466 million fiscal 2002 2001 respectively additional costs associated rearchitecture internet capabilities research methodology delivery processes fiscal 2001 excluding charges operating income fiscal 2002 2001 13 9 respectively total revenues decreased staff approximately 8 second half fiscal 2001 2 midfiscal 2002 fourth quarter 2001 decreased expensetorevenue ratio associated cost services selling general administrative expenses various costreduction initiatives improvement operating income also impacted lower amortization intangibles due adoption sfas 142 amortization goodwill 95 million fiscal 2001 net gain loss sale investments year ended september 30 2002 reflected sale 748118 shares cnet networks inc cnet 60 million resulting pretax gain 08 million acquired investment partial consideration sale techrepublic cnet july 2001 net loss sale investments fiscal 2001 06 million includes sale remaining 1922795 shares jupiter media metrix jupiter net cash proceeds 75 million pretax loss 56 million offset part sale shares received venture capital funds si venture associates si venture fund ii si ii securities net cash proceeds 69 million pretax gain 50 million net loss minorityowned investments fiscal 2002 2001 24 million 268 million respectively primarily result impairment losses related investments owned us si ii directly owned investments temporary declines value investments comprised early midstage itbased internetenabled companies made assessment carrying value investments determined certain investments excess fair value due significance duration decline valuation comparable companies operating internet technology sectors see note 5 investments notes consolidated financial statements impairment factors evaluated management may change subsequent periods given entities underlying investments operate volatile business environment addition entities may require additional financing meet cash operational needs however assurance funds available extent needed terms acceptable entities could result additional material noncash impairment charges future intend sell investments owned si ii interest expense increased 229 million fiscal 2002 224 million fiscal 2001 increase relates primarily increased interest expense 6 convertible longterm debt compared fiscal 2001 interest income 18 million fiscal 2002 16 million fiscal 2001 due higher average balance funds available investment offset part lower interest earnings rates expense net decreased 02 million fiscal 2002 37 million fiscal 2001 decrease relates primarily lower foreign currency exchange losses 27 05 million gain sale business second quarter fiscal 2002 provision income taxes continuing operations 250 million fiscal 2002 compared benefit 92 million fiscal 2001 effective tax rate 34 year ended september 30 2002 effective tax rate 2001 less impact onetime tax benefit 145 million due utilization foreign tax credits second half 2001 charges losses investments related tax impact 37 reduction effective tax rate fiscal 2002 reflects ongoing tax planning elimination nondeductible amortization goodwill pursuant adoption sfas 142 detailed analysis changes provision benefit income taxes provided note 14 income taxes notes consolidated financial statements basic income loss per share continuing operations 058 per share fiscal 2002 compared 000 per share fiscal 2001 diluted income loss per share continuing operations 047 per share fiscal 2002 compared 000 per share fiscal 2001 elimination goodwill amortization accordance sfas 142 improved basic diluted income per share continuing operations 010 009 respectively fiscal 2002 compared fiscal 2001 segment analysis evaluate reportable segment performance allocate resources based gross contribution margin gross contribution defined operating income excluding certain selling general administrative expenses depreciation amortization intangibles charges research revenues 4964 million fiscal 2002 7 5351 million 2001 decline revenues due lower demand throughout entire technology sector overall weakness general economy researchs gross contribution fiscal 2002 decreased 7 3263 million 3526 million fiscal 2001 researchs gross contribution margin 66 fiscal 2002 2001 although revenues declined gross contribution margin remained flat part due reductions expenses decline gross contribution due lower revenues 2003 focus stabilizing growing contract value maintaining streamlined cost structure strategy expand research business larger clients research client retention rate 75 fiscal 2002 compared 74 fiscal 2001 total research contract value decreased 11 approximately 4960 million september 30 2002 5560 million september 30 2001 decrease contract value reflects decline demand throughout entire technology sector well overall weakness general economy consulting revenues 2737 million fiscal 2002 1 2763 million 2001 revenues fiscal 2002 reflect strategic reduction certain client segments geographies based market share competitive advantage client size factors reduction revenue partially offset increases average project size length consultings gross contribution increased 13 979 million fiscal 2002 869 million fiscal 2001 consultings gross contribution margin 36 fiscal 2002 increased 31 fiscal 2001 primarily due reduced expenses higher utilization rates higher billing rates continue focus larger engagements limited set practices markets achieve significant penetration reduced headcount eliminated expenses practice areas markets sufficient scale volume consulting backlog decreased 10 approximately 1076 million september 30 2002 1190 million september 30 2001 decrease backlog primarily reflects overall weakness general economy events revenues 1220 million fiscal 2002 8 1327 million 2001 decline primarily due 1 fewer events due strategic elimination less profitable unproven events expectation obtaining greater attendee exhibitor participation higherprofit events 2 overall weakness general economy 3 lower travel budgets events gross contribution increased 3 654 million fiscal 2002 636 million fiscal 2001 gross contribution margin 54 2002 compared 48 fiscal 2001 increase gross contribution margin due better cost management elimination less profitable events deferred events revenue decreased 24 approximately 536 million september 30 2002 705 million september 30 2001 decrease deferred events revenue due primarily less favorable economic conditions fewer events described subsequent events october 30 2002 announced expect incur estimated charge 25 million quarter ending december 31 2002 reductions facilities workforce continue align business resources revenue expectations october 30 2002 announced board directors approved change fiscal year september 30 december 31 change fiscal year end better align overall operations sales organization already operating december 31 year end correspond year end majority clients well competitors expect file audited form 10k transition report threemonth period ended december 31 2002 fiscal year ended september 30 2001 versus fiscal year ended september 30 2000 total revenues increased 12 9629 million fiscal 2001 compared 8625 million fiscal 2000 research revenue increased 5 fiscal 2001 5351 million compared 5098 million fiscal 2000 comprised approximately 56 59 total revenues fiscal 2001 2000 respectively consulting revenue increased 28 2763 million fiscal 2001 compared 2167 million fiscal 2000 comprised approximately 29 25 total revenues fiscal 2001 2000 respectively events revenue 1327 million fiscal 2001 increase 22 1086 million fiscal 2000 comprised approximately 14 total revenues fiscal 2001 versus 13 fiscal 2000 revenues consisting principally software licensing maintenance fees decreased 31 188 million fiscal 2001 274 million fiscal 2000 revenue grew three defined geographic market areas united states canada europe international revenues sales united states canadian clients increased 13 6419 million fiscal 2001 5695 million fiscal 2000 revenues sales european clients increased 8 2499 million fiscal 2001 2316 million fiscal 2000 revenues sales international clients increased 16 711 million fiscal 2001 614 million fiscal 2000 cost services product development expenses 4505 million 3956 million fiscal 2001 fiscal 2000 respectively costs services product development expenses increased percentage total revenues 47 46 increase attributable growth personnel costs associated development delivery products services selling general administrative expenses increased 3701 million fiscal 2001 3419 million fiscal 2000 increase due recruiting facilities costs related growth personnel well increases sales costs associated revenue growth depreciation expense increased 409 million fiscal 2001 278 million fiscal 2000 primarily due capital spending internal use software development costs required support business growth including launch new gartnercom web site january 2001 amortization intangibles 124 million fiscal 2001 130 million fiscal 2000 2001 recorded charges 466 million charges 248 million associated workforce reduction announced april 2001 workforce reduction resulted elimination 383 positions approximately 8 workforce approximately 143 million charges associated writedown goodwill longlived assets net realizable value result decision discontinue certain unprofitable products 75 million charge associated primarily writeoff internally developed systems connection launch gartnercom seatbased pricing september 30 2001 66 million termination benefits relating workforce reduction remained paid funding costs operating cash flows operating income decreased 49 425 million fiscal 2001 compared 841 million fiscal 2000 fiscal 2001 united states canadian european businesses experienced declines operating income 49 21 respectively international business experienced operating loss year operating results impacted charges recorded fiscal 2001 consolidated basis operating income percentage total revenues 4 10 respectively fiscal 2001 2000 operating income impacted part charges costs associated rearchitecture internet capabilities research methodology delivery processes higher growth lower margin consultative services excluding charges operating income fiscal 2001 9 total revenues decreased staff approximately 8 second half fiscal 2001 fourth quarter decreased expense revenue ratio selling general administrative expense 24 percentage points compared fourth quarter last year result cost reduction initiatives operating margin improved 8 first six months fiscal year 11 second half excluding charges net loss sale investments fiscal 2001 06 million includes sale remaining 1922795 shares jupiter net cash proceeds 75 million pretax loss 56 million offset part sale shares received venture capital funds si ii net cash proceeds 60 million pretax gain 50 million net gain sale investments fiscal 2000 reflects sale 1995950 shares jupiter net cash proceeds 555 million pretax gain 429 million gain partially offset sale 8 investment netg inc subsidiary harcourt inc affiliate harcourt inc 360 million cash resulted pretax loss approximately 66 million acquired investment consideration sale gartnerlearning september 1998 addition fiscal 2000 settled claim arising sale gartnerlearning netg inc claim asserted breached contractual commitment joint venture coproduce product business sold claim settled approximately 67 million recorded loss sale investments net loss minorityowned investments fiscal 2001 268 million primarily result impairment losses related investments owned us si ii directly owned investments temporary declines value made assessment carrying value investments determined certain investments excess fair value due significance duration decline valuation comparable companies operating internet technology sectors see note 5 investments notes consolidated financial statements impairment factors evaluated management may change subsequent periods given entities underlying investments operate volatile business environment addition entities may require additional financing meet cash operational needs however assurance funds available extent needed terms acceptable entities could result additional material noncash impairment charges future interest expense decreased 224 million fiscal 2001 249 million fiscal 2000 decrease related primarily lower interest rates lower revolving credit borrowings compared fiscal 2000 interest income 16 million fiscal 2001 39 million fiscal 2000 due lower average balance funds available investment due lower interest rates expense net increased 37 million fiscal 2001 07 million fiscal 2000 increase relates primarily foreign currency exchange losses provision income taxes continuing operations benefit 92 million fiscal 2001 compared provision 364 million fiscal 2000 effective tax rate 2001 less impact onetime tax benefit 145 million due utilization foreign tax credits second half year charges losses investments related tax impact 37 compared 40 fiscal 2000 decrease effective tax rate fiscal 2000 due ongoing tax planning initiatives detailed analysis changes provision benefit income taxes provided note 14 notes consolidated financial statements basic income loss per common share continuing operations 000 per common share fiscal 2001 compared 063 per common share fiscal 2000 diluted income loss per common share continuing operations decreased 000 per share fiscal 2001 compared 062 per share fiscal 2000 july 2 2001 sold subsidiary techrepublic cnet approximately 235 million cash common stock cnet reduction certain termination benefits proceeds 143 million cash 755058 shares cnet common stock fair market value 1221 per share july 2 2001 july 2 2001 september 30 2001 market value cnet shares declined substantially result recorded 39 million impairment charge net loss minorityowned investments representing temporary decline market value cnet common stock consolidated financial statements restated reflect disposition techrepublic segment discontinued operation accordance apb opinion 30 accordingly revenues costs expenses assets liabilities cash flows techrepublic excluded respective captions consolidated statements operations consolidated balance sheets consolidated statements cash flows reported date disposition loss discontinued operation net assets discontinued operation net cash used discontinued operation periods presented 2001 recorded pretax loss 664 million 399 million tax recognize loss sale techrepublic pretax loss includes writedown 424 million assets primarily goodwill net realizable value operating losses date sale 65 million severance related benefits 83 million salerelated costs expenses including costs associated closure facilities 92 million segment analysis research revenues grew 5 5351 million fiscal 2001 compared 5098 million prior fiscal year increase due primarily higher client retention north america continued successful migration clients legacy seatbased pricing increased penetration new buying centers within existing clients continued focus growth gartnerg2 gartner exp new pricing structure provides broader access research compared traditional individual research subscription fiscal 2001 launched gartnerg2 new research service designed specifically help business executives use technology enhance business growth productivity research gross contribution fiscal 2001 increased 3526 million 3411 million fiscal 2000 gross contribution margin decreased slightly 66 fiscal 2001 67 fiscal 2000 primarily result investments gartnercom launch gartnerg2 gross contribution margin increased 67 second half fiscal 2001 64 first half due large part cost reduction measures instituted year consulting revenues grew 28 2763 million fiscal 2001 compared 2167 million prior fiscal year increase due primarily increase number projects increased project size increases billing rates consulting gross contribution increased 15 869 million fiscal 2001 757 million fiscal 2000 consulting gross contribution margin 31 fiscal 2001 decreased 35 fiscal 2000 primarily due increases compensation expense related hiring additional personnel first half fiscal 2001 coupled increase nonbillable services training participation annual symposia events increased selling activity gross contribution margin increased 39 second half fiscal 2001 22 first half due large part cost reduction measures instituted year events revenues grew 22 1327 million fiscal 2001 compared 1086 million prior fiscal year increase due greater attendance existing new events well increased sponsorship exhibit revenues events gross contribution increased 26 636 million fiscal 2001 506 million fiscal 2000 gross contribution margin 48 2001 compared 47 fiscal 2000 increase gross contribution margin due leveraging existing events overall increase sponsorship exhibitor sales liquidity capital resources cash provided operating activities fiscal 2002 1456 million compared 735 million fiscal 2001 increase primarily due significantly higher income continuing operations lower amounts termination payments associated workforce reductions changes balance sheet working capital accounts cash used investing activities totaled 194 million fiscal 2002 compared 446 million used fiscal 2001 cash used investing activities fiscal 2002 2001 included 196 million 575 million respectively additions property equipment leasehold improvements additions fiscal 2002 primarily result investments infrastructure systems cash uses fiscal 2002 partially offset proceeds sale marketable securities 60 million additions property equipment leasehold improvements fiscal 2001 primarily result investments gartnercom infrastructure systems cash uses fiscal 2001 partially offset proceeds sale marketable securities discontinued operations 144 million 105 million respectively cash used business acquisitions 45 million 120 million fiscal 2002 2001 respectively cash used financing activities totaled 401 million fiscal 2002 compared 189 million fiscal 2001 cash used financing activities fiscal 2002 resulted primarily purchase treasury stock 470 million see discussion stock repurchases repayment credit facility loans 150 million offset part proceeds exercise stock options employee stock purchase plan 222 million cash used financing activities fiscal 2001 resulted primarily purchase treasury stock 379 million see discussion stock repurchases offset part proceeds credit facility borrowings 150 million proceeds exercise stock options employee stock purchase plan 91 million total cash used discontinued operations sold fiscal 2001 342 million fiscal 2001 301 million fiscal 2000 september 30 2002 cash equivalents totaled 1248 million effect exchange rates increased cash equivalents 17 million year ended september 30 2002 due weakening us dollar certain foreign currencies fiscal 2001 negative effect exchange rates reduced cash equivalents 04 million cash equivalents expected decline three months ended december 31 2002 due payment annual bonuses commissions sales force obligations commitments 2000 million unsecured senior revolving credit facility led jpmorgan chase bank september 30 2002 amounts outstanding facility subject certain customary affirmative negative financial covenants credit facility continued compliance covenants preclude us borrowing maximum amount credit facility time result covenants borrowing availability september 30 2002 1189 million april 17 2000 issued 3000 million 6 convertible subordinated notes silver lake partners lp certain silver lakes affiliates slp private placement transaction interest accrues semiannually corresponding increase face amount notes accordingly 463 million added face amount notes resulting balance outstanding 3463 million september 30 2002 notes due payable april 17 2005 april 17 2003 subject satisfaction certain customary conditions may redeem convertible notes provided 1 average closing price class common stock twenty consecutive trading days immediately preceding date redemption notice given equals exceeds 11175 150 adjusted conversion price 745 per share 2 closing price class common stock trading day immediately preceding date redemption notice given also equals exceeds 11175 redemption price face amount notes plus accrued interest initiate redemption slp option receiving payment cash class common stock conversion price 745 per share combination cash stock obligation initiate redemption commencing april 18 2003 prior date change control company slp may convert portion notes stock slp initiates conversion option redeeming notes cash market price common stock date notice conversion given additionally redeem notes cash response slps election convert notes class common stock would incur significant earnings charge time redemption equal difference market value class common stock time redemption conversion price 745 per share carrying value notes september 30 2002 notes convertible 466 million shares total market value 3771 million using september 30 2002 class common stock market price 810 per share maturity date april 17 2005 must satisfy remaining notes cash equal face amount notes plus accrued interest none notes redeemed converted date amount 4032 million also issue letters credit ordinary course business september 30 2002 letters credit outstanding jpmorgan chase bank 37 million bank new york 20 million others 01 million lease various facilities furniture computer equipment operating lease arrangements expiring 2003 2025 future commitments noncancelable operating lease agreements 28 million 24 million 21 million 18 million 17 million fiscal 2003 2004 2005 2006 2007 respectively obligations remaining september 30 2002 relative charges recorded fiscal 2001 second quarter fiscal 2002 47 million aggregate 41 million costs facility reductions principally lease payments 06 million involuntary employee termination severance benefits payments involuntary termination severance benefits made primarily next two quarters payments relating facility reductions made remaining lease terms majority occurring next two three years total remaining investment commitment si ii 59 million september 30 2002 may called si ii time believe current cash balances together cash anticipated provided operating activities borrowings available existing credit facility sufficient expected shortterm foreseeable longterm cash needs ordinary course business require substantial amounts additional capital pursue business opportunities may arise involving substantial investments additional capital possible redemption convertible notes assurances capital available us available commercially reasonable terms stock repurchases july 19 2001 board directors approved repurchase 750 million class b common stock july 25 2002 board directors increased authorized stock repurchase program 125 million class b common stock expect make repurchases time next two years open market purchases block trades otherwise repurchases subject availability stock prevailing market conditions trading price stock financial performance repurchases funded cash flow operations possible borrowings existing credit facility september 30 2002 repurchased 6791209 shares common stock approximately 698 million 125 million approved stock repurchase program average price 1028 per share stock repurchases summarized factors may affect future results operate competitive rapidly changing environment involves numerous risks uncertainties beyond control addition clients affected economy following section discusses many risks uncertainties economic conditions revenues results operations influenced economic conditions general particularly business conditions industry general economic downturn recession anywhere world could negatively effect demand products services may substantially reduce existing potential client information technologyrelated budgets current economic downturn united states globally led constrained spending impacted business may materially adversely affect business financial condition results operations including ability maintain continued customer renewals achieve contract value backlog deferred events revenue extent clients industry severe decline sector also significant impact spending acts terrorism war acts terrorism acts war unforeseen events may cause damage disruption properties business employees suppliers distributors clients could adverse effect business financial condition operating results events may also result economic slowdown united states elsewhere could adversely affect business financial condition operating results competitive environment face direct competition significant number independent providers information products services also compete indirectly consulting firms information providers including electronic print media companies may greater financial information gathering marketing resources indirect competitors could choose compete directly us future addition limited barriers entry exist markets compete result additional new competitors may emerge existing competitors may start provide additional complementary services additionally technological advances may provide increased competition variety sources although market share increasing increased competition may result loss market share diminished value products services reduced pricing increased marketing expenditures may successful cannot compete effectively quality research analysis timely delivery information customer service ability offer products meet changing market needs information analysis price renewal research business existing clients success depends renewals subscriptionbased research products services constituted 55 56 59 business years ended september 30 2002 2001 2000 respectively research subscription agreements terms generally range twelve thirty months ability maintain contract renewals subject numerous factors including described annual report client retention rates 75 74 years ended september 30 2002 2001 2000 respectively material decline renewal rates could adverse impact revenues financial condition nonrecurring consulting engagements consulting segment revenues constituted 30 29 25 business years ended september 30 2002 2001 2000 respectively consulting engagements typically projectbased nonrecurring ability replace consulting engagements subject numerous factors including described annual report material decline ability replace consulting arrangements could adverse impact revenues financial condition hiring retention employees success depends heavily upon quality senior management research analysts consultants sales key personnel face competition limited pool qualified professionals among others technology companies market research firms consulting firms financial services companies electronic print media companies greater ability attract compensate professionals personnel attempt hire subject noncompete agreements could impede shortterm recruitment efforts failure retain key personnel hire train additional qualified personnel required support evolving needs clients growth business could adversely affect quality products services therefore future business operating results maintenance existing products services operate rapidly evolving market success depends upon ability deliver high quality timely research analysis clients failure continue provide credible reliable information useful clients could material adverse effect future business operating results predictions prove wrong substantiated appropriate research reputation may suffer demand products services may decline addition must continue improve methods delivering products services costeffective manner failure increase improve electronic delivery capabilities could adversely affect future business operating results introduction new products services market products services characterized rapidly changing needs information analysis maintain competitive position must continue enhance improve products services develop acquire new products services timely manner appropriately position price new products services relative marketplace costs producing failure achieve successful client acceptance new products services could material adverse effect business results operations financial position international operations substantial portion revenues derived sales outside north america representing 34 33 34 business fiscal years ended september 30 2002 2001 2000 respectively result operating results subject risks inherent international business activities including general political economic conditions country changes market demand result exchange rate fluctuations tariffs trade barriers challenges staffing managing foreign operations changes regulatory requirements compliance numerous foreign laws regulations different overlapping tax structures higher levels united states taxation foreign income difficulty enforcing client agreements collecting accounts receivable protecting intellectual property rights international jurisdictions rely local distributors sales agents international locations arrangements terminated agent us may able replace arrangement beneficial terms timely basis clients local distributor sales agent may want continue business us new agent branding believe gartner brand critical efforts attract retain clients importance brand recognition increase competition increases may expand marketing activities promote strengthen gartner brand may need increase marketing budget hire additional marketing public relations personnel expend additional sums protect brand otherwise increase expenditures create maintain client brand loyalty fail effectively promote maintain gartner brand incur excessive expenses future business operating results could materially adversely impacted investment activities maintain investments equity securities private publicly traded companies direct ownership wholly partially owned venture capital funds companies invest primarily early midstage itbased internetenabled businesses numerous risks related investments due nature volatile public markets including significant delay failure anticipated returns addition entities may require additional financing meet cash operational needs however assurance funds available extent needed terms acceptable entities result financial results financial position could materially impacted indebtedness incurred significant indebtedness 3463 million convertible notes additionally 2000 million senior revolving credit facility incur significant additional indebtedness affirmative negative financial covenants debt facilities could limit future financial flexibility associated debt service costs could impair future operating results outstanding debt may limit amount cash additional credit available us could restrain ability expand enhance products services respond competitive pressures pursue future business opportunities requiring substantial investments additional capital maturity date april 17 2005 must satisfy remaining notes cash equal face amount notes plus accrued interest none notes redeemed converted date amount 4032 million payment amount could materially adversely impact future business operating results convertible notes commencing april 18 2003 sooner certain circumstances upon change control company holders 3463 million convertible notes may elect convert portion notes shares class common stock substantial portion notes converted note holders substantial number shares class common stock september 30 2002 notes convertible 466 million shares class common stock would constitute 362 combined class b common stock outstanding date based upon conversion price 745 per share holders elect convert notes may redeem see obligations commitments indebtedness redeem notes substantial portion notes converted holder notes slp become largest shareholder based upon shareholder base september 30 2002 turn may 1 give slp ability exercise significant control company 2 create significant dilution shareholders 3 may cause volatility stock price want redeem convertible notes response note holders election convert certain circumstances assurance able obtain sufficient capital commercially reasonable basis order fund redemption even could obtain sufficient capital fund redemption could materially adversely impact future business operating results organizational product integration related acquisitions made may continue make acquisitions significant investments businesses offer complementary products services risks involved acquisition investment include possibility paying value derive acquisition dilution interests current stockholders decreased working capital increased indebtedness assumption undisclosed liabilities unknown unforeseen risks ability integrate successfully operations personnel acquired business ability retain key personnel acquired company time train sales force market sell products acquired company potential disruption ongoing business distraction management business realization risks could adversely affect business enforcement intellectual property rights rely combination copyright patent trademark trade secret confidentiality noncompete contractual provisions protect intellectual property rights despite efforts protect intellectual property rights unauthorized third parties may obtain use technology information regard proprietary intellectual property rights may survive legal challenge validity provide significant protection us laws certain countries protect proprietary rights extent laws united states accordingly may able protect intellectual property unauthorized thirdparty copying use could adversely affect competitive position employees subject noncompete agreements noncompetition period expires former employees may compete us former employee chooses compete us prior expiration noncompetition period assurance successful efforts enforce noncompete provision possibility infringement claims third parties may assert infringement claims us regardless merits responding claim could time consuming result costly litigation require us enter royalty licensing agreements may offered available reasonable terms successful claim made us fail develop license substitute technology business results operations financial position could materially adversely affected agreements ims health incorporated connection recapitalization july 1999 agreed certain restrictions business activity reduce risk ims health stockholders substantial tax liabilities associated spinoff ims health equity interest us also agreed assume risk tax liabilities undertake certain business activities give rise liabilities result may limited ability undertake acquisitions involving issuance significant amount stock unless seek obtain ruling irs transaction give rise tax liabilities addition agreed certain limits purchase common stock terms recapitalization potential fluctuations operating results quarterly annual operating income may fluctuate future result many factors including timing execution research contracts typically occurs fourth calendar quarter extent completion consulting engagements timing symposia events also occur greater extent fourth calendar quarter amount new business generated mix domestic international business changes market demand products services timing development introduction marketing new products services competition industry inability generate sufficient earnings cash flow achieve forecasts may impact operating activities potential fluctuations operating income could cause periodtoperiod comparisons operating results meaningful may provide unreliable indication future operating results euro conversion effective january 1 2002 twelve fifteen member countries european union adopted euro single currency participating countries issued new eurodenominated bills coins use cash transactions effective july 1 2002 legacy currency longer legal tender transactions participating countries believe translation financial transactions euros significant effect results operations liquidity financial condition anticipate material impact euro conversion financial information systems accommodate multiple currencies costs associated adoption euro expected significant expensed incurred recently issued accounting standards november 2001 emerging issues task force reached consensus issue 0114 income statement characterization reimbursements received outofpocket expenses incurred consensus requires reimbursements received outofpocket expenses incurred characterized revenue statements operations outofpocket expenses incidental expenses incurred part ongoing operations include limited expenses related airfare mileage hotel stays outoftown meals photocopies telecommunication facsimile charges consensus must applied financial reporting periods beginning december 15 2001 reclassification prior periods comparability adopted consensus beginning second quarter fiscal year began january 1 2002 accordance consensus restated prior periods years ended september 30 2002 2001 2000 adoption consensus caused revenues cost services product development consulting segment increase 100 million 108 million 79 million respectively april 2002 statement financial accounting standards 145 rescission fasb statements 4 44 64 amendment fasb statement 13 technical corrections sfas 145 issued fasb statement 4 required gains losses extinguishment debt reported extraordinary items statement 64 related matter sfas 145 requires gains losses certain debt extinguishment reported extraordinary items use debt extinguishment part risk management strategy statement 44 issued establish transitional requirements motor carriers relative intangible assets transitions completed therefore statement 44 longer necessary sfas 145 also amends statement 13 requiring saleleaseback accounting certain lease modifications sfas 145 effective fiscal years beginning may 15 2002 2003 fiscal year provisions relating saleleaseback effective transactions may 15 2002 adoption sfas 145 expected material impact financial position results operations upon adoption 2003 extraordinary loss extinguishment debt net taxes 18 million 002 per share fiscal 2000 reclassified continuing operations july 2002 statement financial accounting standards 146 accounting costs associated exit disposal activities sfas 146 issued statement addresses financial accounting reporting costs associated exit disposal activities nullifies emerging issues task force issue eitf 943 liability recognition certain employee termination benefits costs exit activity including certain costs incurred restructuring principal difference sfas 146 eitf 943 relates timing liability recognition sfas 146 liability cost associated exit disposal activity recognized liability incurred eitf 943 liability exit cost recognized date entitys commitment exit plan provisions sfas 146 effective exit disposal activities initiated december 31 2002 adoption statement expected material impact financial position results operations approval finalization recent workforce facility reductions announced october 30 2002 initiated prior sfas 146 effective date item 7aitem 7 managements discussion analysis financial condition results operations forwardlooking statements addition historical information annual report contains forwardlooking statements forwardlooking statements historical fact including statements regarding expectations beliefs hopes intentions strategies regarding future cases forwardlooking statements identified use words may expect could believe plan anticipate estimate predict potential continue words similar meaning forwardlooking statements subject risks uncertainties could cause actual results differ materially discussed implied forwardlooking statements factors might cause difference include limited discussed factors may affect future results readers place undue reliance forwardlooking statements reflect managements opinion date made except required law disclaim obligation review update forwardlooking statements reflect events circumstances occur readers review carefully risk factors described reports filed securities exchange commission overview convergence business technology become increasingly important technology professionals also business executives independent objective research advisory firm helps business executives use technology build guide grow enterprises employ diversified business model leverages breadth depth research intellectual capital enabling us maintain grow marketleading position brand franchise strategy align resources infrastructure leverage intellectual capital additional revenue streams effective packaging campaigning crossselling products services diversified business model provides multiple entry points synergies facilitate increased client spending research consulting events key strategy increase business volume valuable clients identifying relationships greatest sales potential expanding relationships offering strategically relevant research analysis intend maintain balance 1 pursuing opportunities applying resources strict focus growing businesses 2 generating profitability streamlined cost structure organized three business segments research consulting events research products services highlight industry developments review new products technologies provide quantitative market research analyze industry trends within particular technology market sector consulting consists primarily consulting measurement engagements strategic advisory services paid oneday analyst engagements sas provide assessments cost performance efficiency quality focused industry events consists various symposia conferences exhibitions focused industry recently begun undertake plan ensure business units closely aligned client need market opportunity part process begun reorganize business three distinct business units gartner intelligence deliver content advice professionals technology vendors investors vehicles research events sas gartner executive programs offer membership peernetworking services chief information officers cios key executives offerings highly successful exp membership program gartner consulting focus customized engagements allow cios counterparts apply gartners knowledge specific business situations emphasis areas outsourcing management 10k10 organizing business units around distinct client segments allow us make existing products relevant accelerate development new products provide solutions specific client needs increase gartner value proposition overall part implementing plan analyzing whether impacts report business segments continue report segment information historically complete alignment financial reporting new structure analyze impact alignment believe following business measurements important performance indicators business segments executive summary operations financial position technology spending decreased steadily past years result sales related research declined well period focused stabilizing growing revenue core research business continued focus began yield desired outcome latter half calendar 2003 ended latter half 2003 two consecutive quarters sequential increases contract value seven consecutive quarters sequentially decreasing contract value research client retention rates steadily increased 78 december 31 2003 74 december 31 2002 believe technology market showing signs recovery believe realignment business units discussed previously help us grow expected recovery consulting business also ended year positive trend ended calendar 2003 two consecutive quarters sequential increases backlog five consecutive quarters sequential decreases part realignment previously discussed exiting certain less profitable consulting practices geographies expect realignment address suboptimal utilization rates lack scale regions events business continues deliver strong results particularly environment competitors survived emphasis managing events portfolio retain longtime successful events introduce promising new events resulted improved revenue performance achieved results hosting fewer events 57 calendar 2003 nine fewer calendar 2002 fourth quarter calendar 2003 made important change capital structure 6 convertible notes converted class common stock eliminated outstanding debt related interest expense ended year 376 million stockholders equity addition cash increased 110 million december 31 2002 230 million december 31 2003 repurchasing 43 million common stock strong financial resources support additional investments growth 10k11 fluctuations quarterly operating results quarterly annual revenue operating income fluctuate result many factors including timing symposia flagship event normally occurs fourth calendar quarter events amount new business generated mix domestic international business changes market demand products services changes foreign currency rates timing development introduction marketing new products services competition industry potential fluctuations operating income could cause periodtoperiod comparisons operating results meaningful could provide unreliable indication future operating results critical accounting policies estimates preparation financial statements requires application appropriate accounting policies significant accounting policies described note 1 notes consolidated financial statements management considers policies discussed critical understanding financial statements application requires complex subjective judgements estimates specific risks critical accounting policies described revenue recognition recognize revenue accordance sec staff accounting bulletin 101 revenue recognition financial statements sab 101 revenue significant source accounted follows research revenues derived subscription contracts research products revenues research products deferred recognized ratably applicable contract term consulting revenues based primarily fixed fees time materials discrete projects revenues projects recognized work delivered andor services provided evaluated contract basis events revenues deferred recognized upon completion related symposium conference exhibition revenues principally software licensing fees recognized signed noncancelable software license exists delivery occurred collection probable fees fixed determinable revenue software maintenance deferred recognized ratably term maintenance agreement typically twelve months uncollectible fees receivable provisions bad debts recognized incurred measurement likely probable losses allowance uncollectible fees receivable based historical loss experience aging outstanding receivables assessment current economic conditions financial health specific clients evaluation inherently judgmental requires material estimates valuation reserves periodically reevaluated adjusted information ultimate collectibility fees receivable becomes available circumstances could cause valuation reserves increase include changes clients liquidity credit quality factors negatively impacting clients ability pay obligations come due effectiveness collection efforts following tables provides total fees receivables along related allowance losses thousands december 31 september 30 2003 2002 total fees receivables 275122 290068 271843 allowance losses 9000 7000 fees receivables net 266122 283068 264843 impairment goodwill intangible assets evaluation goodwill performed accordance statement financial accounting standards 142 goodwill intangible assets sfas 142 among requirements standard eliminated goodwill amortization upon adoption requires annual assessment goodwill impairment evaluation intangible assets performed periodic basis 10k12 assessments require management estimate fair values reporting units based estimates future business operations market economic conditions developing longterm forecasts determine fair value reporting unit less carrying amount must recognize impairment charge associated goodwill reporting unit earnings financial statements goodwill evaluated impairment least annually whenever events changes circumstances indicate carrying value may recoverable factors consider important could trigger review impairment include following significant underperformance relative historical projected future operating results significant changes manner use acquired assets strategy overall business significant negative industry economic trends significant decline stock price sustained period market capitalization relative net book value due numerous variables associated judgments assumptions relating valuation reporting units effects changes circumstances affecting valuations precision reliability resulting estimates subject uncertainty additional information becomes known may change estimates accounting income taxes prepare consolidated financial statements estimate income taxes jurisdictions operate process involves estimating current tax exposure together assessing temporary differences resulting differing treatment items tax accounting purposes differences result deferred tax assets liabilities included within consolidated balance sheet record valuation allowance reduce deferred tax assets future realization question consider future taxable income ongoing prudent feasible tax planning strategies assessing need valuation allowance event determine would able realize deferred tax assets future excess net recorded amount adjustment deferred tax asset would increase income period determination made likewise determine would able realize part net deferred tax asset future adjustment deferred tax asset would decrease income period determination made contingencies loss reserves accruals establish reserves severance costs contract terminations asset impairments result actions undertake streamline organization reposition certain businesses reduce ongoing costs estimates costs incurred complete actions future lease payments sublease income fair value assets severance related benefits based assumptions time actions initiated extent actual costs differ estimates reserve levels may need adjusted addition actions may revised due changes business conditions foresee time plans approved fourth quarter calendar 2003 revised previous estimates costs losses associated excess facilities due declines market rates expected sublease income revised expected periods sublease result revised estimates recorded charge 97 million included charges along severance costs additionally record accruals estimated incentive compensation costs year ultimate amount paid associated incentives sometimes known yearend fourth quarter calendar 2003 lowered estimates incentive compensation accruals including bonuses based company performance approximately 32 million compared estimates recorded end third quarter calendar 2003 impairment investment securities charge earnings made market decline cost temporary management regularly reviews investment security impairment based criteria include length time extent market value less cost financial condition nearterm prospects issuer valuation comparable companies intent ability retain 10k13 investment period time sufficient allow anticipated recovery market value future adverse changes market conditions poor operating results underlying investments could result losses inability recover carrying value investments may reflected investments current carrying value thereby possibly requiring impairment charge future total investments equity securities 109 million december 31 2003 107 million december 31 2002 127 million september 30 2002 see note 4 investments notes consolidated financial statements change fiscal year october 30 2002 announced board directors approved change fiscal yearend september 30 december 31 effective january 1 2003 change resulted threemonth transitional period ending december 31 2002 references transition 2002 unless otherwise indicated refer threemonth transitional period ended december 31 2002 references fiscal 2002 fiscal 2001 unless otherwise indicated respective fiscal year period october 1 september 30 references calendar 2003 calendar 2002 unless otherwise indicated respective twelvemonth period january 1 december 31 results operations calendar 2003 versus calendar 2002 total revenues decreased 3 8584 million calendar 2003 8876 million calendar 2002 research revenues decreased 4 calendar 2003 4669 million compared 4870 million calendar 2002 comprised approximately 54 55 total revenues calendar 2003 calendar 2002 respectively consulting revenues decreased 6 2586 million calendar 2003 compared 2761 million calendar 2002 comprised approximately 30 31 total revenues calendar 2003 calendar 2002 respectively events revenues 1194 million calendar 2003 increase 9 1097 million calendar 2002 comprised approximately 14 total revenues calendar 2003 versus 12 calendar 2002 revenues consisting principally software licensing maintenance fees decreased 9 136 million calendar 2003 149 million calendar 2002 revenues declined united states canada region increased europe middle east africa region emea international region revenues sales united states canadian clients decreased 7 5357 million calendar 2003 5765 million calendar 2002 revenues sales clients emea region increased 5 2523 million calendar 2003 2413 million calendar 2002 revenues sales clients international regions increased 1 705 million calendar 2003 698 million calendar 2002 decrease total revenues result decline demand throughout entire technology sector overall weakness economy partially offset positive effects foreign currency exchange rates excluding effects foreign currency translation revenues would decreased approximately 8 see segment analysis section discussion segment revenues cost services product development increased 4 calendar 2003 4107 million 3965 million calendar 2002 excluding effects foreign currency translation cost services product development would decreased 1 percentage sales cost services product development increased 478 447 due primarily investments gartner exp membership programs product development costs associated customer intelligence higher conference related expenses lower utilization rates consulting practice 10k14 selling general administrative expenses decreased 4 3333 million calendar 2003 3465 million calendar 2002 sga would decreased approximately 7 negative effect foreign currency translation decrease sga primarily result lower sales commissions continued focus streamlining support organizations restructuring efforts depreciation expense calendar 2003 decreased 18 360 million compared 437 million calendar 2002 decrease due reduction capital spending calendar 2002 calendar 2003 relative capital spending fiscal 2000 2001 led decrease depreciation expense addition costs capitalized fiscal 2000 associated initial launch gartnercom web site january 2001 fully depreciated beginning calendar 2003 amortization intangibles decreased 34 comparing calendar 2003 calendar 2002 due certain intangible assets fully amortized past year charges 297 million calendar 2003 costs employee severance benefits associated workforce reductions initiated two separate actions 54 million first quarter calendar 2003 146 million fourth quarter calendar 2003 additionally fourth quarter calendar 2003 revised estimates previously recorded costs losses associated excess facilities recorded 97 million additional provisions revised estimate due decline market lease rates expected subleases well reduction estimated periods subleases workforce reduction occurred first quarter calendar 2003 continuation action taken transition 2002 resulted termination 92 employees approximately 2 workforce purpose reduction reduce costs underperforming segments workforce reduction occurred fourth quarter calendar 2003 resulted termination 130 employees approximately 3 workforce purpose workforce reduction part effort streamline operations strengthen key consulting practices align organizational structure focus client needs expect remaining payments associated workforce reduction substantially completed end second quarter 2004 funding costs existing cash expect record additional expenses severance first quarter 2004 approximately 5 million 8 million associated realignment plan initiated fourth quarter calendar 2003 calendar 2002 charges 494 million charges result two actions one first quarter calendar 2002 amounting 172 million occurring fourth quarter calendar 2002 transition 2002 amounting 322 million charges occurring first quarter calendar 2002 100 million related costs losses associated elimination excess facilities principally leasehold improvements ongoing lease costs losses associated sublease arrangements addition approximately 58 million charges associated workforce reduction initiated first quarter calendar 2002 employee termination severance benefits workforce reduction resulted termination 92 employees approximately 2 companys workforce time expect payments associated workforce reduction completed end first quarter 2004 remaining 14 million expenses recorded charges first quarter calendar 2002 relates impairment certain databaserelated assets 322 million charges fourth quarter calendar 2002 133 million related costs losses associated elimination excess facilities principally leased facilities ongoing lease costs losses associated sublease arrangements remaining 189 million charges related severance payments related benefits associated workforce reduction included 06 million noncash compensation workforce reduction resulted elimination approximately 175 positions approximately 4 workforce time funding remaining costs existing cash interest expense decreased calendar 2003 due conversion debt equity october 2003 conversion debt eliminated interest expense since conversion date 10k15 gain loss investments net calendar 2003 includes 55 million insurance recovery received calendar 2003 associated previously incurred losses arising sale business gain loss investments net calendar 2003 also includes impairment loss 09 million associated minorityowned investment publicly traded evaluated investment impairment investees recapitalization due lack capital resources redeem mandatorily redeemable equity led us write investment estimate fair value loss investments calendar 2002 caused primarily recognition impairment losses related equity securities owned us two limited partnerships si venture associates si venture fund ii si ii si ii venture capital funds engaged making investments early midstage itbased internetenabled companies 100 si 34 si ii see note 4 investments notes consolidated financial statements discussion gains losses investments impairment factors evaluated management may change subsequent periods given entities underlying investments operate volatile business environment addition entities may require additional financing meet cash operational needs however assurance funds available extent needed terms acceptable entities could result additional material noncash impairment charges future income net calendar 2003 05 million consists primarily net foreign exchange gains calendar 2002 income net 01 million includes 05 million gain sale certain assets first quarter calendar 2002 partially offset net foreign exchange losses provision income taxes 334 377 income taxes calendar 2003 2002 respectively excluding charges workforce reductions excess facilities asset impairments gains losses investments effective tax rate would 33 calendar 2003 compared 34 calendar 2002 reduction effective tax rate calendar 2003 compared calendar 2002 reflects implementation tax planning strategies basic diluted income per common share 026 calendar 2003 compared 018 calendar 2002 calendar 2003 basic diluted eps negatively impacted restructuring costs impairment investment partially offsetting items favorable impact insurance recovery calendar 2002 restructuring charges impairment investments unfavorable impact basic diluted eps segment results calendar 2003 business managed three reportable segments research consulting events announced fourth quarter 2003 moving toward client focus realigning business three business units gartner intelligence gartner executive programs gartner consulting realignment finalized 2004 evaluate needs realign segment reporting segment discussion based historical segments managed 2003 evaluate reportable segment performance allocate resources based gross contribution margin gross contribution defined operating income excluding certain selling general administrative expenses depreciation amortization intangibles charges gross contribution margin defined gross contribution percentage revenues research revenues decreased 4 comparing calendar 2003 calendar 2002 foreign currency exchange rates favorably impacted research revenues approximately 4 decrease research revenues due overall weakness economy impact weakness corporate information technology spending causing lower demand throughout entire technology sector 10k16 research gross contribution 2929 million calendar 2003 decreased 8 3187 million calendar 2002 gross contribution margin calendar 2003 decreased 63 65 prior year decrease gross contribution gross contribution margin result lower revenues costs associated investments gartner exp gartner g2 membership programs product development marketing costs associated customer intelligence research contract value indicator future research revenue 4822 million december 31 2003 decrease 1 4890 million december 31 2002 however research contract value increased sequentially third fourth quarters calendar 2003 4685 million june 30 2003 4696 million september 30 2003 prior sequential increases calendar 2003 contract value decreased sequentially seven consecutive quarters believe sequential increases may indication upturn demand products coinciding potentially increasing demand technology sector december 31 2003 client retention rates increased 4 percentage points 78 compared measure december 31 2002 wallet retention increased 8 percentage points calendar 2003 89 client wallet retention rates increased steadily four quarters calendar 2003 believe increases result implementing named account sales strategy sales staff focusing efforts companies revenues greater 1 billion consulting revenues decreased 6 calendar 2003 2586 million 2761 million calendar 2002 foreign currency exchange rates positive impact approximately 5 calendar 2003 decrease revenues caused lower billable headcount lower utilization workforce reductions past year resulted reduced billable headcount response lower demand technology sector billable headcount consulting business december 31 2003 decreased approximately 11 410 december 31 2003 compared 459 december 31 2002 consulting gross contribution 868 million calendar 2003 decreased 16 1028 million calendar 2002 gross contribution margin calendar 2003 decreased 34 37 prior year decrease gross contribution margin primarily attributable lower consultant utilization rates approximately 53 calendar 2003 compared approximately 56 calendar 2002 part realignment caused workforce reductions fourth quarter calendar 2003 decided exit certain lines business geographies within consulting business order focus areas potential higher growth profitability realignment expected address suboptimal utilization rates lack scale regions near term decision affect overall revenue growth consulting revenues areas exited allowed wind new areas focus beginning ramp consulting backlog decreased 10 997 million december 31 2003 compared 1113 million december 31 2002 increased sequentially third fourth quarters calendar 2003 910 million june 30 2003 928 million september 30 2003 consulting backlog decreased compared prior year due decline demand throughout entire technology sector technology customers continued constrain spending noted discussion research segment sequential backlog increases latter half calendar 2003 may indication increased demand technology sector events revenues increased 9 1194 million calendar 2003 compared 1097 million calendar 2002 changes foreign currency exchange rates approximately 5 favorable impact revenues comparing calendar 2003 calendar 2002 revenues increased slightly despite nine fewer events calendar 2003 compared calendar 2002 average revenue per event increased calendar 2003 due strong performance recurring events well addition new events calendar 2003 higher revenues events eliminated 10k17 gross contribution 560 million calendar 2003 relatively consistent calendar 2002 percentage revenues gross contribution decreased 47 calendar 2003 51 calendar 2002 decrease gross contribution margin due primarily increased personnel expenses increased event marketing costs 2003 invested marketing promoting events maintain attendance levels weak economy especially technology sector fiscal year ended september 30 2002 versus fiscal year ended september 30 2001 total revenues decreased 6 9072 million fiscal 2002 compared 9629 million fiscal 2001 research revenue decreased 7 fiscal 2002 4964 million compared 5351 million fiscal 2001 comprised approximately 55 56 total revenues fiscal 2002 2001 respectively consulting revenue decreased 1 2737 million fiscal 2002 compared 2763 million fiscal 2001 comprised approximately 30 29 total revenues fiscal 2002 2001 respectively events revenue 1220 million fiscal 2002 decrease 8 1327 million fiscal 2001 comprised approximately 13 total revenues fiscal 2002 versus 14 fiscal 2001 revenues consisting principally software licensing maintenance fees decreased 20 151 million fiscal 2002 188 million fiscal 2001 revenue declined three defined geographic market areas united states canada emea international revenues sales united states canadian clients decreased 7 5953 million fiscal 2002 6419 million fiscal 2001 revenues sales clients emea region decreased 3 2421 million fiscal 2002 2500 million fiscal 2001 revenues sales international clients decreased 2 697 million fiscal 2002 711 million fiscal 2001 cost services product development expenses 4037 million 4505 million fiscal 2002 fiscal 2001 respectively cost services product development expenses decreased percentage total revenues 45 47 decrease attributable reduced personnel costs associated headcount reductions effective cost management events cost savings including reduced travel selling general administrative expenses decreased 3454 million fiscal 2002 3701 million fiscal 2001 decrease due reduced payroll associated lower headcount reduced travel telephone infrastructure costs across entire company depreciation expense increased 425 million fiscal 2002 409 million fiscal 2001 primarily due additional depreciation significant capital expenditures made fiscal 2001 internal use software required support business also due amortization costs associated launch gartnercom january 2001 amortization intangibles 19 million fiscal 2002 124 million fiscal 2001 primary reason decrease adoption sfas 142 eliminated amortization goodwill fiscal 2002 fiscal 2001 goodwill amortization 95 million aftertax basis 84 million result adoption diluted earnings per share year ended september 30 2002 improved 009 fiscal 2002 recorded charges 172 million charges 100 million related costs losses associated elimination excess facilities principally leased facilities ongoing lease costs losses associated sublease arrangements addition approximately 58 million charges associated workforce reduction announced january 2002 employee termination severance payments related benefits workforce reduction resulted elimination approximately 100 positions approximately 2 workforce time payment 53 million termination benefits fiscal 2002 remaining 14 million relates impairment certain databaserelated assets charges totaled 466 million fiscal 2001 charges 248 million associated workforce reduction 10k18 announced april 2001 workforce reduction resulted elimination 383 positions approximately 8 workforce time payment 64 million 182 million termination benefits fiscal 2002 fiscal 2001 respectively 248 million charge comprised employee termination severance payments related benefits approximately 143 million charges associated writedown goodwill longlived assets net realizable value result decision discontinue certain unprofitable products 75 million charge associated primarily writeoff internally developed systems retired connection launch gartnercom december 31 2003 insignificant amount severance costs remain paid 2004 costs paid existing cash estimated costs associated excess facilities reevaluated part charge taken fourth quarter calendar 2003 discussed previously operating income increased 964 million fiscal 2002 compared 425 million fiscal 2001 fiscal 2002 united states canadian business european business experienced increase operating income 119 113 respectively international business experienced operating loss year slightly lower year ago consolidated basis operating income percentage total revenues 11 4 respectively fiscal 2002 2001 operating income impacted part charges 172 million 466 million fiscal 2002 2001 respectively additional costs associated rearchitecture internet capabilities research methodology delivery processes fiscal 2001 excluding charges operating income fiscal 2002 2001 13 9 respectively total revenues decreased staff approximately 8 second half fiscal 2001 2 midfiscal 2002 fourth quarter fiscal 2001 decreased expensetorevenue ratio associated cost services selling general administrative expenses various costreduction initiatives improvement operating income also impacted lower amortization intangibles due adoption sfas 142 amortization goodwill 95 million fiscal 2001 gain loss investments net fiscal 2002 included sale 748118 shares cnet 60 million resulting pretax gain 08 million acquired investment partial consideration sale techrepublic cnet july 2001 remaining 24 million loss investments fiscal 2002 primarily result impairment losses related investments owned us si ii directly owned investments temporary declines value see note 4 investments notes consolidated financial statements discussion gain loss investments net fiscal 2001 275 million included sale shares investment held minority interest net cash proceeds 75 million pretax loss 56 million fiscal 2001 also included 50 million gain result sale shares received venture capital funds si ii securities net cash proceeds 69 million remaining loss 269 million fiscal 2001 primarily result impairment losses related investments owned us si ii directly owned investments temporary declines value see note 4 investments notes consolidated financial statements discussion interest expense increased 229 million fiscal 2002 224 million fiscal 2001 increase relates primarily increased interest expense 6 convertible longterm debt compared fiscal 2001 interest income 18 million fiscal 2002 16 million fiscal 2001 due higher average balance funds available investment offset part lower interest earnings rates expense net decreased 02 million fiscal 2002 37 million fiscal 2001 decrease related primarily lower foreign currency exchange losses 27 05 million gain sale business fiscal 2002 provision income taxes continuing operations 250 million fiscal 2002 compared benefit 92 million fiscal 2001 effective tax rate 34 fiscal 2002 effective tax rate fiscal 2001 less impact onetime tax benefit 145 million due utilization foreign tax credits second half fiscal 2001 charges losses investments related tax impact 37 reduction effective tax rate fiscal 2002 reflects ongoing tax planning elimination nondeductible amortization goodwill pursuant adoption sfas 142 detailed analysis changes provision benefit income taxes provided note 12income taxes notes consolidated financial statements 10k19 basic income loss per common share continuing operations 058 per share fiscal 2002 compared 000 per share fiscal 2001 diluted income loss per common share continuing operations 047 per share fiscal 2002 compared 000 per share fiscal 2001 elimination goodwill amortization accordance sfas 142 improved basic diluted income per share continuing operations 010 009 respectively fiscal 2002 compared fiscal 2001 segment analysis research revenues 4964 million fiscal 2002 7 5351 million fiscal 2001 decline revenues due lower demand throughout entire technology sector overall weakness general economy researchs gross contribution fiscal 2002 decreased 7 3263 million 3526 million fiscal 2001 researchs gross contribution margin 66 fiscal 2002 2001 although revenues declined gross contribution margin remained flat part due reductions expenses decline gross contribution due lower revenues research client retention rate 75 fiscal 2002 compared 74 fiscal 2001 total research contract value decreased 11 approximately 4960 million september 30 2002 5560 million september 30 2001 decrease contract value reflects decline demand throughout entire technology sector well overall weakness general economy consulting revenues 2737 million fiscal 2002 1 2763 million fiscal 2001 revenues fiscal 2002 reflect strategic reduction certain client segments geographies based market share competitive advantage client size factors reduction revenue partially offset increases average project size length consultings gross contribution increased 13 979 million fiscal 2002 869 million fiscal 2001 consultings gross contribution margin 36 fiscal 2002 increased 31 fiscal 2001 primarily due reduced expenses higher utilization rates higher billing rates reduced headcount eliminated expenses practice areas markets sufficient scale volume consulting backlog decreased 10 approximately 1076 million september 30 2002 1190 million september 30 2001 decrease backlog primarily reflects overall weakness general economy events revenues 1220 million fiscal 2002 8 1327 million fiscal 2001 decline primarily due fewer events due strategic elimination less profitable unproven events expectation obtaining greater attendee exhibitor participation higherprofit events overall weakness general economy lower travel budgets events gross contribution increased 3 654 million fiscal 2002 636 million fiscal 2001 gross contribution margin 54 fiscal 2002 compared 48 fiscal 2001 increase gross contribution margin due better cost management elimination less profitable events liquidity capital resources calendar 2003 cash provided operating activities calendar 2003 1363 million compared 1458 million calendar 2002 decrease primarily due lower cashrelated earnings smaller decrease receivables calendar 2003 compared calendar 2002 cashrelated earnings income continuing operations adjusted noncash items included income depreciation amortization accretion interest amortization debt issue costs along noncash charges partially offsetting decreases higher bonus payments calendar 2002 bonus payments higher calendar 2002 due change fiscal year september 30 december 31 effective january 1 2003 fiscal 2002 bonuses paid transition 2002 fourth quarter calendar 2002 whereas calendar 2003 bonuses paid 2004 10k20 cash used investing activities 254 million calendar 2003 compared 263 million calendar 2002 decrease due primarily proceeds received insurance recovery 55 million calendar 2003 associated previously incurred loss claim resulting sale business 2000 additionally 2002 spent 39 million purchase remaining 499 people3 inc previously owned us calendar 2003 calendar 2002 funded 20 million 15 million respectively investment commitment si ii reducing remaining commitment december 31 2003 40 million spending property equipment increased 78 million 289 million calendar 2003 compared 211 million period 2002 cash used financing activities totaled 30 million calendar 2003 compared 422 million calendar 2002 purchased 434 million common stock treasury calendar 2003 compared 599 million calendar 2002 see discussion stock repurchases received proceeds 417 million exercise stock options purchase stock employees participating employee stock purchase plan calendar 2003 compared 179 million calendar 2002 december 31 2003 cash equivalents totaled 2300 million effect exchange rates increased cash equivalents 124 million calendar 2003 due weakening us dollar certain foreign currencies fiscal year 2002 cash provided operating activities fiscal 2002 1456 million compared 735 million fiscal 2001 increase primarily due significantly higher income continuing operations lower amounts termination payments associated workforce reductions working capital management cash used investing activities totaled 194 million fiscal 2002 compared 446 million used fiscal 2001 cash used investing activities fiscal 2002 2001 included 196 million 575 million respectively additions property equipment leasehold improvements additions fiscal 2002 primarily result investments infrastructure systems cash uses fiscal 2002 partially offset proceeds sale marketable securities 60 million additions property equipment leasehold improvements fiscal 2001 primarily result investments gartnercom infrastructure systems cash uses fiscal 2001 partially offset proceeds sale marketable securities discontinued operations 144 million 105 million respectively cash used business acquisitions 45 million 120 million fiscal 2002 2001 respectively cash used financing activities totaled 401 million fiscal 2002 compared 189 million fiscal 2001 cash used financing activities fiscal 2002 resulted primarily purchase 470 million common stock treasury see discussion stock repurchases repayment credit facility loans 150 million uses cash partially offset proceeds 222 million exercise stock options employee stock purchase plan cash used financing activities fiscal 2001 resulted primarily purchase common stock treasury 379 million see discussion stock repurchases offset part proceeds 150 million credit facility borrowings proceeds 91 million exercise stock options employee stock purchase plan total cash used discontinued operations sold fiscal 2001 342 million fiscal 2001 september 30 2002 cash equivalents totaled 1248 million effect exchange rates increased cash equivalents 17 million year ended september 30 2002 due weakening us dollar certain foreign currencies fiscal 2001 negative effect exchange rates reduced cash equivalents 04 million 10k21 obligations commitments 2000 million unsecured senior revolving credit facility led jpmorgan chase bank december 31 2003 amounts outstanding facility subject certain customary affirmative negative financial covenants credit facility continued compliance covenants preclude us borrowing maximum amount credit facility time covenants primarily based financial results measures contract value result covenants borrowing availability december 31 2003 184 million credit facility expires july 2004 expect obtain revolving credit facility replace current facility upon expiration april 17 2000 issued private placement transaction 3000 million 6 convertible subordinated notes silver lake partners lp slp noteholders interest accrued semiannually corresponding increase face amount convertible notes due payable april 17 2005 october 2003 notes converted 49441122 shares gartner class common stock shares owned slp result conversion represent approximately 459 outstanding class common stock approximately 361 combined basis outstanding class b common stock based upon shares outstanding december 31 2003 conversion accordance original terms notes determination number shares issued upon conversion based upon 745 conversion price convertible note 3683 million consisting original face amount 300 million plus accrued interest 683 million unamortized balances debt issue costs 28 million debt discount 03 million conversion date netted outstanding principal interest balances resulting 3652 million increase stockholders equity additionally certain costs directly associated conversion regulatory filings banking legal fees totaling 06 million charged equity following table represents contractual commitments december 31 2003 millions believe current cash balances together cash anticipated provided operating activities borrowings available existing credit facility sufficient expected shortterm foreseeable longterm cash needs ordinary course business require substantial amounts additional capital pursue business opportunities may arise involving substantial investments additional capital assurances capital available us available commercially reasonable terms 10k22 stock repurchases july 2001 board directors approved repurchase 75 million class b common stock board directors subsequently increased authorized stock repurchase program total authorization repurchase 200 million cumulative basis december 31 2003 purchased 1271 million stock repurchase program factors may affect future results operate competitive rapidly changing environment involves numerous risks uncertainties beyond control addition clients affected economy following section discusses many risks uncertainties economic conditions revenues results operations influenced economic conditions general particularly business conditions industry general economic downturn recession anywhere world could negatively affect demand products services may substantially reduce existing potential client information technologyrelated budgets recent economic downturn united states globally led constrained spending impacted business may materially adversely affect business financial condition results operations including ability maintain client retention wallet retention consulting utilization rates achieve contract value consulting backlog extent clients industry severe decline sector also significant impact spending acts terrorism war acts terrorism acts war unforeseen events may cause damage disruption properties business employees suppliers distributors clients could adverse effect business financial condition operating results events may also result economic slowdown united states elsewhere could adversely affect business financial condition operating results competitive environment face direct competition significant number independent providers information products services including information found internet free charge also compete indirectly consulting firms information providers including electronic print media companies may greater financial information gathering marketing resources indirect competitors could choose compete directly us future addition limited barriers entry exist markets business result additional new competitors may emerge existing competitors may start provide additional complementary services additionally technological advances may provide increased competition variety sources however believe breadth depth research assets position us well versus competition increased competition may result loss market share diminished value products services reduced pricing increased marketing expenditures may successful cannot compete effectively quality research analysis timely delivery information customer service ability offer products meet changing market needs information analysis price renewal research business existing clients success depends renewals subscriptionbased research products services constituted 54 revenues calendar 2003 research subscription agreements terms generally range twelve thirty months ability maintain contract renewals subject numerous factors including described annual report additionally implement strategy realign business client needs may shift type 10k23 pricing products may impact client renewal rates client retention rates 78 december 31 2003 74 december 31 2002 guarantee continue level client renewals material decline renewal rates could adverse impact revenues financial condition nonrecurring consulting engagements consulting segment revenues constituted 30 revenues calendar 2003 consulting engagements typically projectbased nonrecurring ability replace consulting engagements subject numerous factors including described annual report material decline ability replace consulting arrangements could adverse impact revenues financial condition restructuring reorganization management team future success depends significant part upon continued service performance senior management key personnel recently reorganized business around specific client needs part reorganization number key management positions filled promotion current employees hiring new employees part reorganization restructured workforce order streamline operations strengthen key consulting practices reorganization restructuring business lead results expect ability effectively deliver products manage company carry business plan may impaired hiring retention employees success depends heavily upon quality senior management research analysts consultants sales key personnel face competition limited pool qualified professionals among others technology companies market research firms consulting firms financial services companies electronic print media companies greater ability attract compensate professionals personnel attempt hire subject noncompete agreements could impede shortterm recruitment efforts failure retain key personnel hire train additional qualified personnel required support evolving needs clients growth business could adversely affect quality products services therefore future business operating results maintenance existing products services operate rapidly evolving market success depends upon ability deliver high quality timely research analysis clients failure continue provide credible reliable information useful clients could material adverse effect future business operating results predictions prove wrong substantiated appropriate research reputation may suffer demand products services may decline addition must continue improve methods delivering products services costeffective manner failure increase improve electronic delivery capabilities could adversely affect future business operating results introduction new products services market products services characterized rapidly changing needs information analysis maintain competitive position must continue enhance improve products services develop acquire new products services timely manner appropriately position price new products services relative marketplace costs producing failure achieve successful client acceptance new products services could material adverse effect business results operations financial position international operations substantial portion revenues derived sales outside north america 38 calendar 2003 result operating results subject risks inherent international business activities including general political economic conditions country changes market demand result exchange rate fluctuations tariffs trade barriers challenges staffing managing foreign operations changes regulatory requirements compliance numerous foreign laws regulations different overlapping tax structures higher levels united states taxation foreign income difficulty enforcing client agreements collecting accounts receivable protecting intellectual property rights international jurisdictions rely local distributors sales agents international locations 10k24 arrangements terminated agent us may able replace arrangement beneficial terms timely basis clients local distributor sales agent may want continue business us new agent branding believe gartner brand critical efforts attract retain clients importance brand recognition increase competition increases may expand marketing activities promote strengthen gartner brand may need increase marketing budget hire additional marketing public relations personnel expend additional sums protect brand otherwise increase expenditures create maintain client brand loyalty fail effectively promote maintain gartner brand incur excessive expenses future business operating results could materially adversely impacted indebtedness 2000 million senior revolving credit facility incur significant additional indebtedness although amounts outstanding december 31 2003 affirmative negative financial covenants debt facility could limit future financial flexibility result covenants borrowing availability december 31 2003 1840 million associated debt service costs could impair future operating results outstanding debt may limit amount cash additional credit available us could restrain ability expand enhance products services respond competitive pressures pursue future business opportunities requiring substantial investments additional capital organizational product integration related acquisitions made may continue make acquisitions significant investments businesses offer complementary products services risks involved acquisition investment include possibility paying value derive acquisition dilution interests current stockholders decreased working capital increased indebtedness assumption undisclosed liabilities unknown unforeseen risks ability integrate successfully operations personnel acquired business ability retain key personnel acquired company time train sales force market sell products acquired company potential disruption ongoing business distraction management business realization risks could adversely affect business enforcement intellectual property rights rely combination copyright patent trademark trade secret confidentiality noncompete contractual provisions protect intellectual property rights despite efforts protect intellectual property rights unauthorized third parties may obtain use technology information regard proprietary intellectual property rights may survive legal challenge validity provide significant protection us laws certain countries protect proprietary rights extent laws united states accordingly may able protect intellectual property unauthorized thirdparty copying use could adversely affect competitive position employees subject noncompete agreements noncompetition period expires former employees may compete us former employee chooses compete us prior expiration noncompetition period assurance successful efforts enforce noncompete provision possibility infringement claims third parties may assert infringement claims us regardless merits responding claim could time consuming result costly litigation require us enter royalty licensing agreements may offered available reasonable terms successful claim made us fail develop license substitute technology business results operations financial position could materially adversely affected potential fluctuations operating results quarterly annual operating income may fluctuate future result many factors including timing execution research contracts typically occurs fourth calendar quarter extent completion consulting engagements timing symposia events also occur greater extent fourth calendar quarter amount new business generated mix domestic international business changes market demand products services 10k25 timing development introduction marketing new products services competition industry inability generate sufficient earnings cash flow achieve forecasts may impact operating activities potential fluctuations operating income could cause periodtoperiod comparisons operating results meaningful may provide unreliable indication future operating results significant stockholder silver lake partners lp slp affiliates approximately 459 outstanding class common stock approximately 361 combined basis outstanding class b common stock december 31 2003 currently owners class common stock entitled vote two ten members board directors vote together holders class b common stock single class matters coming stockholders slp restricted purchasing additional stock without consent pursuant terms securityholders agreement securityholders agreement also provides cannot take certain actions including acquisitions sales stock andor assets without slps consent slp hold majority outstanding shares may able exercise significant influence matters requiring stockholder approval including election directors approval mergers consolidations sales assets slps interests may differ interests stockholders antitakeover protections provisions certificate incorporation bylaws delaware law may make difficult party acquire control us transaction approved requisite number directors provisions include presence classified board directors existence two classes common stock class b common stock ability elect 80 board directors ability board directors issue determine terms preferred stock advance notice requirements inclusion stockholder proposals stockholder meetings antitakeover provisions delaware law provisions could delay prevent change control change management might provide stockholders premium market price common stock recently issued accounting standards none 10k26 item 7aitem 7 management’s discussion analysis financial condition results operations forwardlooking statements addition historical information annual report contains forwardlooking statements forwardlooking statements historical fact including statements regarding expectations beliefs hopes intentions strategies regarding future cases forwardlooking statements identified use words “may” “will” “expect” “should” “could” “believe” ‘plan” “anticipate” “estimate” “predict” “potential” “continue” words similar meaning forwardlooking statements subject risks uncertainties could cause actual results differ materially discussed implied forwardlooking statements factors might cause difference include limited discussed “factors may affect future results” readers place undue reliance forwardlooking statements reflect management’s opinion date made except required law disclaim obligation review update forwardlooking statements reflect events circumstances occur readers review carefully risk factors described reports filed securities exchange commission overview convergence business technology become increasingly important technology professionals also business executives independent objective research advisory firm helps business executives use technology build guide grow enterprises employ diversified business model leverages breadth depth research intellectual capital enabling us maintain grow marketleading position brand franchise strategy align resources infrastructure leverage intellectual capital additional revenue streams effective packaging campaigning crossselling products services diversified business model provides multiple entry points synergies facilitate increased client spending research consulting events key strategy increase business volume valuable clients identifying relationships greatest sales potential expanding relationships offering strategically relevant research analysis intend maintain balance 1 pursuing opportunities applying resources strict focus growing three core businesses 2 generating profitability streamlined cost structure three business segments research consulting events • research provides research content advice professionals technology companies investment community form reports briefings well peer networking services membership programs designed specifically cios senior executives • consulting consists primarily consulting measurement engagements strategic advisory services paid oneday analyst engagements “sas” provide assessments cost performance efficiency quality focused industry • events consists various symposia conferences exhibitions focused industry believe following business measurements important performance indicators business segments business segment business measurements research contract value represents value attributable subscriptionrelated research products recognize revenue ratable basis contract value calculated annualized value subscription research contracts effect specific point time without regard duration contract client retention rate represents measure client satisfaction renewed business relationships specific point time client retention calculated percentage basis dividing current clients also clients year ago clients year ago business segment business measurements wallet retention rate represents measure amount contract value retained clients twelvemonth period wallet retention calculated percentage basis dividing contract value clients one year earlier total contract value year earlier wallet retention exceeds client retention indication retention higherspending clients increased spending retained clients number executive program members represents number paid participants executive programs consulting backlog represents future revenue derived inprocess consulting measurement strategic advisory services engagements utilization rates represent measure productivity consultants utilization rates calculated billable headcount percentage basis dividing total hours billed total hours available bill billing rate represents earned billable revenue divided total billable hours events number events represents total number hosted events completed period number attendees represents total number people attended events period announced acquisition meta group inc december 27 2004 announced agreement acquire meta group inc “meta” allcash transaction 1000 per share approximately 162 million excluding transaction costs meta publicly owned premier information technology research firm based stamford connecticut 715 employees 2004 meta generated 1415 million revenue 52 worldwide locations 908 million assets december 31 2004 meta trades nasdaq national market symbol “metg” boards directors companies approved transaction january 31 2005 announced notice received federal trade commission early termination waiting period hartscottrodino antitrust improvements act meta filed definitive proxy statement sec february 17 2005 scheduled hold special meeting stockholders approve transaction march 23 2005 closing transaction subject customary closing conditions including approval meta’s stockholders expected effective april 1 2005 executive summary operations financial position calendar 2004 continued focus stabilizing growing revenue core research business continued focus began yield desired outcome latter half calendar 2003 ended latter half calendar 2003 two consecutive quarters sequential increases contract value seven consecutive quarters sequentially decreasing contract value contract value increased sequentially first quarter calendar 2004 decreased slightly second quarter calendar 2004 increased sequentially third fourth quarters calendar 2004 december 31 2004 contract value 5092 million 6 4822 million december 31 2003 roughly half increase due effects foreign currency 5092 million contract value represents highest contract value since first quarter calendar 2002 research client retention rate december 31 2004 increased 80 78 prior yearend wallet retention increased 95 89 period consulting revenue calendar 2004 flat compared calendar 2003 despite impact realignment reduced headcount exited certain practices geographies excluding effects foreign currency exchange rates revenues would decreased approximately 4 calendar 2004 compared calendar 2003 consulting business ended calendar 2004 continuation positive trend began calendar 2003 ended year two consecutive quarters sequential increases backlog five consecutive quarters sequential decreases due realignment consulting backlog decreased 917 million march 31 2004 quickly increased 977 million june 30 2004 1034 million september 30 2004 business ramped areas focus ended year backlog 1118 million 121 million increase december 31 2003 realignment also positive impact suboptimal utilization rates lack scale regions calendar 2004 average consultant utilization rates increased approximately 63 compared 54 prior year billable headcount declined 493 december 31 2004 compared 526 december 31 2003 events business continues deliver strong results emphasis managing events portfolio retain longtime successful events introduce promising new events resulted substantially improved overall revenue performance calendar 2004 revenue 16 prior year well event revenue 19 prior year achieved results number events declined 56 held calendar 2004 compared 57 held calendar 2003 calendar 2004 repurchased significant number shares class b common stock first half calendar 2004 repurchased 413225 shares class common stock 114600 shares class b common stock aggregate cost 61 million stock repurchase program third quarter 2004 completed “dutch auction tender offer” repurchased 11339019 shares class common stock 5505489 shares class b common stock purchase price 1330 1250 per share respectively additionally also repurchased 9228938 shares class common stock silver lake partners certain affiliates “silver lake” purchase price 1330 per share total cost purchases 3462 million including transaction costs 38 million conjunction tender offer board directors terminated stock repurchase program june 2004 connection tender offer third quarter calendar 2004 borrowed 2000 million fiveyear term loan facility 100 million repaid fourth quarter calendar 2004 also obtained 1000 million fiveyear revolving credit facility 592 million available december 31 2004 subsequent december 31 2004 entered amendment credit agreement covenant requirements resulted additional borrowing capacity revolving credit facility result amended borrowing availability revolving credit facility would 965 million december 31 2004 december 31 2004 cash balance 1601 million compared 2300 million december 31 2003 order fund purchase meta anticipate use combination cash amended fiveyear revolving credit facility connection funding meta transaction company anticipates repatriating 520 million cash earnings nonus subsidiaries early 2005 february 2005 board directors approved elimination classified board structure additionally previously announced board directors approved combination class b common stock items subject stockholder approval annual meeting stockholders take place late spring early summer 2005 fourth quarter calendar 2003 made significant change capital structure 6 convertible notes converted class common stock eliminated outstanding debt time related interest expense fluctuations quarterly operating results quarterly annual revenue operating income cash flow fluctuate result many factors including timing symposia flagship event normally occurs fourth calendar quarter events amount new business generated mix domestic international business changes market demand products services changes foreign currency rates timing development introduction marketing new products services competition industry potential fluctuations operating income could cause periodtoperiod comparisons operating results meaningful could provide unreliable indication future operating results critical accounting policies estimates preparation financial statements requires application appropriate accounting policies significant accounting policies described note 1 notes consolidated financial statements management considers policies discussed critical understanding financial statements application requires complex subjective judgments estimates specific risks critical accounting policies described revenue recognition recognize revenue accordance sec staff accounting bulletin 101 revenue recognition financial statements “sab 101” sab 104 revenue recognition “sab 104” revenue significant source accounted follows • research revenues derived subscription contracts research products revenues research products deferred recognized ratably applicable contract term • consulting revenues based primarily fixed fees time materials discrete projects revenues projects recognized work delivered andor services provided evaluated contract basis • events revenues deferred recognized upon completion related symposium conference exhibition • revenues principally software licensing fees recognized signed noncancelable software license exists delivery occurred collection probable fees fixed determinable revenue software maintenance deferred recognized ratably term maintenance agreement typically twelve months • majority research contracts billable upon signing absent special terms granted limited basis time research contracts noncancelable nonrefundable except government contracts 30day cancellation clause produced material cancellations date policy record entire amount contract billable fee receivable time contract signed corresponding amount deferred revenue since contract represents legally enforceable claim government contracts permit termination bill client full amount billable contract record receivable equal earned portion contract addition record deferred revenue government contracts cash received deferred revenues attributable government contracts 409 million 386 million december 31 2004 december 31 2003 respectively addition december 31 2004 december 31 2003 recognized uncollected receivables deferred revenues relating government contracts permit termination 42 66 million respectively uncollectible fees receivable provisions bad debts recognized incurred measurement likely probable losses allowance uncollectible fees receivable based historical loss experience aging outstanding receivables assessment current economic conditions financial health specific clients evaluation inherently judgmental requires material estimates valuation reserves periodically reevaluated adjusted information ultimate collectibility fees receivable becomes available circumstances could cause valuation reserves increase include changes clients’ liquidity credit quality factors negatively impacting clients’ ability pay obligations come due effectiveness collection efforts following table provides total fees receivable along related allowance losses thousands impairment goodwill intangible assets evaluation goodwill performed accordance statement financial accounting standards 142 “goodwill intangible assets” ”sfas 142” among requirements standard eliminated goodwill amortization upon adoption requires ongoing annual assessments goodwill impairment evaluation intangible assets performed periodic basis assessments require management estimate fair values reporting units based estimates future business operations market economic conditions developing longterm forecasts determine fair value reporting unit less carrying amount must recognize impairment charge associated goodwill reporting unit earnings financial statements goodwill evaluated impairment least annually whenever events changes circumstances indicate carrying value may recoverable factors consider important could trigger review impairment include following • significant underperformance relative historical projected future operating results • significant changes manner use acquired assets strategy overall business • significant negative industry economic trends • significant decline stock price sustained period • market capitalization relative net book value due numerous variables associated judgments assumptions relating valuation reporting units effects changes circumstances affecting valuations precision reliability resulting estimates subject uncertainty additional information becomes known may change estimates 2004 recorded impairment charge 07 million first quarter relating goodwill associated certain operations south america closed fourth quarter recorded goodwill impairment charge 20 million related exit certain noncore product lines accounting income taxes prepare consolidated financial statements estimate income taxes jurisdictions operate process involves estimating current tax expense together assessing temporary differences resulting differing treatment items tax accounting purposes differences result deferred tax assets liabilities included within consolidated balance sheets record valuation allowance reduce deferred tax assets future realization question consider availability loss carryforwards existing deferred tax liabilities future taxable income ongoing prudent feasible tax planning strategies assessing need valuation allowance event determine would able realize deferred tax assets future excess net recorded amount adjustment deferred tax asset would increase income period determination made likewise determine would able realize part net deferred tax asset future adjustment deferred tax asset would charged income period determination made contingencies loss reserves accruals record accruals severance costs lease costs associated excess facilities contract terminations asset impairments result actions undertake streamline organization reposition certain businesses reduce ongoing costs estimates costs incurred complete actions future lease payments sublease income fair value assets severance related benefits based assumptions time actions initiated extent actual costs differ estimates reserve levels may need adjusted addition actions may revised due changes business conditions foresee time plans approved fourth quarter calendar 2004 revised previous estimates costs losses associated excess facilities due declines market rates expected sublease income revised expected periods sublease result revised estimates recorded charge excess facilities 23 million included charges along severance impairment costs additionally record accruals estimated incentive compensation costs year amounts accrued end reporting period based estimates may require adjustment ultimate amount paid incentives sometimes known year end impairment investment securities charge earnings made market decline cost temporary management regularly reviews investment security impairment based criteria include length time extent market value less cost financial condition nearterm prospects issuer valuation comparable companies intent ability retain investment period time sufficient allow anticipated recovery market value future adverse changes market conditions poor operating results underlying investments could result losses inability recover carrying value investments may reflected investment’s current carrying value thereby possibly requiring impairment charge future equity securities two limited partnerships si venture associates “si i” si venture fund ii “si ii” venture capital funds engaged making investments early midstage itbased internetenabled companies december 31 2004 owned 100 si 22 si ii fourth quarter calendar 2004 made decision liquidate si sell interest si ii addition fourth quarter calendar 2004 recorded charge 15 million related liquidation si included 08 million writedown investment 07 million related shutdown charges recorded si ii fourth quarter calendar 2004 related planned sale since carrying value investment approximates net realizable value third quarter calendar 2004 recorded noncash charge 22 million related transfer investment trusecure si ii well decrease ownership percentage si ii seven hundred basis points result transfer decrease ownership relieved future capital calls totaled 40 million total investments equity securities 70 million december 31 2004 109 million december 31 2003 see note 5 investments notes consolidated financial statements change fiscal year october 30 2002 announced board directors approved change fiscal yearend september 30 december 31 effective january 1 2003 change resulted threemonth transitional period ending december 31 2002 references transition 2002 unless otherwise indicated refer threemonth transitional period ended december 31 2002 references fiscal 2002 fiscal 2001 unless otherwise indicated respective fiscal year period october 1 september 30 references calendar 2004 calendar 2003 calendar 2002 unless otherwise indicated respective twelvemonth period january 1 december 31 results operations calendar 2004 versus calendar 2003 total revenues increased 4 8938 million calendar 2004 8584 million calendar 2003 effects foreign currency translation approximately 3 positive effect total revenues calendar 2004 compared calendar 2003 excluding positive effects foreign currency translation revenues would increased approximately 1 see segment results section discussion segment revenues increased regions revenues sales united states canadian clients increased 4 5594 million calendar 2004 5357 million calendar 2003 revenues sales clients europe middle east africa “emea” increased 4 2630 million calendar 2004 2523 million calendar 2003 revenues sales clients international regions increased 1 714 million calendar 2004 705 million calendar 2003 cost services product development increased 6 calendar 2004 4345 million 4107 million calendar 2003 excluding effects foreign currency translation cost services product development would increased 2 primarily due increased investment core research business growth executive programs events businesses also contributed higher costs calendar 2004 percentage sales cost services product development increased 486 478 prior year period cost services product development calendar 2004 benefited reversal 35 million prior years’ incentive compensation selling general administrative expenses increased 5 3498 million calendar 2004 3334 million calendar 2003 sga would increased approximately 2 excluding negative effects foreign currency translation percentage sales sga expense increased slightly calendar 2004 391 sales 388 calendar 2003 sga expenses benefited calendar 2004 reversal 33 million prior years’ incentive compensation well reduction allowance doubtful accounts 37 million due increased collections decline bad debt writeoffs percentage sales depreciation expense calendar 2004 decreased 23 277 million compared 360 million calendar 2003 decrease due reduction capital spending calendar 2004 calendar 2003 calendar 2002 relative capital spending fiscal 2001 2000 led decrease depreciation expense amortization intangibles decreased 46 comparing calendar 2004 calendar 2003 due certain intangible assets fully amortized since third quarter calendar 2003 goodwill impairments 27 million calendar 2004 compared 0 calendar 2003 reflecting writeoff goodwill related closing certain operations latin america noncore product lines charges fourth quarter calendar 2004 119 million 59 million severance benefits related workforce reduction 40 employees expect additional workforce reductions occur first quarter calendar 2005 result additional severance benefits charge estimated 50 million 60 million charges 43 million third quarter calendar 2004 primarily included severance costs associated departure president former ceo 31 million 08 million respectively charges 91 million second quarter calendar 2004 included 38 million severance costs associated departure former ceo well 53 million costs associated termination 30 employees first quarter calendar 2004 charges 105 million primarily associated realignment workforce realignment continuation action plan initiated fourth quarter calendar 2003 resulted termination 132 employees approximately 4 workforce bringing total terminations associated action plan 262 employees expect payments associated workforce reduction substantially completed end second quarter calendar 2005 funding costs existing cash calendar 2004 recorded total charges 297 million related realignment workforce including costs 77 million related departure president former ceo realignment resulted termination 203 employees full year annualized savings termination employees would approximately 233 million however plan reinvest significant portion savings improving products processes infrastructure help drive future growth additionally fourth quarter calendar 2004 revised estimates previously recorded costs losses associated excess facilities recorded 23 million additional provisions revised estimate due decline market lease rates expected subleases well reduction estimated periods subleases also recorded charge 19 million fourth quarter calendar 2004 related abandonment certain internal systems 18 million charges related exit certain international noncore operations part continuing effort adjust office space needs change announced plans reduce office space san jose california consolidating employees two buildings one building second third quarter calendar 2005 estimate result charge ranging 60 70 million first quarter calendar 2005 plan restructure certain international operations estimate result charge ranging 40 million 50 million charges 297 million calendar 2003 costs employee severance benefits associated workforce reductions initiated two separate actions 54 million first quarter calendar 2003 146 million fourth quarter calendar 2003 additionally fourth quarter calendar 2003 revised estimates previously recorded costs losses associated excess facilities recorded 97 million additional provisions revised estimate due decline market lease rates expected subleases well reduction estimated periods subleases workforce reduction occurred first quarter calendar 2003 continuation action taken transition 2002 resulted termination 92 employees approximately 2 workforce purpose reduction reduce costs underperforming segments workforce reduction occurred fourth quarter calendar 2003 resulted termination 130 employees approximately 3 workforce purpose workforce reduction part effort streamline operations strengthen key consulting practices align organizational structure focus client needs gain loss investments net calendar 2004 loss 30 million fourth quarter calendar 2004 recorded charge 08 million related liquidation si addition recorded additional charge 07 million related liquidation costs recorded charges third quarter calendar 2004 recorded charge 22 million transfer investment trusecure si ii well decrease ownership percentage si ii seven hundred basis points result transfer decrease ownership relieved future capital calls totaled 40 million see note 5 investments notes consolidated financial statements additional information gain loss investments net 47 million calendar 2003 includes 55 million insurance recovery received calendar 2003 associated previously incurred losses arising sale business gain loss investments net calendar 2003 also includes impairment loss 09 million associated minorityowned investment publicly traded evaluated investment impairment investee’s recapitalization due lack capital resources redeem mandatorily redeemable equity led us write investment estimate fair value conversion outstanding convertible debt equity fourth quarter 2003 decreased interest expense however due new credit agreement signed third quarter 2004 interest expense increase future expense net calendar 2004 39 million includes noncash writeoff 31 million accumulated foreign currency translation adjustments associated certain operations south america closed result decision required reclassify currency adjustments accumulated within equity earnings accordance statement financial accounting standards 52 “foreign currency translation” income net calendar 2003 05 million consists primarily net foreign exchange gains provision income taxes 510 334 income taxes calendar 2004 2003 respectively increase effective tax rate calendar 2004 compared calendar 2003 reflects impact charge planned repatriation foreign earnings calendar 2005 onetime favorable tax rate pursuant jobs creation act 2004 also reflects impact certain nondeductible book charges workforce reductions excess facilities asset impairments losses capital investments additional charges partially offset release valuation allowance foreign tax credits excluding charges effective tax rate would 327 calendar 2004 compared 33 calendar 2003 segment results evaluate reportable segment performance allocate resources based gross contribution margin gross contribution defined operating income excluding certain selling general administrative expenses depreciation amortization intangibles goodwill impairments charges gross contribution margin defined gross contribution percentage revenues research revenues increased 3 comparing calendar 2004 calendar 2003 excluding favorable effects foreign currency exchange rates revenue flat research gross contribution 2927 million calendar 2004 decreased slightly 2929 million calendar 2003 gross contribution margin calendar 2004 decreased 61 63 prior year decrease gross contribution margin calendar 2004 primarily due increased revenues executive programs lower margins core subscription products well continued investment people products processes required provide research growth research contract value indicator future research revenue 5092 million december 31 2004 increase 6 4822 million december 31 2003 roughly half increase due effects foreign currency research contract value 5092 million december 31 2004 represents highest reported contract value since first quarter calendar 2002 period focused stabilizing growing revenue core research business continued focus began yield desired outcome latter half calendar 2003 ended latter half 2003 two consecutive quarters sequential increases contract value seven consecutive quarters sequentially decreasing contract value contract value increased sequentially first quarter calendar 2004 decreased slightly second quarter calendar 2004 increased sequentially third fourth quarters calendar 2004 december 31 2004 client retention rates increased 2 percentage points 80 compared measure december 31 2003 wallet retention increased 6 percentage points calendar 2004 95 wallet retention rates held steady climbed four quarters calendar 2004 client retention dipped slightly first quarter climbed remainder year executive program membership 2708 december 31 2004 16 2332 december 31 2003 attributed new business growth north america emea well improved renewal rates consulting revenues 2594 calendar 2004 slightly compared 2586 million calendar 2003 excluding effects foreign currency exchange rates revenues would decreased approximately 4 calendar 2004 compared calendar 2003 adjusted currency effects consulting revenue decreased compared prior year result realignment business exit certain less profitable consulting practices geographies consulting gross contribution 927 million calendar 2004 increased 7 868 million calendar 2003 gross contribution margin calendar 2004 increased 36 34 prior year increase gross contribution margin primarily attributable higher consultant utilization rates approximately 63 calendar 2004 compared approximately 54 calendar 2003 effects realignment realized reduction billable headcount 493 december 31 2004 compared 526 december 31 2003 6 decrease billable rate 32700 per hour calendar 2004 7 increase 30600 rate calendar 2003 due efficient use staff globally higher billable rate emea due effects foreign exchange consulting backlog increased 12 1118 million december 31 2004 compared 997 million december 31 2003 consulting business ended calendar 2004 continuation positive trend began calendar 2003 ended year two consecutive quarters sequential increases backlog five consecutive quarters sequential decreases due realignment exited certain practices geographies consulting backlog decreased 917 million march 31 2004 increased 977 million june 30 2004 1034 million september 30 2004 business ramped areas focus events revenues increased 16 1384 million calendar 2004 compared 1194 million calendar 2003 changes foreign currency exchange rates approximately 2 favorable impact revenues comparing calendar 2004 calendar 2003 revenues increased despite one less event calendar 2004 compared calendar 2003 56 57 events respectively revenue calendar 2004 increased due higher attendance higher average exhibitor revenue resulting higher average revenue per event recurring events attendance events increased 30999 calendar 2004 27547 calendar 2003 125 increase attributed popularity topics offerred gross contribution 695 million calendar 2004 24 higher 560 million recorded calendar 2003 percentage revenues gross contribution increased 50 calendar 2004 47 calendar 2003 increase gross contribution margin due mix events well lower personnel marketing costs also 2003 invested marketing promoting events maintain attendance levels weak economy especially technology sector calendar 2003 versus calendar 2002 total revenues decreased 3 8584 million calendar 2003 8876 million calendar 2002 revenues declined united states canada region increased emea international regions revenues sales united states canadian clients decreased 7 5357 million calendar 2003 5765 million calendar 2002 revenues sales clients emea region increased 5 2523 million calendar 2003 2413 million calendar 2002 revenues sales clients international regions increased 1 705 million calendar 2003 698 million calendar 2002 decrease total revenues result decline demand throughout entire technology sector overall weakness economy partially offset positive effects foreign currency exchange rates excluding effects foreign currency translation revenues would decreased approximately 8 see segment analysis section discussion segment revenues cost services product development increased 4 calendar 2003 4107 million 3965 million calendar 2002 excluding effects foreign currency translation cost services product development would decreased 1 percentage sales cost services product development increased 478 447 due primarily investments gartner exp membership programs product development costs associated customer intelligence higher conference related expenses lower utilization rates consulting practice selling general administrative expenses decreased 4 3334 million calendar 2003 3465 million calendar 2002 sga would decreased approximately 7 negative effect foreign currency translation decrease sga primarily result lower sales commissions continued focus streamlining support organizations restructuring efforts depreciation expense calendar 2003 decreased 18 360 million compared 437 million calendar 2002 decrease due reduction capital spending calendar 2002 calendar 2003 relative capital spending fiscal 2000 2001 led decrease depreciation expense addition costs capitalized fiscal 2000 associated initial launch gartnercom web site january 2001 fully depreciated beginning calendar 2003 amortization intangibles decreased 34 comparing calendar 2003 calendar 2002 due certain intangible assets fully amortized past year charges 297 million calendar 2003 costs employee severance benefits associated workforce reductions initiated two separate actions 54 million first quarter calendar 2003 146 million fourth quarter calendar 2003 additionally fourth quarter calendar 2003 revised estimates previously recorded costs losses associated excess facilities recorded 97 million additional provisions revised estimate due decline market lease rates expected subleases well reduction estimated periods subleases workforce reduction occurred first quarter calendar 2003 continuation action taken transition 2002 resulted termination 92 employees approximately 2 workforce purpose reduction reduce costs underperforming segments workforce reduction occurred fourth quarter calendar 2003 resulted termination 130 employees approximately 3 workforce purpose workforce reduction part effort streamline operations strengthen key consulting practices align organizational structure focus client needs calendar 2002 charges 494 million charges result two actions one first quarter calendar 2002 amounting 172 million occurring fourth quarter calendar 2002 transition 2002 amounting 322 million charges occurring first quarter calendar 2002 100 million related costs losses associated elimination excess facilities principally leasehold improvements ongoing lease costs losses associated sublease arrangements addition approximately 58 million charges associated workforce reduction initiated first quarter calendar 2002 employee termination severance benefits workforce reduction resulted termination 92 employees approximately 2 workforce time expect payments associated workforce reduction completed end first quarter 2004 remaining 14 million expenses recorded charges first quarter calendar 2002 relates impairment certain databaserelated assets 322 million charges fourth quarter calendar 2002 133 million related costs losses associated elimination excess facilities principally leased facilities ongoing lease costs losses associated sublease arrangements remaining 189 million charges related severance payments related benefits associated workforce reduction included 06 million noncash compensation workforce reduction resulted elimination approximately 175 positions approximately 4 workforce time gain loss investments net calendar 2003 includes 55 million insurance recovery received calendar 2003 associated previously incurred losses arising sale business gain loss investments net calendar 2003 also includes impairment loss 09 million associated minorityowned investment publicly traded evaluated investment impairment investee’s recapitalization due lack capital resources redeem mandatorily redeemable equity led us write investment estimate fair value loss investments calendar 2002 caused primarily recognition impairment losses related equity securities owned us two limited partnerships si venture associates “si i” si venture fund ii “si ii” si ii venture capital funds engaged making investments early midstage itbased internetenabled companies december 31 2002 owned 100 si 34 si ii see note 5 investments notes consolidated financial statements discussion gains losses investments interest expense decreased calendar 2003 due conversion debt equity october 2003 conversion debt eliminated interest expense since conversion date income net calendar 2003 05 million consists primarily net foreign exchange gains calendar 2002 income net 01 million includes 05 million gain sale certain assets first quarter calendar 2002 partially offset net foreign exchange losses provision income taxes 334 377 income taxes calendar 2003 2002 respectively excluding charges workforce reductions excess facilities asset impairments gains losses investments effective tax rate would 33 calendar 2003 compared 34 calendar 2002 reduction effective tax rate calendar 2003 compared calendar 2002 reflects implementation tax planning strategies segment results evaluate reportable segment performance allocate resources based gross contribution margin gross contribution defined operating income excluding certain selling general administrative expenses depreciation amortization intangibles goodwill impairments charges gross contribution margin defined gross contribution percentage revenues research revenues decreased 4 comparing calendar 2003 calendar 2002 foreign currency exchange rates favorably impacted research revenues approximately 4 decrease research revenues due overall weakness economy impact weakness corporate information technology spending causing lower demand throughout entire technology sector research gross contribution 2929 million calendar 2003 decreased 8 3187 million calendar 2002 gross contribution margin calendar 2003 decreased 63 65 prior year decrease gross contribution gross contribution margin result lower revenues costs associated investments gartner exp gartner g2 membership programs product development marketing costs associated customer intelligence research contract value indicator future research revenue 4822 million december 31 2003 decrease 1 4890 million december 31 2002 however research contract value increased sequentially third fourth quarters calendar 2003 4685 million june 30 2003 4696 million september 30 2003 prior sequential increases calendar 2003 contract value decreased sequentially five consecutive quarters december 31 2003 client retention rates increased 4 percentage points 78 compared measure december 31 2002 wallet retention increased 8 percentage points calendar 2003 89 client wallet retention rates increased steadily four quarters calendar 2003 consulting revenues decreased 6 calendar 2003 2586 million 2761 million calendar 2002 foreign currency exchange rates positive impact approximately 5 calendar 2003 decrease revenues caused lower utilization billable headcount consulting business december 31 2003 increased 526 december 31 2003 compared 459 december 31 2002 consulting gross contribution 868 million calendar 2003 decreased 16 1028 million calendar 2002 gross contribution margin calendar 2003 decreased 34 37 prior year decrease gross contribution margin primarily attributable lower consultant utilization rates approximately 53 calendar 2003 compared approximately 56 calendar 2002 consulting backlog decreased 10 997 million december 31 2003 compared 1113 million december 31 2002 increased sequentially third fourth quarters calendar 2003 910 million june 30 2003 928 million september 30 2003 consulting backlog decreased compared prior year due decline demand throughout entire technology sector technology customers continued constrain spending events revenues increased 9 1194 million calendar 2003 compared 1097 million calendar 2002 changes foreign currency exchange rates approximately 5 favorable impact revenues comparing calendar 2003 calendar 2002 revenues increased slightly despite nine fewer events calendar 2003 compared calendar 2002 average revenue per event increased calendar 2003 due strong performance recurring events well addition new events calendar 2003 higher revenues events eliminated gross contribution 560 million calendar 2003 relatively consistent calendar 2002 percentage revenues gross contribution decreased 47 calendar 2003 51 calendar 2002 decrease gross contribution margin due primarily increased personnel expenses increased event marketing costs 2003 invested marketing promoting events maintain attendance levels weak economy especially technology sector liquidity capital resources calendar 2004 cash provided operating activities calendar 2004 totaled 483 compared 1363 million calendar 2003 net decrease cash flow operating activities 880 million due several factors paid 270 million bonuses 2004 compared zero calendar 2003 bonuses paid calendar 2003 previously paid quarter ended december 31 2002 paid first half year result change fiscal year became effective january 1 2003 result 2003 bonuses paid calendar 2004 paid portion 2004 bonuses third quarter 2004 accordance current year corporate bonus plan additionally cash operating activities declined paid approximately 140 million severance calendar 2004 calendar 2003 net decrease cash flow operating activities also due accelerated collection receivables calendar 2003 improved operating cash flow year approximately 260 million repeated calendar 2004 lastly approximately 150 million certain accrued liabilities booked fourth quarter calendar 2003 paid first quarter 2004 cash used investing activities increased 290 million calendar 2004 compared 254 million calendar 2003 increase primarily due 39 million prepaid related acquisition meta capital expenditures calendar 2004 251 million 15 lower 289 million calendar 2003 calendar 2003 received insurance recovery 55 million funded 20 million capital commitment si ii cash used financing activities totaled 973 million calendar 2004 compared 30 million used calendar 2003 purchased 3523 million common stock treasury calendar 2004 3462 million represents tender offer silver lake repurchases inclusive related costs compared 434 million prior year received proceeds stock issued stock plans 678 million calendar 2004 compared 417 million prior year increase result higher stock option exercises employees increases stock price caused significantly larger percentage vested stock options money calendar 2004 compared calendar 2003 borrowed 200 million related tender third quarter calendar 2004 receiving proceeds net debt issuance costs 1972 million repaid 10 million debt fourth quarter calendar 2004 december 31 2004 cash equivalents totaled 1601 million effect exchange rates increased cash equivalents 81 million calendar 2004 due weakening us dollar certain foreign currencies primarily euro sterling calendar 2003 cash provided operating activities calendar 2003 1363 million compared 1458 million calendar 2002 decrease primarily due lower cashrelated earnings smaller decrease receivables calendar 2003 compared calendar 2002 cashrelated earnings income continuing operations adjusted noncash items included income depreciation amortization accretion interest amortization debt issue costs along noncash charges partially offsetting decreases higher bonus payments calendar 2002 bonus payments higher calendar 2002 due change fiscal year september 30 december 31 effective january 1 2003 fiscal 2002 bonuses paid transition 2002 fourth quarter calendar 2002 whereas calendar 2003 bonuses paid 2004 cash used investing activities 254 million calendar 2003 compared 263 million calendar 2002 decrease due primarily proceeds received insurance recovery 55 million calendar 2003 associated previously incurred loss claim resulting sale business 2000 additionally 2002 spent 39 million purchase remaining 499 people3 inc previously owned us calendar 2003 calendar 2002 funded 20 million 15 million respectively investment commitment si ii reducing remaining commitment december 31 2003 40 million spending property equipment increased 78 million 289 million calendar 2003 compared 211 million period 2002 cash used financing activities totaled 30 million calendar 2003 compared 422 million calendar 2002 purchased 434 million common stock treasury calendar 2003 compared 599 million calendar 2002 see discussion follows stock repurchases received proceeds 417 million exercise stock options purchase stock employees participating employee stock purchase plan calendar 2003 compared 179 million calendar 2002 december 31 2003 cash equivalents totaled 2300 million effect exchange rates increased cash equivalents 124 million calendar 2003 due weakening us dollar certain foreign currencies obligations commitments credit agreement provides 2000 million term loan facility fiveyear 100 million revolving credit facility third quarter 2004 borrowed 200 million term loan facility receiving net proceeds debt issuance costs 1972 million accordance requirements term loan facility made loan payment 100 million fourth quarter calendar 2004 december 31 2004 190 million outstanding term loan facility 35 million letters credit outstanding revolving credit facility based specified covenant requirements borrowing availability december 31 2004 revolving credit facility 592 million subsequent december 31 2004 entered amendment credit agreement covenant requirements resulted additional borrowing capacity revolving credit facility result amended borrowing availability revolving credit facility would 965 million december 31 2004 facilities bear interest equal libor plus applicable margin varies based specified leverage ratios december 31 2004 current interest rate 359 term loan facility payable equal quarterly installments fiveyear period ending august 12 2009 credit facilities subject mandatory prepayments portion proceeds asset sales proceeds certain future debt issuances credit agreement includes customary affirmative negative financial covenants primarily based financial results measures contract value facilities also include commitment fees unused portion revolving credit facility subject letters credit april 17 2000 issued private placement transaction 3000 million unsecured 6 convertible subordinated notes due april 17 2005 silver lake noteholders interest accrued semiannually corresponding increase face amount convertible notes october 2003 notes converted 49441122 shares gartner class common stock conversion accordance original terms notes determination number shares issued upon conversion based upon 745 conversion price convertible note 3683 million consisting original face amount 300 million plus accrued interest 683 million unamortized balances debt issue costs 28 million debt discount 03 million conversion date netted outstanding principal interest balances resulting 3652 million increase stockholders’ equity additionally certain costs directly associated conversion regulatory filings banking legal fees totaling 06 million charged equity following table represents contractual commitments december 31 2004 millions december 27 2004 announced would acquire meta allcash transaction 1000 per share approximately 1620 million excluding transaction costs subject regulatory stockholder approvals expect transaction effective april 1 2005 17 million meta acquisition obligation table relates additional nonrefundable acquisition expenses obligated pay order fund purchase meta anticipate use combination cash amended fiveyear revolving credit facility connection funding meta transaction anticipate repatriating 520 million cash earnings nonus subsidiaries early 2005 believe existing cash balances together cash operating activities additional borrowing capacity amended fiveyear revolving credit facility sufficient expected shortterm foreseeable longterm needs currently evaluating option establishing longterm debt permanent part capital structure however assurances capital available us available commercially reasonable terms tender offer august 10 2004 announced final results dutch auction tender offer repurchased approximately 113 million shares class common stock 55 million shares class b common stock purchase price 1330 1250 per share respectively additionally repurchased 92 million class shares silver lake certain affiliates collectively owned approximately 444 class common stock affiliated two members board directors purchase price 1330 per share total cost purchases 3462 million including transaction costs 38 million stock repurchases july 2001 board directors approved repurchase 750 million class b common stock board directors subsequently increased authorized stock repurchase program total authorization repurchase 2000 million cumulative basis december 31 2004 purchased 1332 million stock repurchase program connection tender offer board directors terminated stock repurchase program june 2004 following table provides information related cumulative repurchases program offbalance sheet arrangements december 31 2004 entered balance sheet arrangements transactions unconsolidated entities persons quarterly financial data factors may affect future performance operate competitive rapidly changing environment involves numerous risks uncertainties beyond control addition clients affected economy following section discusses many risks uncertainties economic conditions revenues results operations influenced economic conditions general particularly business conditions industry general economic downturn recession anywhere world could negatively affect demand products services may substantially reduce existing potential client information technologyrelated budgets economic downturn united states globally led constrained spending impacted business continue could materially adversely affect business financial condition results operations including ability maintain client retention wallet retention consulting utilization rates achieve contract value consulting backlog extent clients industry severe decline sector also significant impact spending organizational product integration related acquisitions made may continue make acquisitions significant investments businesses offer complementary products services including pending acquisition meta risks involved acquisition investment include possibility paying value derive acquisition dilution interests current stockholders decreased working capital increased indebtedness assumption undisclosed liabilities unknown unforeseen risks ability integrate successfully operations personnel acquired business ability retain key personnel acquired company time train sales force market sell products acquired company potential disruption ongoing business distraction management business realization risks could adversely affect business restructuring reorganization management team future success depends significant part upon continued service performance senior management key personnel recently reorganized business around specific client needs part reorganization number key management positions filled promotion current employees hiring new employees additionally restructured workforce order streamline operations strengthen key consulting practices reorganization restructuring business lead results expect ability effectively deliver products manage company carry business plan may impaired july 23 2004 announced board directors named eugene hall chief executive officer mr hall succeeded michael fleisher previously announced intention depart chairman chief executive officer additionally james c smith current board member named nonexecutive chairman board directors september 28 2004 announced position president chief operating officer previously held maureen o’connell eliminated mr hall would assume direct responsibility business operations cannot successfully integrate chief executive officer senior management team ability effectively deliver products manage company carry business plan may impaired acts terrorism war acts terrorism acts war unforeseen events may cause damage disruption properties business employees suppliers distributors clients could adverse effect business financial condition operating results events may also result economic slowdown united states elsewhere could adversely affect business financial condition operating results competitive environment face direct competition significant number independent providers information products services including information found internet free charge also compete indirectly consulting firms information providers including electronic print media companies may greater financial information gathering marketing resources indirect competitors could choose compete directly us future addition limited barriers entry exist markets business result additional new competitors may emerge existing competitors may start provide additional complementary services additionally technological advances may provide increased competition variety sources increased competition may result loss market share diminished value products services reduced pricing increased marketing expenditures may successful cannot compete effectively quality research analysis timely delivery information customer service ability offer products meet changing market needs information analysis price renewal research business existing clients success depends renewals subscriptionbased research products services constituted 54 revenues calendar 2004 calendar 2003 research subscription agreements terms generally range twelve thirty months ability maintain contract renewals subject numerous factors including described annual report additionally implement strategy realign business client needs may shift type pricing products may impact client renewal rates client retention rates 80 december 31 2004 78 december 31 2003 guarantee continue level client renewals material decline renewal rates could adverse impact revenues financial condition nonrecurring consulting engagements consulting segment revenues constituted 29 revenues calendar 2004 30 revenues calendar 2003 consulting engagements typically projectbased nonrecurring ability replace consulting engagements subject numerous factors including described annual report material decline ability replace consulting arrangements could adverse impact revenues financial condition hiring retention employees success depends heavily upon quality senior management research analysts consultants sales key personnel face competition limited pool qualified professionals among others technology companies market research firms consulting firms financial services companies electronic print media companies greater ability attract compensate professionals personnel attempt hire subject noncompete agreements could impede shortterm recruitment efforts failure retain key personnel hire train additional qualified personnel required support evolving needs clients growth business could adversely affect quality products services therefore future business operating results maintenance existing products services operate rapidly evolving market success depends upon ability deliver high quality timely research analysis clients failure continue provide credible reliable information useful clients could material adverse effect future business operating results predictions prove wrong substantiated appropriate research reputation may suffer demand products services may decline addition must continue improve methods delivering products services costeffective manner failure increase improve electronic delivery capabilities could adversely affect future business operating results introduction new products services market products services characterized rapidly changing needs information analysis maintain competitive position must continue enhance improve products services develop acquire new products services timely manner appropriately position price new products services relative marketplace costs producing failure achieve successful client acceptance new products services could material adverse effect business results operations financial position international operations substantial portion revenues derived sales outside north america 37 calendar 2004 result operating results subject risks inherent international business activities including general political economic conditions country changes market demand result exchange rate fluctuations tariffs trade barriers challenges staffing managing foreign operations changes regulatory requirements compliance numerous foreign laws regulations different overlapping tax structures higher levels united states taxation foreign income difficulty enforcing client agreements collecting accounts receivable protecting intellectual property rights international jurisdictions rely local distributors sales agents international locations arrangements terminated agent us may able replace arrangement beneficial terms timely basis additionally clients local distributor sales agent may want continue business us new agent branding believe “gartner” brand critical efforts attract retain clients importance brand recognition increase competition increases may expand marketing activities promote strengthen gartner brand may need increase marketing budget hire additional marketing public relations personnel expend additional sums protect brand otherwise increase expenditures create maintain client brand loyalty fail effectively promote maintain gartner brand incur excessive expenses future business operating results could materially adversely impacted indebtedness 2000 million senior revolving credit facility well 100 million revolving credit facility affirmative negative financial covenants credit facility could limit future financial flexibility result covenants borrowing availability december 31 2004 592 million would 965 million based amendment credit agreement associated debt service costs facilities could impair future operating results outstanding debt may limit amount cash additional credit available us could restrain ability expand enhance products services respond competitive pressures pursue future business opportunities requiring substantial investments additional capital enforcement intellectual property rights rely combination copyright patent trademark trade secret confidentiality noncompete contractual provisions protect intellectual property rights despite efforts protect intellectual property rights unauthorized third parties may obtain use technology information regard proprietary intellectual property rights may survive legal challenge validity provide significant protection us laws certain countries protect proprietary rights extent laws united states accordingly may able protect intellectual property unauthorized thirdparty copying use could adversely affect competitive position employees subject noncompete agreements noncompetition period expires former employees may compete us former employee chooses compete us prior expiration noncompetition period assurance successful efforts enforce noncompete provision possibility infringement claims third parties may assert infringement claims us regardless merits responding claim could time consuming result costly litigation require us enter royalty licensing agreements may offered available reasonable terms successful claim made us fail develop license substitute technology business results operations financial position could materially adversely affected potential fluctuations operating results quarterly annual operating income may fluctuate future result many factors including timing execution research contracts typically occurs fourth calendar quarter extent completion consulting engagements timing symposia events also occur greater extent fourth calendar quarter amount new business generated mix domestic international business changes market demand products services timing development introduction marketing new products services competition industry inability generate sufficient earnings cash flow achieve forecasts may impact operating activities potential fluctuations operating income could cause periodtoperiod comparisons operating results meaningful may provide unreliable indication future operating results significant stockholders silver lake affiliates approximately 422 class common stock approximately 337 total common stock combined basis february 28 2005 currently owners class common stock entitled vote two ten members board directors vote together holders class b common stock single class matters coming stockholders silver lake restricted purchasing additional stock without consent pursuant terms securityholders’ agreement securityholders’ agreement also provides cannot take certain actions including acquisitions sales stock andor assets without silver lake’s consent additionally valueact partners affiliates approximately 130 class common stock 227 class b common stock 149 total common stock combined basis february 28 2005 neither silver lake valueact holds majority outstanding shares may able either individually together exercise significant influence matters requiring stockholder approval including election directors approval mergers consolidations sales assets interests may differ interests stockholders antitakeover protections provisions certificate incorporation bylaws delaware law may make difficult party acquire control us transaction approved board directors provisions include • presence classified board directors • existence two classes common stock class b common stock ability elect 80 board directors • ability board directors issue determine terms preferred stock • advance notice requirements inclusion stockholder proposals stockholder meetings • preferred shares rights agreement • antitakeover provisions delaware law provisions could delay prevent change control change management might provide stockholders premium market price common stock announced intend eliminate classified board structure combine two classes common stock subject approval stockholders next annual meeting stockholders held late spring early summer 2005 actions could serve make easier change control occur noncash compensation charges future periods october 15 2004 announced eugene hall received inducement grant 500000 shares restricted stock market value date grant 1205 per share long mr hall remains employee restriction 500000 shares restricted stock lapse upon earlier 60 day average stock price meeting certain targets b change control price targets 20 first 300000 shares 25 next 100000 shares 30 remaining 100000 shares 60 day average stock price exceeds stipulated per share target 60 day measurement period required record noncash compensation charge equal closing price stock date target met times number shares associated applicable target example average 60 days stock price 22 per share stock closes 2250 per share first lapse shall result us recording 675 million noncash compensation charge 300000 shares 2250share recently issued accounting standards december 2004 financial accounting standards board issued statement financial accounting standards 123r sharebased payments “sfas 123r” rule replaces sfas 123 apb 25 require recognition expense sharebased payments include value stock options granted employees revised rule effective periods beginning june 15 2005 early adoption permitted plan adopt new rule july 1 2005 currently assessing impact revised rule financial position cash flows results operations believe may material effect results operations item 7aitem 7 management’s discussion analysis financial condition results operations forwardlooking statements addition historical information annual report contains forwardlooking statements forwardlooking statements historical fact including statements regarding expectations beliefs hopes intentions strategies regarding future cases forwardlooking statements identified use words “may” “will” “expect” “should” “could” “believe” ‘plan” “anticipate” “estimate” “predict” “potential” “continue” words similar meaning forwardlooking statements subject risks uncertainties could cause actual results differ materially discussed implied forwardlooking statements factors might cause difference include limited discussed part 1 item 1a risk factors readers place undue reliance forwardlooking statements reflect management’s opinion date made except required law disclaim obligation review update forwardlooking statements reflect events circumstances occur readers review carefully risk factors described reports filed securities exchange commission overview convergence business technology become increasingly important technology professionals also business executives independent objective research advisory firm helps business executives use technology build guide grow enterprises employ diversified business model leverages breadth depth research intellectual capital enabling us maintain grow marketleading position brand franchise strategy align resources infrastructure leverage intellectual capital additional revenue streams effective packaging campaigning crossselling products services diversified business model provides multiple entry points synergies facilitate increased client spending research consulting events key strategy increase business volume valuable clients identifying relationships greatest sales potential expanding relationships offering strategically relevant research analysis intend maintain balance 1 pursuing opportunities applying resources strict focus growing three core businesses 2 generating profitability streamlined cost structure three business segments research consulting events • research provides research content advice professionals technology companies investment community form reports briefings well peer networking services membership programs designed specifically cios senior executives • consulting consists primarily consulting measurement engagements strategic advisory services paid oneday analyst engagements “sas” provide assessments cost performance efficiency quality focused industry • events consists various symposia conferences exhibitions focused industry believe following business measurements important performance indicators business segments business segment business measurements research contract value represents value attributable subscriptionrelated research products recognize revenue ratable basis contract value calculated annualized value subscription research contracts effect specific point time without regard duration contract client retention rate represents measure client satisfaction renewed business relationships specific point time client retention calculated percentage basis dividing current clients also clients year ago clients year ago wallet retention rate represents measure amount contract value retained clients twelvemonth period wallet retention calculated percentage basis dividing contract value business segment business measurements clients one year earlier total contract value year earlier wallet retention exceeds client retention indication retention higherspending clients increased spending retained clients number executive program members represents number paid participants executive programs consulting backlog represents future revenue derived inprocess consulting measurement strategic advisory services engagements utilization rates represent measure productivity consultants utilization rates calculated billable headcount percentage basis dividing total hours billed total hours available bill billing rate represents earned billable revenue divided total billable hours average annualized revenue per billable headcount represents measure revenue generating ability average billable consultant calculated periodically multiplying average billing rate per hour times average utilization percentage times billable hours available one year events number events represents total number hosted events completed period number attendees represents number people attend events executive summary operations financial position calendar 2005 acquired meta group inc “meta” allcash transaction 1000 per share approximately 1683 million excluding transaction costs 81 million meta publicly owned premier information technology research firm based stamford connecticut 715 employees 2004 meta generated 1415 million revenue 52 worldwide locations 908 million assets december 31 2004 results operations meta included consolidated financial results beginning april 1 2005 date acquisition december 31 2005 fully successfully integrated meta operations initiated completed several actions calendar 2005 enhance shareholder value simplified capital structure eliminating dual class stock since july 7th common stock trading one ticker symbolit believe change increased trading liquidity common stock shareholders september completed buy back certain vested outstanding stock options cash resulted tender cancellation approximately 64 million options undertook buy back reduce option overhang resulting high number options outstanding october board directors authorized 1000 million common share repurchase program repurchased approximately 838000 common shares end year enhanced liquidity financial flexibility calendar 2005 amending credit agreement addition increasing available credit securing favorable amortization schedule also obtained favorable covenant terms also reduced exposure rising interest rates term portion loan facility entering interest rate swap agreement fourth quarter calendar 2005 effectively converted base floating rate base term loan fixed rate ended calendar 2005 703 million cash believe sufficient meet current needs stockholders’ equity december 31 2005 1466 million believe stabilized core research business continue focus growing revenues research revenue 9 prior year 5230 million revenue 3 excluding impact meta effect foreign currency december 31 2005 contract value 5926 million 16 834 million 5092 million december 31 2004 represents highest contract value since september 30 2000 second highest level ever addition growth contract value shows increases across regions well across entire product portfolio research client retention rate december 31 2005 increased 81 80 prior yearend wallet retention 93 95 period consulting revenue calendar 2005 16 prior year revenue 11 excluding meta foreign currency impact ended calendar 2005 backlog 1199 million 7 increase december 31 2004 calendar 2005 average consultant utilization rate 62 compared 63 prior year billable headcount increased 525 december 31 2005 compared 475 december 31 2004 average annualized revenue per billable headcount 375000 events business continues deliver consistent profitable growth emphasis managing events portfolio retain longtime successful events introduce promising new events resulted continued positive revenue performance calendar 2005 revenue 9 prior year event revenue also increased 5 prior year contributing increased revenue substantial increase number events 70 held calendar 2005 compared 56 held calendar 2004 fluctuations quarterly operating results quarterly annual revenue operating income cash flow fluctuate result many factors including timing symposia flagship event normally occurs fourth calendar quarter events amount new business generated mix domestic international business changes market demand products services changes foreign currency rates timing development introduction marketing new products services competition industry potential fluctuations operating income could cause periodtoperiod comparisons operating results meaningful could provide unreliable indication future operating results critical accounting policies estimates preparation financial statements requires application appropriate accounting policies significant accounting policies described note 1 notes consolidated financial statements management considers policies discussed critical understanding financial statements application requires complex subjective judgments estimates specific risks critical accounting policies described revenue recognition recognize revenue accordance sec staff accounting bulletin 101 revenue recognition financial statements “sab 101” sec staff accounting bulletin 104 revenue recognition “sab 104” revenue significant source accounted follows • research revenues derived subscription contracts research products revenues research products deferred recognized ratably applicable contract term • consulting revenues generated fixed fee time material engagements revenue fixed fee contracts recognized percentage completion basis revenues time materials engagements recognized work delivered andor services provided • events revenues deferred recognized upon completion related symposium conference exhibition • revenues consists primarily fees research reprints software licensing reprint fees recognized reprint shipped fees software licensing recognized signed noncancelable software license exists delivery occurred collection probable fees fixed determinable • majority research contracts billable upon signing absent special terms granted limited basis time research contracts noncancelable nonrefundable except government contracts 30day cancellation clause produced material cancellations date policy record entire amount contract billable fee receivable time contract signed corresponding amount deferred revenue since contract represents legally enforceable claim government contracts permit termination bill client full amount billable contract record receivable equal earned portion contract addition record deferred revenue government contracts cash received deferred revenues attributable government contracts 417 million 409 million december 31 2005 december 31 2004 respectively addition december 31 2005 december 31 2004 recognized uncollected receivables deferred revenues relating government contracts permit termination 71 million 42 million respectively preliminary purchase price allocation meta acquisition includes estimate fair value cost fulfill deferred revenue obligation assumed meta estimated fair value deferred revenue obligation determined estimating costs provide services plus normal profit margin include costs associated selling efforts result allocating purchase price recorded adjustments reduce carrying value meta’s march 31 2005 deferred revenue approximately 126 million consequently revenues related meta contracts existing date acquisition amount approximately 90 million would recorded meta remained independent entity recognized calendar 2005 remaining 36 million impact calendar 2006 former meta customers renew contracts recognize full value revenue new contracts respective contract periods uncollectible fees receivable allowance losses composed bad debt sales allowance reserve provisions charged earnings measurement likely probable losses allowance uncollectible fees receivable based historical loss experience aging outstanding receivables assessment current economic conditions financial health specific clients evaluation inherently judgmental requires material estimates valuation reserves periodically reevaluated adjusted information ultimate collectibility fees receivable becomes available circumstances could cause valuation reserves increase include changes clients’ liquidity credit quality factors negatively impacting clients’ ability pay obligations come due effectiveness collection efforts following table provides total fees receivable along related allowance losses thousands impairment goodwill intangible assets evaluation goodwill performed accordance statement financial accounting standards 142 “goodwill intangible assets” “sfas 142” among requirements standard eliminated goodwill amortization upon adoption requires ongoing annual assessments goodwill impairment evaluation intangible assets performed periodic basis assessments require management estimate fair values reporting units based estimates future business operations market economic conditions developing longterm forecasts determine fair value reporting unit less carrying amount must recognize impairment charge associated goodwill reporting unit earnings financial statements goodwill evaluated impairment least annually whenever events changes circumstances indicate carrying value may recoverable factors consider important could trigger review impairment include following • significant underperformance relative historical projected future operating results • significant changes manner use acquired assets strategy overall business • significant negative industry economic trends • significant decline stock price sustained period • market capitalization relative net book value due numerous variables associated judgments assumptions relating valuation reporting units effects changes circumstances affecting valuations precision reliability resulting estimates subject uncertainty additional information becomes known may change estimates calendar 2004 recorded impairment charge 07 million first quarter relating goodwill associated certain operations south america closed fourth quarter recorded goodwill impairment charge 20 million related exit certain noncore product lines accounting income taxes prepare consolidated financial statements estimate income taxes jurisdictions operate process involves estimating current tax expense together assessing temporary differences resulting differing treatment items tax accounting purposes differences result deferred tax assets liabilities included within consolidated balance sheets record valuation allowance reduce deferred tax assets future realization question consider availability loss carryforwards existing deferred tax liabilities future taxable income ongoing prudent feasible tax planning strategies assessing need valuation allowance event determine would able realize deferred tax assets future excess net recorded amount adjustment deferred tax asset would increase income period determination made likewise determine would able realize part net deferred tax asset future adjustment deferred tax asset would charged income period determination made operate numerous foreign taxing jurisdictions level operations profitability jurisdiction could impact upon amount income taxes provide given year addition tax filings various tax years subject audit tax authorities jurisdictions conduct business audits may result assessments additional taxes provided amounts believe ultimately result audits however resolution matters involves uncertainties assurances ultimate resolution exceed amounts provided october 2005 received irs examination report showing proposed changes primarily relate valuation intangible assets licensed foreign subsidiary calculation payments cost sharing arrangement see item 3 legal proceedings additional information contingencies loss reserves accruals record accruals severance costs lease costs associated excess facilities contract terminations asset impairments result actions undertake streamline organization reposition certain businesses reduce ongoing costs estimates costs incurred complete actions future lease payments sublease income fair value assets severance related benefits based assumptions time actions initiated extent actual costs differ estimates reserve levels may need adjusted addition actions may revised due changes business conditions foresee time plans approved calendar 2005 revised previous estimate costs losses associated excess facilities recorded charge approximately 82 million primarily due reduction office space san jose california consolidated employees two buildings one charge included charges along severance option buyback impairment costs additionally record accruals estimated incentive compensation costs year amounts accrued end reporting period based estimates may require adjustment ultimate amount paid incentives sometimes known year end change fiscal year october 30 2002 announced board directors approved change fiscal yearend september 30 december 31 effective january 1 2003 change resulted threemonth transitional period ending december 31 2002 references transition 2002 unless otherwise indicated refer threemonth transitional period ended december 31 2002 references fiscal 2002 fiscal 2001 unless otherwise indicated respective fiscal year period october 1 september 30 references calendar 2006 calendar 2005 calendar 2004 calendar 2003 calendar 2002 unless otherwise indicated respective twelvemonth period january 1 december 31 results operations calendar 2005 versus calendar 2004 total revenues increased 11 952 million 9890 million calendar 2005 8938 million calendar 2004 effects foreign currency translation approximately 11 million negative effect total revenues calendar 2005 compared calendar 2004 meta purchase added approximately 500 million revenue excluding effects foreign currency translation meta acquisition revenues would increased approximately 5 yearoveryear see segment results section discussion segment revenues increased regions revenues sales united states canadian clients increased 9 6110 million calendar 2005 5594 million calendar 2004 revenues sales clients europe middle east africa “emea” increased 13 2968 million calendar 2005 2630 million calendar 2004 revenues sales clients international regions increased 14 812 million calendar 2005 714 million calendar 2004 cost services product development increased 521 million 12 4866 million calendar 2005 4345 million calendar 2004 foreign currency translation negligible impact increase cost services product development yeartodate basis resulted primarily increase salary benefits expense approximately 335 million primarily driven addition 140 people related meta purchase higher bonus expense sales commissions 142 million 50 million respectively increase bonus expense reflects company’s decision restore bonus payouts competitive level addition 53 million higher conference expenses related increase number events attendees cost services product development calendar 2005 benefited reversal 21 million prior years’ incentive compensation program accruals additionally cost services product development calendar 2004 benefited reversal 35 million prior years’ incentive compensation program accruals calendar 2005 2004 cost services product development percentage sales 49 periods selling general administrative expenses increased 474 million 14 3973 million calendar 2005 3498 million calendar 2004 foreign currency translation negligible impact increase sga expenses yeartodate basis primarily driven continued investment sales organization 700 sales associates 17 increase calendar 2004 reflecting addition 110 sales associates 2005 added 111 people related meta purchase including 80 sales associates accounting approximately 107 million increase addition 107 million increase attributable meta salary benefit increases totaled 121 million bonus expense sales commissions increased 69 million 70 million respectively also approximately 164 million additional external consulting facilities outsourcing charges offset favorable impact approximately 44 million lower costs primarily marketing production sga expenses calendar 2005 benefited reversal 09 million prior years’ incentive compensation program accruals calendar 2004 sga expenses benefited reversal 33 million prior year’s incentive compensation program accruals calendar 2004 company reduced allowance doubtful accounts 37 million result increased collections decline writeoffs depreciation expense calendar 2005 decreased 8 255 million compared 276 million calendar 2004 reduction due decline capital spending reflecting disciplined capital spending projects support strategic initiatives amortization intangibles increased 102 million calendar 2005 07 million prior year due amortization 256 million intangibles asset acquired meta acquisition majority intangibles related meta acquisition fully amortized end calendar 2006 goodwill impairments 27 million calendar 2004 reflecting writeoff goodwill related closing certain operations latin america noncore product lines charges calendar 2005 292 million includes 107 million related workforce reductions 60 million option buyback 82 million related reduction office space 43 million charges company severed total 150 employees calendar 2005 estimates annualized savings termination employees approximately 152 million company plans reinvest significant portion savings improving products processes infrastructure help drive future growth fourth quarter calendar 2005 company recorded charges 15 million costs associated employee termination severance payments related benefits 27 employees addition fourth quarter calendar 2005 company reversed approximately 07 million previously accrued severance benefits amounts actually paid less estimated third quarter calendar 2005 company recorded charges 60 million related completion one time offer buy back certain vested outstanding stock options cash see note 8 equity stock programs notes consolidated financial statements additional information second quarter calendar 2005 company recorded charges 82 million included second quarter charge 82 million costs primarily related reduction office space san jose california consolidating employees two buildings one company also recorded charge 06 million associated certain stock combination expenses offset reversal approximately 09 million accrued severance charges company determined would paid first quarter calendar 2005 company recorded charges 143 million included charge 106 million costs associated employee termination severance payments related benefits workforce reduction continuation plan announced fourth quarter calendar 2004 resulted termination 123 employees three months ended march 31 2005 addition first quarter calendar 2005 company also recorded charges approximately 37 million primarily related restructuring company’s international operations charges calendar 2004 358 million included amount 297 million related severance benefits 203 employees including costs 77 million related departure president coo chairman ceo 203 employees 132 severed part action plan announced fourth quarter calendar 2003 calendar 2004 company also revised estimate previously recorded costs losses associated excess facilities recorded 23 million additional provisions revised estimate due decline market lease rates expected subleases well reduction estimated periods subleases company also recorded charges calendar 2004 19 million related restructuring certain internal systems 18 million charges related exit certain international noncore operations loss gain investments net calendar 2005 includes noncash charges 51 million 02 million first second quarters respectively primarily related writedowns investment si venture fund ii lp “si ii” company decided sell fourth quarter calendar 2004 company recorded writedown first quarter calendar 2005 reduce investment estimated net realizable value receiving preliminary indications interest acquire investment less recorded value company took additional writedown second quarter calendar 2005 based preliminary sale agreement proceeds less recorded value august 2 calendar 2005 company sold investment si ii approximately 13 million resulting gain loss recorded sale since investment already net realizable value fourth quarter calendar 2005 company sold investment common stock acquired meta acquisition 07 million recorded loss 05 million recorded loss gain investments net consolidated statements operations loss gain investments net calendar 2004 loss 30 million fourth quarter calendar 2004 company made decision liquidate equity investments si venture associates llc “si i” sell company’s interest si ii si ii venture capital funds engaged making investments early midstage itbased internetenabled companies company owned 100 si 22 si ii december 31 2004 fourth quarter calendar 2004 company recorded charge 15 million related liquidation si include 08 million writedown investment 07 million related shutdown charges recorded si ii fourth quarter calendar 2004 related planned sale since management believed carrying value investment approximated net realizable value third quarter calendar 2004 company recorded noncash charge 22 million related transfer investment si ii well decrease company’s ownership percentage si ii seven hundred basis points carrying value company’s investments held si ii zero 67 million respectively december 31 2004 expense net calendar 2005 29 million consists primarily net foreign currency exchange gains losses expense net 39 million calendar 2004 includes noncash writeoff 31 million accumulated foreign currency translation adjustments associated certain operations south america closed result decision required reclassify currency adjustments accumulated within equity earnings accordance statement financial accounting standards 52 “foreign currency translation” provision income taxes 1448 510 income taxes calendar 2005 2004 respectively increase effective tax rate calendar 2005 compared calendar 2004 principally due fact company generated less income low tax jurisdictions compared prior year recorded valuation allowances capital losses foreign tax credit carryforwards impact items offset part benefits taken reduce overall tax expense repatriated earnings well reductions interest costs related tax contingencies impact various positive negative adjustments amplified lower pretax book income 2005 compared 2004 calendar 2004 took 50 million tax charge anticipation repatriating approximately 520 million earnings nonus subsidiaries calendar 2005 repatriation expected qualify onetime reduced tax rate pursuant american jobs creation act ajca charge partially offset benefit 25 million release valuation allowance foreign tax credits expected utilized expired march 2005 repatriated approximately 520 million cash nonus subsidiaries also 2005 took account technical corrections issued treasury department related repatriating earnings ajca result favorable provisions technical corrections realized tax benefit 36 million 2005 reduced cumulative charge repatriated earnings 14 million addition consequence application technical corrections reevaluated ability use foreign tax credits future took charge 25 million reestablish valuation allowance foreign tax credits likely expire unused excluding effect certain onetime charges provision income taxes calendar years ended 2005 2004 would 366 360 respectively 2005 significant onetime charges included expenses related acquisition integration meta various capital losses impairments charges associated buyback water stock options severance facilities reduction charges 2004 significant onetime charges included nondeductible goodwill impairment writeoff accumulated foreign currency translation adjustments associated certain south american operations various capital losses impairments severance facilities reduction charges 2005 segment results evaluate reportable segment performance allocate resources based gross contribution margin gross contribution defined operating income excluding certain selling general administrative expenses depreciation amortization intangibles goodwill impairments income taxes meta integration charges gross contribution margin defined gross contribution percentage revenues research revenues increased 9 425 million comparing calendar 2005 calendar 2004 meta contributing approximately 290 million growth executive programs accounting majority rest increase impact foreign currency immaterial excluding impact meta foreign currency revenue 3 research gross contribution 3100 million calendar 2005 increased 2927 million calendar 2004 gross contribution margin calendar 2005 decreased 59 61 prior year decrease gross contribution margin calendar 2005 primarily due increased revenues executive programs lower margins core subscription products increase compensation costs mostly due headcount related meta acquisition impact converting meta contract value gartner contract value transacted approximately 95 meta contract value research contract value indicator future research revenue 5926 million december 31 2005 increase 16 834 million 5092 million december 31 2004 approximately half increase contract value attributable meta acquisition excluding impact foreign currency contract value increased approximately 13 research contract value 5926 million december 31 2005 represents highest reported contract value since september 30 2000 december 31 2005 research client retention rate increased 1 percentage point 81 80 december 31 2004 wallet retention rate 93 compared 95 december 31 2004 executive program membership 3522 december 31 2005 18 2975 december 31 2004 attributed new business growth north america emea well improved renewal rates clients obtained result meta acquisition executive program membership remains largest industry almost doubled last three years consulting revenues 3011 million calendar 2005 16 417 million compared 2594 million calendar 2004 meta contributing approximately 180 million revenue growth revenue increase reflects strong organic growth core consulting services well performancefee portion consulting business increase performancefee business calendar 2005 includes revenues company expect close first quarter 2006 result margin quarter impacted growth core consulting services reflects continuing execution strategy focusing fewer accounts attracting larger deals integrated solutions enhancing engagement profitability improved resource management revenue calendar 2005 increased despite exit certain less profitable consulting practices geographies calendar 2004 effect foreign currency exchange rates reduced revenues approximately 1 excluding impact meta foreign currency revenue 11 consulting gross contribution 1257 million calendar 2005 increased significantly prior year 36 927 million calendar 2004 primarily due higher profitability per engagement well impact timing performancefees discussed gross contribution margin calendar 2005 increased 42 36 prior year consulting utilization rates 62 calendar 2005 compared 63 calendar 2004 billable rate 350 per hour calendar 2005 compared 318 per hour billable rate calendar 2004 billable headcount increased 525 december 31 2005 compared 475 december 31 2004 11 increase primarily related consultants meta acquisition average annualized revenue per billable headcount approximately 390000 calendar 2005 compared 342000 calendar 2004 consulting backlog represents future revenues recognized inprocess consulting measurement sas increased 7 81 million 1199 million december 31 2005 compared 1118 million december 31 2004 events revenues increased 9 129 million 1513 million calendar 2005 compared 1384 million calendar 2004 approximately 24 million increase related meta changes foreign currency exchange rates negligible effect revenues comparing calendar 2005 calendar 2004 excluding meta foreign currency revenue 8 revenue increase primarily due increase number events 70 calendar 2005 compared 56 prior year period added 15 new events new topic areas geographies revenue increased lesser extent due continued performance recurring events revenue 5 year number attendees events increased 14 calendar 2005 compared calendar 2004 rising 35502 31223 respectively gross contribution 761 million calendar 2005 96 higher 695 million recorded calendar 2004 percentage revenues gross contribution 50 calendar 2005 calendar 2004 since new events typically run lower margins first year existence 15 new events launched calendar 2005 slightly lower margins existing events however addition launching new events continued rationalize existing portfolio exiting events longer met profit targets result active portfolio management able deliver flat contribution margin yearoveryear calendar 2004 versus calendar 2003 total revenues increased 4 8938 million calendar 2004 8584 million calendar 2003 effects foreign currency translation approximately 3 positive effect total revenues calendar 2004 compared calendar 2003 excluding positive effects foreign currency translation revenues would increased approximately 1 year overyear see segment results section discussion segment revenues increased regions yearoveryear revenues sales united states canadian clients increased 4 5594 million calendar 2004 5357 million calendar 2003 revenues sales clients europe middle east africa “emea” increased 4 2630 million calendar 2004 2523 million calendar 2003 revenues sales clients international regions increased 1 714 million calendar 2004 705 million calendar 2003 cost services product development increased 6 calendar 2004 4345 million 4107 million calendar 2003 excluding effects foreign currency translation cost services product development would increased 2 primarily due increased investment core research business growth executive programs events businesses also contributed higher costs calendar 2004 percentage sales cost services product development increased 486 478 prior year period cost services product development calendar 2004 benefited reversal 35 million prior years’ incentive compensation selling general administrative expenses increased 5 3498 million calendar 2004 3334 million calendar 2003 sga would increased approximately 2 excluding negative effects foreign currency translation percentage sales sga expense increased slightly calendar 2004 391 sales 388 calendar 2003 sga expenses benefited calendar 2004 reversal 33 million prior years’ incentive compensation well reduction allowance doubtful accounts 37 million due increased collections decline bad debt writeoffs percentage sales depreciation expense calendar 2004 decreased 23 277 million compared 360 million calendar 2003 decrease due reduction capital spending calendar 2004 calendar 2003 calendar 2002 relative capital spending fiscal 2001 2000 led decrease depreciation expense amortization intangibles decreased 46 comparing calendar 2004 calendar 2003 due certain intangible assets fully amortized since third quarter calendar 2003 goodwill impairments 27 million calendar 2004 compared 0 calendar 2003 reflecting writeoff goodwill related closing certain operations latin america noncore product lines charges fourth quarter calendar 2004 119 million 59 million severance benefits related workforce reduction 40 employees charges 43 million third quarter calendar 2004 primarily included severance costs associated departure president former ceo 31 million 08 million respectively charges 91 million second quarter calendar 2004 included 38 million severance costs associated departure former ceo well 53 million costs associated termination 30 employees first quarter calendar 2004 charges 105 million primarily associated realignment workforce realignment continuation action plan initiated fourth quarter calendar 2003 resulted termination 132 employees approximately 4 workforce bringing total terminations associated action plan 262 employees calendar 2004 recorded total charges 297 million related realignment workforce including costs 77 million related departure president former ceo realignment resulted termination 203 employees full year annualized savings termination employees would approximately 233 million however plan reinvest significant portion savings improving products processes infrastructure fund increases sales capacity drive future growth additionally fourth quarter calendar 2004 revised estimates previously recorded costs losses associated excess facilities recorded 23 million additional provisions revised estimate due decline market lease rates expected subleases well reduction estimated periods subleases also recorded charge 19 million fourth quarter calendar 2004 related abandonment certain internal systems 18 million charges related exit certain international noncore operations charges 297 million calendar 2003 costs employee severance benefits associated workforce reductions initiated two separate actions 54 million first quarter calendar 2003 146 million fourth quarter calendar 2003 additionally fourth quarter calendar 2003 revised estimates previously recorded costs losses associated excess facilities recorded 97 million additional provisions revised estimate due decline market lease rates expected subleases well reduction estimated periods subleases workforce reduction occurred first quarter calendar 2003 continuation action taken transition 2002 resulted termination 92 employees approximately 2 workforce purpose reduction reduce costs underperforming segments workforce reduction occurred fourth quarter calendar 2003 resulted termination 130 employees approximately 3 workforce purpose workforce reduction part effort streamline operations strengthen key consulting practices align organizational structure focus client needs remaining payments associated workforce reduction completed second quarter calendar 2004 funded existing cash loss gain investments net calendar 2004 loss 30 million fourth quarter calendar 2004 recorded charge 08 million related liquidation si addition recorded additional charge 07 million related liquidation costs recorded charges third quarter calendar 2004 recorded charge 22 million transfer investment trusecure si ii well decrease ownership percentage si ii seven hundred basis points result transfer decrease ownership relieved future capital calls totaled 40 million see note 3 investments notes consolidated financial statements additional information loss gain investments net calendar 2003 gain 47 included 55 million insurance recovery received calendar 2003 associated previously incurred losses arising sale business also included impairment loss 09 million associated minorityowned investment publicly traded evaluated investment impairment investee’s recapitalization due lack capital resources redeem mandatorily redeemable equity led us write investment estimate fair value conversion outstanding convertible debt equity fourth quarter calendar 2003 decreased interest expense however due new credit agreement signed third quarter calendar 2004 interest expense increase future expense net calendar 2004 39 million includes noncash writeoff 31 million accumulated foreign currency translation adjustments associated certain operations south america closed result decision required reclassify currency adjustments accumulated within equity earnings accordance statement financial accounting standards 52 “foreign currency translation” income net calendar 2003 05 million consists primarily net foreign exchange gains provision income taxes 510 334 income taxes calendar 2004 2003 respectively increase effective tax rate calendar 2004 compared calendar 2003 reflects impact planned repatriation foreign earnings calendar 2005 onetime favorable tax rate pursuant jobs creation act 2004 excluding effect certain onetime charges provision income taxes calendar years ended 2004 2003 would 360 330 respectively calendar 2004 significant onetime charges included nondeductible goodwill impairment writeoff accumulated foreign currency translation adjustments associated certain south american operations various capital losses impairments severance facilities reduction charges calendar 2003 significant onetime charges included various capital losses impairments severance facilities reduction charges segment results evaluate reportable segment performance allocate resources based gross contribution margin gross contribution defined operating income excluding certain selling general administrative expenses depreciation amortization intangibles goodwill impairments charges gross contribution margin defined gross contribution percentage revenues research revenues increased 3 comparing calendar 2004 calendar 2003 excluding favorable effects foreign currency exchange rates revenue flat research gross contribution 2927 million calendar 2004 decreased slightly 2929 million calendar 2003 gross contribution margin calendar 2004 decreased 61 63 prior year decrease gross contribution margin calendar 2004 primarily due increased revenues executive programs lower margins core subscription products well continued investment people products processes required provide research growth research contract value indicator future research revenue 5092 million december 31 2004 increase 6 4822 million december 31 2003 roughly half increase due effects foreign currency research contract value 5092 million december 31 2004 represented highest reported contract value since first quarter calendar 2002 period focused stabilizing growing revenue core research business continued focus began yield desired outcome latter half calendar 2003 ended latter half 2003 two consecutive quarters sequential increases contract value seven consecutive quarters sequentially decreasing contract value contract value increased sequentially first quarter calendar 2004 decreased slightly second quarter calendar 2004 increased sequentially third fourth quarters calendar 2004 december 31 2004 client retention rates increased 2 percentage points 80 compared measure december 31 2003 wallet retention increased 6 percentage points calendar 2004 95 wallet retention rates held steady climbed four quarters calendar 2004 client retention dipped slightly first quarter climbed remainder year executive program membership 2708 december 31 2004 16 2332 december 31 2003 attributed new business growth north america emea well improved renewal rates consulting revenues 2594 calendar 2004 slightly compared 2586 million calendar 2003 excluding effects foreign currency exchange rates revenues would decreased approximately 4 calendar 2004 compared calendar 2003 adjusted currency effects consulting revenue decreased compared prior year result realignment business exit certain less profitable consulting practices geographies consulting gross contribution 927 million calendar 2004 increased 7 868 million calendar 2003 gross contribution margin calendar 2004 increased 36 34 prior year increase gross contribution margin primarily attributable higher consultant utilization rates approximately 63 calendar 2004 compared approximately 54 calendar 2003 effects realignment realized reduction billable headcount 475 december 31 2004 compared 526 december 31 2003 10 decrease billable rate 32700 per hour calendar 2004 7 increase 30600 rate calendar 2003 due efficient use staff globally higher billable rate emea due effects foreign exchange consulting backlog increased 12 1118 million december 31 2004 compared 997 million december 31 2003 consulting business ended calendar 2004 continuation positive trend began calendar 2003 ended year two consecutive quarters sequential increases backlog five consecutive quarters sequential decreases due realignment exited certain practices geographies consulting backlog decreased 917 million march 31 2004 increased 977 million june 30 2004 1034 million september 30 2004 business ramped areas focus events revenues increased 16 1384 million calendar 2004 compared 1194 million calendar 2003 changes foreign currency exchange rates approximately 2 favorable impact revenues comparing calendar 2004 calendar 2003 revenues increased despite one less event calendar 2004 compared calendar 2003 56 57 events respectively revenue calendar 2004 increased due higher attendance higher average exhibitor revenue resulting higher average revenue per event recurring events attendance events increased 31223 calendar 2004 27547 calendar 2003 13 increase attributed popularity topics offered gross contribution 695 million calendar 2004 24 higher 560 million recorded calendar 2003 percentage revenues gross contribution increased 50 calendar 2004 47 calendar 2003 increase gross contribution margin due mix events well lower personnel marketing costs also calendar 2003 invested marketing promoting events maintain attendance levels weak economy especially technology sector liquidity capital resources calendar 2005 cash provided operating activities totaled 271 million calendar 2005 compared 482 million prior year 211 million decline net decrease cash flow operating activities due primarily payment 350 million meta integration payments higher employee salary costs primarily related higher headcount due acquisition meta lesser extent shift mix products research segment higher margin core research lower margin executive programs offsetting decreases 120 million reduction bonus payments decline approximately 100 million severance related payments cash used investing activities increased 1810 million calendar 2005 compared 290 million prior year primarily due acquisition meta completed april 1 2005 company’s net cash investment meta approximately 1764 million cash paid including transaction costs less 151 million acquired meta offsetting cash paid meta decline capital expenditures decreased 27 million calendar 2005 compared calendar 2004 21 million cash received sale company’s investment si ii investments cash provided financing activities totaled 700 million calendar 2005 compared 972 million cash used calendar 2004 increase primarily driven borrowing additional debt calendar 2005 cash used calendar 2004 stock repurchases additional 567 million debt december 31 2005 compared prior year end calendar 2005 borrowed 3270 million repaid 2713 million borrowed 2500 million june 29 2005 related refinancing debt entering amended restated credit agreement discussed note 6 debt notes consolidated financial statements 670 million april revolver related meta acquisition 100 million revolver used make second quarter calendar 2005 quarterly payment term loan 2713 million repaid calendar 2005 paid 2470 million june 29 2005 related refinancing made 234 million quarterly debt payments paid 09 million note payable acquired meta acquisition also paid 11 million debt issue costs second quarter calendar 2005 related refinancing debt received proceeds stock issued stock plans 310 million calendar 2005 compared 679 million prior year result higher stock price 2004 compared 2005 resulted stock option exercises employees 2004 company used 60 million cash including expenses buy back employee stock options third fourth quarters calendar 2005 fourth quarter calendar 2005 used 96 million cash repurchase stock 2004 used 3461 million cash stock tender offer 61 million cash treasury stock purchases december 31 2005 cash equivalents totaled 702 million effect exchange rates decreased cash equivalents 60 million calendar 2005 due strengthening us dollar certain foreign currencies primarily euro sterling calendar 2004 cash provided operating activities calendar 2004 totaled 483 million compared 1363 million calendar 2003 net decrease cash flow operating activities 880 million due several factors paid 270 million bonuses 2004 compared zero calendar 2003 bonuses paid calendar 2003 previously paid quarter ended december 31 2002 paid first half year result change fiscal year became effective january 1 2003 result 2003 bonuses paid calendar 2004 paid portion 2004 bonuses third quarter calendar 2004 accordance current year corporate bonus plan additionally cash operating activities declined paid approximately 140 million severance calendar 2004 calendar 2003 net decrease cash flow operating activities also due accelerated collection receivables calendar 2003 improved operating cash flow year approximately 260 million repeated calendar 2004 lastly approximately 150 million certain accrued liabilities booked fourth quarter calendar 2003 paid first quarter calendar 2004 cash used investing activities increased 290 million calendar 2004 compared 254 million calendar 2003 increase primarily due 39 million prepaid related acquisition meta capital expenditures calendar 2004 251 million 15 lower 289 million calendar 2003 calendar 2003 received insurance recovery 55 million funded 20 million capital commitment si ii cash used financing activities totaled 973 million calendar 2004 compared 30 million used calendar 2003 purchased 3523 million common stock treasury calendar 2004 3462 million represents tender offer silver lake repurchases inclusive related costs compared 434 million prior year received proceeds stock issued stock plans 678 million calendar 2004 compared 417 million prior year increase result higher stock option exercises employees increases stock price caused significantly larger percentage vested stock options money calendar 2004 compared calendar 2003 borrowed 200 million related tender third quarter calendar 2004 receiving proceeds net debt issuance costs 1972 million repaid 100 million debt fourth quarter calendar 2004 december 31 2004 cash equivalents totaled 1601 million effect exchange rates increased cash equivalents 81 million calendar 2004 due weakening us dollar certain foreign currencies primarily euro sterling obligations commitments company 3250 million unsecured fiveyear credit agreement bank group led jpmorgan chase bank consisting 2000 million term loan 1250 million revolving credit facility revolving credit facility may increased 1750 million december 31 2005 1967 million outstanding term loan 500 million outstanding revolving credit facility december 31 2005 company approximately 456 million borrowing capacity revolving credit facility term loan repaid 19 quarterly installments final payment due june 29 2010 revolving credit facility may used loans 150 million may used letters credit revolving loans may borrowed repaid reborrowed june 29 2010 time amounts borrowed must repaid loans bear interest company’s option rate equal greatest administrative agent’s prime rate administrative agent’s rate threemonth certificates deposit adjusted statutory reserves average rate overnight federal funds plus 12 1 plus spread equal 000 075 depending company’s leverage ratio fiscal quarter recently ended eurodollar rate adjusted statutory reserves plus spread equal 100 175 depending company’s leverage ratio fiscal quarter recently ended credit agreement contains certain restrictive loan covenants including among others financial covenants requiring maximum leverage ratio minimum fixed charge coverage ratio minimum annualized contract value ratio covenants limiting gartner’s ability incur indebtedness grant liens make acquisitions acquired dispose assets pay dividends repurchase stock make capital expenditures make investments gartner’s obligations credit facility guaranteed gartner’s us subsidiaries also contains events default include among others nonpayment principal interest fees inaccuracy representations warranties violation covenants cross defaults certain indebtedness bankruptcy insolvency events material judgments events constituting change control occurrence event default increase applicable rate interest 20 could result acceleration gartner’s obligations credit agreement obligation guarantors pay full amount gartner’s obligations credit agreement december 2005 company entered interest rate swap agreement hedge base interest rate risk term loan effect swap convert floating base rate term loan fixed rate swap terms company pay 4885 fixed rate return receive threemonth libor rate threemonth libor rate received swap match base rate paid term loan since use threemonth libor swap initial notional value 2000 million decline payments made term loan amount outstanding term loan notional amount swap always equal swap notional amount 1967 million december 31 2005 outstanding amount term loan october 2005 company’s board directors authorized 1000 million common share repurchase program repurchases program made timetotime open market purchases andor block trades repurchases subject availability common stock prevailing market conditions trading price company’s common stock financial performance company intends fund repurchases cash flow operations may also borrow company’s existing credit agreement fourth quarter calendar 2005 company repurchased 837800 shares common stock program total purchase price 111 million 15 million paid early january 2006 related share repurchase transactions settled believe existing cash balances together cash operating activities additional borrowing capacity amended fiveyear revolving credit facility sufficient expected shortterm foreseeable longterm needs following table represents contractual cash commitments december 31 2005 millions including contractual commitments related meta acquisition table excludes interest payments credit facility 1 includes liabilities related meta recorded eitf 953 see note 2 acquisition meta notes consolidated financial statements 2 617 million due less one year includes 500 million drawn revolving credit facility although terms credit agreement require payment 2010 currently intent repay amount within one year 3 represents liability company’s supplemental deferred compensation arrangement see note 12 employee benefits notes consolidated financial statements amounts payable active employees whose termination date unknown included 5 years category since company cannot estimate amounts paid 4 represents 15 million paid early january 2006 related share repurchase transactions settled quarterly financial data thousands except per share data 3 aggregate four quarters’ basic diluted earnings per common share may equal reported full calendar amounts due effects dilutive securities rounding recently issued accounting standards june 2005 financial accounting standards board issued statement financial accounting standards 154 “accounting changes error corrections” “sfas 154” require entities voluntarily make change accounting principle apply change retrospectively prior periods’ financial statements unless would impracticable sfas 154 supersedes accounting principles board opinion 20 “accounting changes” previously required voluntary changes accounting principle recognized including current period’s net income cumulative effect changing new accounting principle sfas 154 also makes distinction “retrospective application” accounting principle “restatement” financial statements reflect correction error statement effective accounting changes error corrections made fiscal years beginning december 15 2005 december 2004 financial accounting standards board issued statement financial accounting standards 123r “sharebased payment” sfas 123r statement replaces sfas 123 apb 25 require recognition expense sharebased payments include value stock options equity awards granted employees revised statement originally effective periods beginning june 15 2005 early adoption permitted april 21 2005 sec issued standard amends date compliance sfas 123r “the sec amendment” sec amendment sfas 123r must adopted beginning first interim annual reporting period registrant’s first fiscal year beginning june 15 2005 gartner adopted sfas 123r january 1 2006 modified prospective method adoption projecting amount future stock compensation expense inherently difficult dependent type amount future awards granted volatility price common stock date grant company currently reviewing stock compensation strategy anticipates make changes types equity awards grant future based current estimates project adoption sfas 123r result 120 million 140 million pretax expense calendar 2006 materially negative impact earnings item 7aitem 7 management’s discussion analysis financial condition results operations forwardlooking statements addition historical information annual report contains forwardlooking statements forwardlooking statements historical fact including statements regarding expectations beliefs hopes intentions strategies regarding future cases forwardlooking statements identified use words “may” “will” “expect” “should” “could” “believe” ‘plan” “anticipate” “estimate” “predict” “potential” “continue” words similar meaning forwardlooking statements subject risks uncertainties could cause actual results differ materially discussed implied forwardlooking statements factors might cause difference include limited discussed part 1 item 1a risk factors readers place undue reliance forwardlooking statements reflect management’s opinion date made except required law disclaim obligation review update forwardlooking statements reflect events circumstances occur readers review carefully risk factors described reports filed sec overview gartner inc leading research advisory firm helps executives use technology build guide grow enterprises offer independent objective research analysis information technology computer hardware software communications related technology industries provide comprehensive coverage industry approximately 10000 client organizations including approximately 400 fortune 500 companies across 75 countries client base consists primarily cios senior business executives wide variety enterprises government agencies investment community employ diversified business model utilizes leverages breadth depth research intellectual capital enabling us maintain grow marketleading position brand franchise foundation business model ability create distribute unique proprietary research content broadly possible via • published reports briefings • consulting advisory services • hosting symposia conferences exhibitions early 2005 undertook initiative better utilize intellectual capital associated core research product diversified business model provides multiple entry points synergies facilitate increased client spending research consulting events critical part longterm strategy increase business volume valuable clients identifying relationships greatest sales potential expanding relationships offering strategically relevant research analysis also seek extend gartner brand name develop new client relationships augment sales capacity expand new markets around world addition seek increase revenue operating cash flow effective pricing products services initiatives created additional revenue streams effective packaging campaigning crossselling products services intend maintain balance 1 pursuing opportunities applying resources strict focus growing three core businesses 2 generating profitability streamlined cost structure three business segments research consulting events • research provides insight cios professionals technology companies investment community reports briefings access analysts well peer networking services membership programs designed specifically cios senior executives • consulting consists primarily consulting measurement engagements strategic advisory services paid oneday analyst engagements “sas” provide assessments cost performance efficiency quality focused industry • events consists various symposia conferences exhibitions focused industry believe following business measurements important performance indicators business segments business segment business measurements research contract value represents value attributable subscriptionrelated research products recognize revenue ratable basis contract value calculated annualized value subscription research contracts effect specific point time without regard duration contract client retention rate represents measure client satisfaction renewed business relationships specific point time client retention calculated percentage basis dividing current clients also clients year ago clients year ago wallet retention rate represents measure amount contract value retained clients business segment business measurements twelvemonth period wallet retention calculated percentage basis dividing contract value clients one year earlier total contract value year earlier wallet retention exceeds client retention indication retention higherspending clients increased spending retained clients number executive program members represents number paid participants executive programs consulting backlog represents future revenue derived inprocess consulting measurement strategic advisory services engagements utilization rates represent measure productivity consultants utilization rates calculated billable headcount percentage basis dividing total hours billed total hours available bill billing rate represents earned billable revenue divided total billable hours average annualized revenue per billable headcount represents measure revenue generating ability average billable consultant calculated periodically multiplying average billing rate per hour times utilization percentage times billable hours available one year events number events represents total number hosted events completed period number attendees represents number people attend events executive summary operations financial position 2006 results continue reflect focused execution strategy grow research business improve operational margins continue invest sales capability sales force 663 associates approximately 21 prior year research segment benefited strongly investment revenue 9 2006 5712 million 5230 million 2005 contract value december 31 2006 highest company’s history 6403 million 11 prior year excluding impact foreign currency contract value increased 12 consecutive quarters research client retention rate wallet retention remained strong yearend 2006 81 96 respectively revenue consulting segment 3052 million 2006 1 compared prior year consulting backlog december 31 2006 1098 million 2 september 30 2006 8 december 31 2005 consultant utilization rate increased 2 points 64 2006 62 2005 average hourly billing rate average annualized revenue per billable headcount remained strong billable headcount 2 prior year reflecting planned focus operational effectiveness growth events segment continues deliver strong revenue growth continuing emphasis managing events portfolio retain successful events introduce promising new events continues yield increasing revenue performance revenue segment 2006 12 prior year increases ongoing events new events held 74 events 2006 compared 70 prior year period overall increase attendance 17 detailed discussion segment results see segment results also continue focus enhancing shareholder value continued evolution capital structure 2006 repurchased 158 million shares common stock open market purchases direct share repurchases silver lake addition january 2007 closed new credit facility increased total debt capacity 4800 million february 2007 board directors approved new 2000 million share buyback program january 1 2006 adopted new accounting rule stockbased compensation sfas 123r result recording compensation expense stockbased compensation awards granted employees company awards stockbased compensation incentive employees contribute longterm success better align interests employees shareholders net income 582 million 2006 050 per diluted share compared loss 002 per diluted share prior year period ended year 678 million cash fluctuations quarterly operating results quarterly annual revenue operating income cash flow fluctuate result many factors including timing symposium flagship event normally occurs fourth calendar quarter events amount new business generated mix domestic international business changes market demand products services changes foreign currency rates timing development introduction marketing new products services competition industry potential fluctuations operating income could cause periodtoperiod comparisons operating results meaningful could provide unreliable indication future operating results critical accounting policies estimates preparation financial statements requires application appropriate accounting policies significant accounting policies described note 1 notes consolidated financial statements management considers policies discussed critical understanding financial statements application requires complex subjective judgments estimates specific risks critical accounting policies described revenue recognition recognize revenue accordance sec staff accounting bulletin 101 revenue recognition financial statements “sab 101” sec staff accounting bulletin 104 revenue recognition “sab 104” revenue significant source accounted follows • research revenues derived subscription contracts research products revenues research products deferred recognized ratably applicable contract term • consulting revenues generated fixed fee time material engagements revenue fixed fee contracts recognized percentage completion basis revenues time materials engagements recognized work delivered andor services provided • events revenues deferred recognized upon completion related symposium conference exhibition • revenues consist primarily fees research reprints software licensing reprint fees recognized reprint shipped fees software licensing recognized signed noncancelable software license exists delivery occurred collection probable fees fixed determinable • majority research contracts billable upon signing absent special terms granted limited basis time research contracts noncancelable nonrefundable except government contracts 30day cancellation clause produced material cancellations date policy record entire amount contract billable fee receivable time contract signed corresponding amount deferred revenue since contract represents legally enforceable claim government contracts permit termination bill client full amount billable contract record receivable equal earned portion contract addition record deferred revenue government contracts cash received deferred revenues attributable government contracts 479 million 417 million december 31 2006 december 31 2005 respectively addition december 31 2006 december 31 2005 recognized uncollected receivables deferred revenues relating government contracts permit termination 96 million 71 million respectively uncollectible fees receivable allowance losses composed bad debt sales allowance reserve provisions charged earnings measurement likely probable losses allowance uncollectible fees receivable based historical loss experience aging outstanding receivables assessment current economic conditions financial health specific clients evaluation inherently judgmental requires material estimates valuation reserves periodically reevaluated adjusted information ultimate collectibility fees receivable becomes available circumstances could cause valuation reserves increase include changes clients’ liquidity credit quality factors negatively impacting clients’ ability pay obligations come due effectiveness collection efforts following table provides total fees receivable along related allowance losses thousands impairment goodwill intangible assets evaluation goodwill performed accordance statement financial accounting standards 142 “goodwill intangible assets” ”sfas 142” among requirements standard eliminated goodwill amortization upon adoption requires ongoing annual assessments goodwill impairment evaluation intangible assets performed periodic basis assessments require management estimate fair values reporting units based estimates future business operations market economic conditions developing longterm forecasts determine fair value reporting unit less carrying amount must recognize impairment charge associated goodwill reporting unit earnings financial statements goodwill evaluated impairment least annually whenever events changes circumstances indicate carrying value may recoverable factors consider important could trigger review impairment include following • significant underperformance relative historical projected future operating results • significant changes manner use acquired assets strategy overall business • significant negative industry economic trends • significant decline stock price sustained period • market capitalization relative net book value due numerous variables associated judgments assumptions relating valuation reporting units effects changes circumstances affecting valuations precision reliability resulting estimates subject uncertainty additional information becomes known may change estimates 2004 recorded impairment charge 07 million first quarter relating goodwill associated certain operations south america closed fourth quarter recorded goodwill impairment charge 20 million related exit certain noncore product lines accounting income taxes prepare consolidated financial statements estimate income taxes jurisdictions operate process involves estimating current tax expense together assessing temporary differences resulting differing treatment items tax accounting purposes differences result deferred tax assets liabilities included within consolidated balance sheets record valuation allowance reduce deferred tax assets future realization question consider availability loss carryovers existing deferred tax liabilities future taxable income ongoing prudent feasible tax planning strategies assessing need valuation allowance event determine would able realize deferred tax assets future excess net recorded amount adjustment deferred tax asset would increase income period determination made likewise determine would able realize part net deferred tax asset future adjustment deferred tax asset would charged income period determination made operate numerous foreign taxing jurisdictions level operations profitability jurisdiction could impact upon amount income taxes provide given year addition tax filings various tax years subject audit tax authorities jurisdictions conduct business audits may result assessments additional taxes provided amounts believe ultimately result audits however resolution matters involves uncertainties assurances ultimate resolution exceed amounts provided october 2005 october 2006 received irs examination reports showing proposed changes primarily relate valuation intangible assets licensed foreign subsidiary calculation payments cost sharing arrangement company appealed initial findings reached agreement issues irs appeals office see item 3 legal proceedings additional information accounting stockbased compensation january 1 2006 adopted statement financial accounting standards 123r “sharebased payment” “sfas 123r” interpreted sec staff accounting bulletin 107 “sab 107” effective adoption sfas 123r company recognizing stockbased compensation expense based fair value award date grant related service period net estimated forfeitures see note 10 stockbased compensation notes consolidated financial statements determining appropriate fair value model calculating fair value stock compensation awards requires input certain highly complex subjective assumptions including expected life stock compensation awards company’s common stock price volatility addition determining appropriate amount associated periodic expense requires management estimate rate employee forfeitures likelihood achievement certain performance targets assumptions used calculating fair value stock compensation awards associated periodic expense represent management’s best estimates involve inherent uncertainties application judgment result factors change company deems necessary future modify assumptions made use different assumptions quantity nature company’s stockbased compensation awards changes amount expense may need adjusted future stock compensation expense could materially different recorded current period contingencies loss reserves accruals record accruals severance costs lease costs associated excess facilities contract terminations asset impairments result actions undertake streamline organization reposition certain businesses reduce ongoing costs estimates costs incurred complete actions future lease payments sublease income fair value assets severance related benefits based assumptions time actions initiated extent actual costs differ estimates reserve levels may need adjusted addition actions may revised due changes business conditions foresee time plans approved 2005 revised previous estimate costs losses associated excess facilities recorded charge approximately 82 million primarily due reduction office space san jose california consolidated employees two buildings one charge included charges additionally record accruals estimated incentive compensation costs year amounts accrued end reporting period based estimates may require adjustment ultimate amount paid incentives sometimes known year end results operations 2006 versus 2005 revenues increased 7 713 million 10603 million 2006 9890 million 2005 excluding impact foreign currency translation total revenues 2006 would increased slightly less 7 see segment results section discussion segment revenues gartner acquired meta april 1 2005 result gartner’s first quarter 2005 operating results contain meta completely integrated gartner cannot approximate impact 2006 results acquisition revenues increased regions revenues sales united states canadian clients increased 3 6313 million 2006 6110 million 2005 revenues sales clients europe middle east africa “emea” increased 14 3377 million 2006 2967 million 2005 revenues sales clients international regions increased 12 913 million 2006 813 million 2005 cost services product development expense increased 187 million 4 5053 million 2006 4866 million 2005 excluding effects foreign currency translation cost services product development expense would increased 3 twelve months ended december 31 2006 4 yearoveryear increase cost services product development expense primarily due charges 80 million stockbased compensation sfas 123r approximately 60 million incremental delivery costs associated continued growth events business inclusion full year salary benefit expense former meta employees 2006 compared nine months 2005 higher compensation costs related merit salary increases company adopted sfas 123r january 1 2006 modified prospective transition method prior year excludes charges addition expense increases cost services product development expense 2005 benefited reversal 21 million prior year’s bonus accruals 2006 2005 cost services product development expense percentage sales 48 49 respectively selling general administrative expenses “sga” increased 5 188 million 4161 million 2006 3973 million 2005 excluding effects foreign currency translation sga expense would increased 4 yearoveryear 5 increase sga expense yeartodate basis resulted primarily increased investment sales organization 663 sales associates 21 increase prior year added approximately 180 million costs also contributing increase charges 87 million stockbased compensation sfas 123r increased recruiting relocation expenses offsetting increases reductions number ga expense categories include consulting travel facilities fulfillment addition sga expense 2005 benefited reversal 08 million prior year’s bonus accruals depreciation expense 2006 decreased 8 234 million compared 255 million 2005 reduction due decline capital spending current prior periods reflecting focus disciplined capital spending projects support strategic initiatives amortization intangibles 107 million 2006 102 million 2005 256 million intangibles recorded related meta intellectual property database intangibles fully amortized 50 million customer relationship intangibles remaining amortized meta integration charges 15 million 150 million 2006 2005 respectively expenses primarily severance consulting accounting tax services related integration meta company record additional meta integration charges 2007 later charges zero 2006 291 million 2005 charges consisted 106 million employee severance costs 82 million charges mostly related excess office space 60 million related option buyback 43 million primarily restructuring international operations loss investments net zero 58 million 2006 2005 respectively 2005 loss primarily due writedown investment venture capital fund net realizable value investment sold late 2005 book value december 31 2006 approximately 03 million investments interest expense net 166 million 111 million 2006 2005 respectively 55 million increase primarily related increase rates increase amount debt outstanding lesser extent higher amortization writeoff debt issue costs weightedaverage interest rate debt 63 2006 compared 49 prior year addition weightedaverage debt outstanding 50 million higher 2006 compared 2005 expense net 2006 2005 consists primarily net foreign currency exchange gains losses provision benefit income taxes 277 million 2006 compared 79 million 2005 effective tax rate 322 1448 2006 2005 respectively lower effective tax rate 2006 compared 2005 attributable several items significant items include following company generated income low tax jurisdictions 2006 compared 2005 b 2006 included significant decrease valuation allowances state local net operating losses due expected utilization result legal entity restructuring 2005 included significant increase valuation allowances foreign tax credits impact items partially offset benefits taken reduce overall tax expense 2005 relating repatriated earnings items occurred 2006 b larger benefits taken 2005 compared 2006 foreign tax credits generated c overall increase reserve needs 2006 compared overall decrease 2005 note impact various positive negative adjustments amplified lower pretax book income 2005 compared 2006 march 2005 repatriated approximately 520 million cash nonus subsidiaries also 2005 took account technical corrections issued treasury department related repatriating earnings american jobs creation act ajca result favorable provisions technical corrections realized tax benefit 36 million 2005 reduced cumulative charge repatriated earnings 14 million addition consequence application technical corrections reevaluated ability use foreign tax credits future took charge 25 million reestablish valuation allowance foreign tax credits likely expire unused upon filing 2005 income tax return 2006 company determined would beneficial avail provision ajca respect taxation repatriation therefore repatriation partially taxed ordinary dividend partially taxfree return capital existing tax law excluding impact sfas 123r amortization certain intangibles acquired part meta acquisition various meta integration charges effective tax rate 324 2006 excluding impact amortization certain intangibles acquired part meta acquisition various meta integration charges certain onetime charges facility closures capital asset impairments effective tax rate 366 2005 respectively lower effective tax rate 2006 compared 2005 attributable several items significant items include following company generated income low tax jurisdictions 2006 compared 2005 b 2006 included significant decrease valuation allowances state local net operating losses 2005 included significant increase valuation allowances foreign tax credits impact items partially offset benefits taken reduce overall tax expense 2005 relating repatriated earnings items occurred 2006 b larger benefits taken 2005 compared 2006 foreign tax credits generated c overall increase reserve needs 2006 compared overall decrease 2005 note impact various positive negative adjustments amplified lower pretax book income 2005 compared 2006 2005 versus 2004 revenues increased 11 952 million 9890 million 2005 8938 million 2004 effects foreign currency translation approximately 11 million negative effect total revenues 2005 compared 2004 meta purchase added approximately 500 million revenue excluding effects foreign currency translation meta acquisition revenues would increased approximately 5 yearoveryear see segment results section discussion segment revenues increased regions revenues sales united states canadian clients increased 9 6110 million 2005 5594 million 2004 revenues sales clients europe middle east africa “emea” increased 13 2967 million 2005 2630 million 2004 revenues sales clients international regions increased 14 813 million 2005 714 million 2004 cost services product development expense increased 521 million 12 4866 million 2005 4345 million 2004 foreign currency translation negligible impact increase cost services product development expense yeartodate basis resulted primarily increase salary benefits expense approximately 335 million primarily driven addition 140 people related meta purchase higher bonus expense sales commissions 142 million 50 million respectively increase bonus expense reflects company’s decision restore bonus payouts competitive level addition 53 million higher conference expenses related increase number events attendees cost services product development expense 2005 benefited reversal 21 million prior years’ bonus accruals additionally cost services product development expense 2004 benefited reversal 35 million prior years’ incentive compensation program accruals 2005 2004 cost services product development expense percentage sales 49 periods selling general administrative expense increased 474 million 14 3973 million 2005 3498 million 2004 foreign currency translation negligible impact increase sga expense yeartodate basis primarily driven continued investment sales organization added 110 new sales associates 2005 includes 80 meta added 111 people related meta purchase including 80 sales associates accounting approximately 107 million increase addition 107 million increase attributable meta salary benefit increases totaled 121 million bonus expense sales commissions increased 69 million 70 million respectively also approximately 164 million additional external consulting facilities outsourcing charges offset favorable impact approximately 44 million lower costs primarily marketing production sga expense 2005 benefited reversal 09 million prior years’ incentive compensation program accruals 2004 sga expense benefited reversal 33 million prior year’s incentive compensation program accruals 2004 company reduced allowance doubtful accounts 37 million result increased collections decline writeoffs depreciation expense 2005 decreased 8 255 million compared 276 million 2004 reduction due decline capital spending reflecting disciplined capital spending projects support strategic initiatives amortization intangibles increased 102 million 2005 07 million prior year due amortization 256 million intangibles acquired meta acquisition goodwill impairments 27 million 2004 reflecting writeoff 07 million goodwill related closing certain operations latin america 20 million related exit certain noncore product lines meta integration charges 150 million 2005 expenses primarily severance consulting accounting tax services related integration meta charges 2005 292 million includes 107 million related workforce reductions 60 million option buyback 82 million related reduction office space 43 million charges company severed total 150 employees 2005 estimates annualized savings termination employees approximately 152 million company reinvested significant portion savings improving products processes infrastructure help drive future growth charges 2004 358 million included amount 297 million related severance benefits approximately 200 employees 2004 company also revised estimate previously recorded costs losses associated excess facilities recorded 23 million additional provisions revised estimate due decline market lease rates expected subleases well reduction estimated periods subleases company also recorded charges 2004 19 million related restructuring certain internal systems 18 million charges related exit certain international noncore operations loss investments net 58 million 30 million 2005 2004 respectively losses primarily writedowns company’s investments venture capital funds expense net 2005 29 million consists primarily net foreign currency exchange gains losses expense net 39 million 2004 includes noncash writeoff 31 million accumulated foreign currency translation adjustments associated certain operations south america closed result decision required reclassify currency adjustments accumulated within equity earnings accordance statement financial accounting standards 52 “foreign currency translation” provision income taxes 1448 510 income taxes 2005 2004 respectively increase effective tax rate 2005 compared 2004 principally due fact company generated less income low tax jurisdictions compared prior year recorded valuation allowances capital losses foreign tax credit carryforwards impact items offset part benefits taken reduce overall tax expense repatriated earnings well reductions interest costs related tax contingencies impact various positive negative adjustments amplified lower pretax book income 2005 compared 2004 excluding effect certain onetime charges provision income taxes years ended 2005 2004 would 366 360 respectively 2005 significant onetime charges included expenses related acquisition integration meta various capital losses impairments charges associated buyback water stock options severance facilities reduction charges 2004 significant onetime charges included nondeductible goodwill impairment writeoff accumulated foreign currency translation adjustments associated certain south american operations various capital losses impairments severance facilities reduction charges 2004 took 50 million tax charge anticipation repatriating approximately 520 million earnings nonus subsidiaries 2005 repatriation expected qualify onetime reduced tax rate pursuant american jobs creation act ajca charge partially offset benefit 25 million release valuation allowance foreign tax credits expected utilized expired march 2005 repatriated approximately 520 million cash nonus subsidiaries also 2005 took account technical corrections issued treasury department related repatriating earnings ajca result favorable provisions technical corrections realized tax benefit 36 million 2005 reduced cumulative charge repatriated earnings 14 million addition consequence application technical corrections reevaluated ability use foreign tax credits future took charge 25 million reestablish valuation allowances foreign tax credits likely expire unused 2006 segment results evaluate reportable segment performance allocate resources based gross contribution margin gross contribution defined operating income excluding certain cost services product development expense sg expense depreciation meta integration charges amortization intangibles charges gross contribution margin defined gross contribution percentage revenues research strong revenue performance research segment 2006 revenue 9 5712 million 5230 2005 foreign currency immaterial impact revenue year revenue growth year across regions client sectors well across entire client portfolio client wallet retention rates remain strong december 31 2006 research client retention rate 81 rate december 31 2005 wallet retention 3 points prior year 96 december 31 2006 93 december 31 2005 executive program membership 3646 december 31 2006 compared 3522 prior year end research gross contribution 3455 million 2006 increased 11 3100 million 2005 gross contribution margin increased 1 point 2006 60 59 prior year improvement contribution margin mainly due operating leverage resulting strong revenue performance 2006 sfas 123r decreased gross contribution margin research segment 1 point contract value december 31 2006 highest company’s history 6403 million 8 prior year value 5926 million excluding impact foreign currency contract value increased approximately 11 contract value increased 12 consecutive quarters increase driven growth core research executive programs consulting revenues increased 1 3052 million 2006 compared 3011 million 2005 strong emphasis growing research events segments coupled change sales incentives successfee portion consulting segment growth slowed first half 2006 excluding impact foreign currency translation revenues slightly less 1 yearoveryear revenue increase reflects increases annualized revenue per billable headcount billing rate consultant utilization billable headcount 514 december 31 2006 compared 525 prior year decline 2 consultant utilization rates 64 62 2006 2005 respectively billing rate remained 300 per hour 2006 average annualized revenue per billable headcount approximately 390000 consulting gross contribution 1207 million 2006 decreased 4 1257 million 2005 contribution margin 2006 decreased 40 42 prior year margin decline primarily due costs related sfas 123r costs related exiting less profitable geographies investments made senior level hires related growth strategy impact sfas 123r adopted january 1 2006 decreased gross contribution margin consulting segment 2006 approximately half point consulting backlog represents future revenues recognized inprocess consulting measurement sas 1096 million december 31 2006 compared 1077 million september 30 2006 1199 million december 31 2005 events revenues 2006 12 181 million 1694 million 1513 million prior year held 74 events 2006 41000 attendees compared 70 events 2005 35000 attendees increase revenue due new events well strong performance ongoing events 11 new events 2006 higher revenues events eliminated revenue existing events 7 reflecting underlying strength ongoing summit events excluding impact foreign currency translation events revenues approximately 11 2006 events gross contribution 837 million 49 revenues 2006 compared 761 million 50 revenues 2005 decrease gross contribution margin primarily due mix new events existing events sfas 123r immaterial impact events gross contribution margin 2006 2005 segment results evaluate reportable segment performance allocate resources based gross contribution margin gross contribution defined operating income excluding certain cost services product development expense sg expenses depreciation meta integration charges amortization intangibles charges gross contribution margin defined gross contribution percentage revenues research revenues increased 9 425 million comparing 2005 2004 meta contributing approximately 290 million growth executive programs accounting majority rest increase impact foreign currency immaterial excluding impact meta foreign currency revenue 3 research gross contribution 3100 million 2005 increased 2927 million 2004 gross contribution margin 2005 decreased 59 61 prior year decrease gross contribution margin 2005 primarily due increased revenues executive programs lower margins core subscription products increase compensation costs mostly due headcount related meta acquisition impact converting meta contract value gartner contract value december 31 2005 transacted approximately 95 meta contract value research contract value indicator future research revenue 5926 million december 31 2005 increase 16 834 million 5092 million december 31 2004 approximately half increase contract value attributable meta acquisition excluding impact foreign currency contract value increased approximately 13 research contract value 5926 million december 31 2005 represented highest reported contract value since september 30 2000 december 31 2005 research client retention rate increased 1 percentage point 81 80 december 31 2004 wallet retention rate 93 compared 95 december 31 2004 executive program membership 3522 december 31 2005 18 2975 december 31 2004 attributed new business growth north america emea well improved renewal rates clients obtained result meta acquisition december 31 2005 executive program membership remained largest industry almost doubled last three years consulting revenues 3011 million 2005 16 417 million compared 2594 million 2004 meta contributing approximately 180 million revenue growth revenue increase reflects strong organic growth core consulting services well performancefee portion consulting business increase performancefee business 2005 includes revenues company expect close first quarter 2006 result margin quarter impacted growth core consulting services reflects continuing execution strategy focusing fewer accounts attracting larger deals integrated solutions enhancing engagement profitability improved resource management revenue 2005 increased despite exit certain less profitable consulting practices geographies 2004 effect foreign currency exchange rates reduced revenues approximately 1 excluding impact meta foreign currency revenue 11 consulting gross contribution 1257 million 2005 increased significantly prior year 36 927 million 2004 primarily due higher profitability per engagement well impact timing performancefees discussed gross contribution margin 2005 increased 42 36 prior year consulting utilization rates 62 2005 compared 63 2004 billable rate 300 per hour 2005 2004 billable headcount increased 525 december 31 2005 compared 475 december 31 2004 11 increase primarily related consultants meta acquisition average annualized revenue per billable headcount approximately 390000 2005 compared 342000 2004 consulting backlog represents future revenues recognized inprocess consulting measurement sas increased 7 81 million 1199 million december 31 2005 compared 1118 million december 31 2004 events revenues increased 9 129 million 1513 million 2005 compared 1384 million 2004 approximately 24 million increase related meta changes foreign currency exchange rates negligible effect revenues comparing 2005 2004 excluding meta foreign currency revenue 8 revenue increase primarily due increase number events 70 2005 compared 56 prior year period added 15 new events new topic areas geographies revenue increased lesser extent due continued performance recurring events revenue 5 year number attendees events increased 14 2005 compared 2004 rising 35502 31223 respectively gross contribution 761 million 2005 96 higher 695 million recorded 2004 percentage revenues gross contribution 50 2005 2004 since new events typically run lower margins first year existence 15 new events launched 2005 slightly lower margins existing events however addition launching new events continued rationalize existing portfolio exiting events longer met profit targets result active portfolio management able deliver flat contribution margin yearoveryear liquidity capital resources cash provided operating activities totaled 1063 million twelve months ended december 31 2006 compared 271 million prior year period increase cash flow operating activities 792 million primarily due increase cash core operations approximately 500 million improved cash flow also reflects lower cash payments severance charges 210 million well decrease 280 million payments related integration meta improvements somewhat offset higher cash payments bonus lesser extent interest items cash used investing activities 218 million 2006 compared 1810 million prior year period decrease cash used primarily due net expenditure 1613 million acquisition meta 2005 capital expenditures 211 million 12 million prior year period reflecting company’s continued focus disciplined capital spending cash used financing activities totaled 915 million 2006 compared 700 million cash provided twelve months ended december 31 2005 decline cash provided due repurchase 2707 million common shares 2006 includes 2000 million repurchased directly silver lake december 2006 borrowed additional 1900 million utilized 100 million existing cash 2005 96 million common share repurchases borrowed additional amounts 2006 2005 outstanding debt increased 1230 million 2006 compared increase approximately 560 million prior year realized 157 million cash stock issued stock plans 2006 467 million proceeds 2006 compared 310 million prior year period increase result higher stock price 2006 compared 2005 resulted stock option exercises employees 2006 also 92 million excess tax benefits stockbased compensation awards sfas 123r december 31 2006 cash equivalents totaled 678 million effect exchange rates increased cash equivalents 46 million 2006 cash provided operating activities totaled 271 million 2005 compared 482 million prior year 211 million decline net decrease cash flow operating activities due primarily payment 350 million meta integration payments higher employee salary costs primarily related higher headcount due acquisition meta lesser extent shift mix products research segment higher margin core research lower margin executive programs offsetting decreases 120 million reduction bonus payments decline approximately 100 million severance related payments cash used investing activities increased 1810 million 2005 compared 290 million prior year primarily due acquisition meta completed april 1 2005 company’s net cash investment meta approximately 1764 million cash paid including transaction costs less 151 million acquired meta offsetting cash paid meta decline capital expenditures decreased 27 million 2005 compared 2004 21 million cash received sale company’s investment si ii investments cash provided financing activities totaled 700 million 2005 compared 972 million cash used 2004 increase primarily driven borrowing additional debt 2005 cash used 2004 stock repurchases additional 567 million debt december 31 2005 compared prior year end 2005 borrowed 3270 million repaid 2713 million borrowed 2500 million june 29 2005 related refinancing debt 670 million april revolver related meta acquisition 100 million revolver 2713 million repaid 2005 paid 2470 million june 29 2005 related refinancing made 234 million quarterly debt payments paid 09 million note payable acquired meta acquisition also paid 11 million debt issue costs second quarter 2005 related refinancing debt received proceeds stock issued stock plans 310 million 2005 compared 679 million prior year result higher stock price 2004 compared 2005 resulted stock option exercises employees 2004 company used 60 million cash including expenses buy back employee stock options third fourth quarters 2005 fourth quarter 2005 used 96 million cash repurchase stock 2004 used 3461 million cash stock tender offer 61 million cash treasury stock purchases december 31 2005 cash equivalents totaled 702 million effect exchange rates decreased cash equivalents approximately 60 million 2005 obligations commitments january 31 2007 company entered new credit arrangement provides fiveyear 1800 million term loan 3000 million revolving credit facility may increased gartner’s option additional 1000 million total revolving credit facility 4000 million company also drew 1900 million revolving facility 1800 million term loan facility repaid 3700 million outstanding existing facilities term loan repaid 18 consecutive quarterly installments commencing september 30 2007 plus final payment due january 31 2012 may prepaid time without penalty premium option gartner revolving credit facility may used loans 150 million may used letters credit revolving loans may borrowed repaid reborrowed january 31 2012 time amounts borrowed must repaid conjunction new arrangement existing facilities terminated believe existing cash balances together cash operating activities additional borrowing capacity amended fiveyear revolving credit facility sufficient expected shortterm foreseeable longterm needs following table represents contractual cash commitments thousands due december 31 2006 table excludes required interest payments credit facility 1 company leases various facilities furniture computer equipment expiring 2007 2025 2 represents amounts due credit facility entered january 31 2007 3 represents liability company’s supplemental deferred compensation arrangement amounts payable active employees whose termination date unknown included 5 years category since company cannot determine amounts paid quarterly financial data recently issued accounting standards september 2006 sec staff issued staff accounting bulletin 108 “considering effects prior year misstatements quantifying misstatements current year financial statements” “sab 108” sab provides guidance consideration effects prior year misstatements quantifying current year misstatements purpose materiality assessment sab 108 establishes approach requires quantification financial statement errors based effects company’s financial statements related financial statement disclosures sab permits existing public companies record cumulative effect initially applying approach first year ending november 15 2006 recording necessary correcting adjustments carrying values assets liabilities beginning year offsetting adjustment recorded opening balance retained earnings additionally use cumulative effect transition method requires detailed disclosure nature amount individual error corrected cumulative adjustment arose company recorded adjustments sab 108 effective beginning 2006 fiscal year see note 2adoption sec staff accounting bulletin 108 notes consolidated financial statements june 2006 fasb ratified consensus reached emerging issues task force eitf issue 0603 “how sales taxes collected customers remitted governmental authorities presented income statement gross versus net presentation” “eitf 0603” eitf reached consensus presentation taxes either gross net basis accounting policy decision requires disclosure eitf 0603 effective first interim annual reporting period beginning december 15 2006 company’s policy present taxes net basis result adoption eitf 0603 effect company’s financial position results operations july 2006 fasb issued fasb interpretation 48 “accounting uncertainty income taxes interpretation fasb statement 109” “fin 48” become effective company january 1 2007 interpretation prescribes recognition threshold measurement attribute financial statement recognition measurement tax positions taken expected taken tax return benefit recognized tax position must morelikelythannot sustained upon examination taxing authorities position meets morelikelythannot threshold amount recognized measured largest amount benefit greater 50 percent likely realized upon ultimate settlement fasb expected give additional guidance regarding meaning ultimate settlement guidance could impact whether certain reserves related ongoing irs appeals case released retained earnings upon adoption fin 48 current earnings later period company’s analysis final impact fin 48 yet complete best estimate increase retained earnings january 1 2007 less 60 million september 2006 fasb issued sfas 157 “fair value measurements” “sfas 157” establishes framework measuring fair value generally accepted accounting principles expands disclosures fair value measurements statement applies accounting pronouncements require permit fair value measurements sfas 157 effective fiscal years beginning november 15 2007 therefore company begin apply standard fiscal year commencing january 1 2008 company process evaluating impact sfas 157 company’s financial position results operations september 2006 fasb issued sfas statement 158 “employers’ accounting defined benefit pension postretirement plans amendment fasb statements 87 88 106 132r” “sfas 158” new standard requires employer recognize statement financial position asset plan’s overfunded status liability plan’s underfunded status b measure plan’s assets obligations determine funded status end employer’s fiscal year limited exceptions c recognize changes funded status defined benefit postretirement plan year changes occur changes reported comprehensive income business entity requirement recognize funded status benefit plan disclosure requirements effective end fiscal year ending december 15 2006 public entities company adopted sfas 158 december 31 2006 see note 13employee benefits notes consolidated financial statements item 7aitem 7 management’s discussion analysis financial condition results operations forwardlooking statements addition historical information annual report contains forwardlooking statements forwardlooking statements historical fact including statements regarding expectations beliefs hopes intentions strategies regarding future cases forwardlooking statements identified use words “may” “will” “expect” “should” “could” “believe” ‘plan” “anticipate” “estimate” “predict” “potential” “continue” words similar meaning forwardlooking statements subject risks uncertainties could cause actual results differ materially discussed implied forwardlooking statements factors might cause difference include limited discussed part 1 item 1a risk factors readers place undue reliance forwardlooking statements reflect management’s opinion date made except required law disclaim obligation review update forwardlooking statements reflect events circumstances occur readers review carefully risk factors described reports filed sec overview gartner inc leading research advisory firm helps executives use technology build guide grow enterprises offer independent objective research analysis information technology computer hardware software communications related technology industries provide comprehensive coverage industry approximately 10000 client organizations including approximately 400 fortune 500 companies across 75 countries client base consists primarily cios senior business executives wide variety enterprises government agencies investment community employ diversified business model utilizes leverages breadth depth research intellectual capital enabling us maintain grow marketleading position brand franchise foundation business model ability create distribute unique proprietary research content broadly possible via • published reports briefings • consulting advisory services • hosting symposia conferences exhibitions early 2005 undertook initiative better utilize intellectual capital associated core research product diversified business model provides multiple entry points synergies facilitate increased client spending research consulting events critical part longterm strategy increase business volume valuable clients identifying relationships greatest sales potential expanding relationships offering strategically relevant research analysis also seek extend gartner brand name develop new client relationships augment sales capacity expand new markets around world addition seek increase revenue operating cash flow effective pricing products services initiatives created additional revenue streams effective packaging campaigning crossselling products services intend maintain balance 1 pursuing opportunities applying resources strict focus growing three core businesses 2 generating profitability streamlined cost structure three business segments research consulting events • research provides insight cios professionals technology companies investment community reports briefings access analysts well peer networking services membership programs designed specifically cios senior executives • consulting consists primarily consulting measurement engagements strategic advisory services paid oneday analyst engagements “sas” provide assessments cost performance efficiency quality focused industry • events consists various symposia conferences exhibitions focused industry believe following business measurements important performance indicators business segments business segment business measurements research contract value represents value attributable subscriptionrelated research products recognize revenue ratable basis contract value calculated annualized value subscription research contracts effect specific point time without regard duration contract client retention rate represents measure client satisfaction renewed business relationships specific point time client retention calculated percentage basis dividing current clients also clients year ago clients year ago wallet retention rate represents measure amount contract value retained clients business segment business measurements twelvemonth period wallet retention calculated percentage basis dividing contract value clients one year earlier total contract value year earlier wallet retention exceeds client retention indication retention higherspending clients increased spending retained clients number executive program members represents number paid participants executive programs consulting backlog represents future revenue derived inprocess consulting measurement strategic advisory services engagements utilization rates represent measure productivity consultants utilization rates calculated billable headcount percentage basis dividing total hours billed total hours available bill billing rate represents earned billable revenue divided total billable hours average annualized revenue per billable headcount represents measure revenue generating ability average billable consultant calculated periodically multiplying average billing rate per hour times utilization percentage times billable hours available one year events number events represents total number hosted events completed period number attendees represents number people attend events executive summary operations financial position 2007 continued execute strategy launched 2005 accelerate growth research business time maintaining growth profitability consulting events businesses cornerstones strategy produce extraordinary research content deliver innovative highly differentiated product offerings enhance sales capability provide world class client service improve operational effectiveness success strategy evident 2007 financial results includes total revenue growth 12 earnings per share growth 36 cash flow operations growth 40 net income 736 million 2007 068 per diluted share compared 050 per diluted share prior year 068 per diluted share 2007 includes net charge 004 recorded second quarter 2007 certain nonoperating items generated 1483 million operating cash flow 2007 ended year 1099 million cash research business executed strategy accelerating growth introducing new innovative product offerings expanding sales force revenue 18 2007 growth occurring across entire product portfolio geographic regions sales force 806 associates approximately 22 prior year end research contract value 7525 million december 31 2007 18 prior year end 14 excluding impact foreign currency contract value increased least 18 four quarters 2007 yearoveryear basis reflecting successful execution strategy accelerate growth research business research client retention rate wallet retention rate remained strong 82 101 respectively consulting business continue focus achieving maximum profitability targeting profitable accounts geographies revenue consulting business 6 2007 3250 million despite lower headcount consulting backlog december 31 2007 1214 million 11 1096 december 31 2006 consultant utilization rate increased 5 points 2007 69 64 prior year reflecting improved engagement management reduced headcount hourly billing rate remained 350 per hour average annualized revenue per billable headcount approximately 5 prior year billable headcount 472 december 31 2007 10 yearoveryear primarily due exit asian consulting operations events business strategy continue focus managing events portfolio retaining successful events content driven introducing promising new events yield greater profitability eliminating less profitable less attended events revenue 2007 7 78 events held year compared 74 prior year attendance 8 furtherance events strategy february 20 2008 announced contracted sell vision events portfolio events see note 15 subsequent events notes consolidated financial statements detailed discussion segment results see segment results also continued focus enhancing shareholder value continued evolution capital structure 2007 repurchased 84 million shares common stock bringing total number shares repurchased since january 1 2005 241 million shares january 2007 closed new credit facility increased total debt capacity 4800 million fluctuations quarterly operating results quarterly annual revenue operating income cash flow fluctuate result many factors including timing symposiumitxpo series normally occurs fourth calendar quarter events amount new business generated mix domestic international business changes market demand products services changes foreign currency rates timing development introduction marketing new products services competition industry factors potential fluctuations operating income could cause periodtoperiod comparisons operating results meaningful could provide unreliable indication future operating results critical accounting policies estimates preparation financial statements requires application appropriate accounting policies significant accounting policies described note 1 notes consolidated financial statements management considers policies discussed critical understanding financial statements application requires complex subjective judgments estimates specific risks critical accounting policies described revenue recognition recognize revenue accordance sec staff accounting bulletin 101 revenue recognition financial statements “sab 101” sec staff accounting bulletin 104 revenue recognition “sab 104” revenue significant source accounted follows • research revenues derived subscription contracts research products revenues research products deferred recognized ratably applicable contract term • consulting revenues generated fixed fee time material engagements revenue fixed fee contracts recognized percentage completion basis revenues time materials engagements recognized work delivered andor services provided • events revenues deferred recognized upon completion related symposium conference exhibition • revenues consist primarily fees research reprints recognized reprint shipped majority research contracts billable upon signing absent special terms granted limited basis time research contracts noncancelable nonrefundable except government contracts 30day cancellation clause produced material cancellations date policy record entire amount contract billable fee receivable time contract signed corresponding amount deferred revenue since contract represents legally enforceable claim government contracts permit termination bill client full amount billable contract record receivable equal earned portion contract addition record deferred revenue government contracts cash received deferred revenues attributable government contracts 576 million 479 million december 31 2007 december 31 2006 respectively addition december 31 2007 december 31 2006 recognized uncollected receivables deferred revenues relating government contracts permit termination 108 million 96 million respectively uncollectible fees receivable allowance losses composed bad debt sales allowance reserve provisions charged earnings measurement likely probable losses allowance uncollectible fees receivable based historical loss experience aging outstanding receivables assessment current economic conditions financial health specific clients evaluation inherently judgmental requires material estimates valuation reserves periodically reevaluated adjusted information ultimate collectibility fees receivable becomes available circumstances could cause valuation reserves increase include changes clients’ liquidity credit quality factors negatively impacting clients’ ability pay obligations come due effectiveness collection efforts following table provides total fees receivable along related allowance losses thousands impairment goodwill intangible assets evaluation goodwill performed accordance statement financial accounting standards 142 “goodwill intangible assets” “sfas 142” among requirements standard eliminated goodwill amortization upon adoption requires ongoing annual assessments goodwill impairment evaluation intangible assets performed periodic basis assessments require management estimate fair values reporting units based estimates future business operations market economic conditions developing longterm forecasts determine fair value reporting unit less carrying amount must recognize impairment charge associated goodwill reporting unit earnings financial statements goodwill evaluated impairment least annually whenever events changes circumstances indicate carrying value may recoverable factors consider important could trigger review impairment include following • significant underperformance relative historical projected future operating results • significant changes manner use acquired assets strategy overall business • significant negative industry economic trends • significant decline stock price sustained period • market capitalization relative net book value due numerous variables associated judgments assumptions relating valuation reporting units effects changes circumstances affecting valuations precision reliability resulting estimates subject uncertainty additional information becomes known may change estimates accounting income taxes prepare consolidated financial statements estimate income taxes jurisdictions operate process involves estimating current tax expense together assessing temporary differences resulting differing treatment items tax accounting purposes differences result deferred tax assets liabilities included within consolidated balance sheets record valuation allowance reduce deferred tax assets future realization question consider availability loss carryforwards existing deferred tax liabilities future taxable income ongoing prudent feasible tax planning strategies assessing need valuation allowance event determine able realize deferred tax assets future excess net recorded amount adjustment made deferred tax asset increase income period determination made likewise determine able realize part net deferred tax asset future adjustment deferred tax asset charged income period determination made accounting stockbased compensation january 1 2006 adopted statement financial accounting standards 123r “sharebased payment” “sfas 123r” interpreted sec staff accounting bulletin 107 “sab 107” effective adoption sfas 123r company recognizing stockbased compensation expense based fair value award date grant related service period net estimated forfeitures see note 9 stockbased compensation notes consolidated financial statements determining appropriate fair value model calculating fair value stock compensation awards requires input certain highly complex subjective assumptions including expected life stock compensation awards company’s common stock price volatility addition determining appropriate amount associated periodic expense requires management estimate rate employee forfeitures likelihood achievement certain performance targets assumptions used calculating fair value stock compensation awards associated periodic expense represent management’s best estimates involve inherent uncertainties application judgment result factors change company deems necessary future modify assumptions made use different assumptions quantity nature company’s stockbased compensation awards changes amount expense may need adjusted future stock compensation expense could materially different recorded current period contingencies loss reserves accruals record accruals severance costs lease costs associated excess facilities contract terminations asset impairments result actions undertake streamline organization reposition certain businesses reduce ongoing costs estimates costs incurred complete actions future lease payments sublease income fair value assets severance related benefits based assumptions time actions initiated extent actual costs differ estimates reserve levels may need adjusted addition actions may revised due changes business conditions foresee time plans approved additionally record accruals estimated incentive compensation costs year amounts accrued end reporting period based estimates may require adjustment ultimate amount paid incentives sometimes known year end results operations 2007 versus 2006 revenues increased 1289 million 12 11892 million 2007 10603 million 2006 excluding favorable effects foreign currency translation total revenues 2007 would increased 9 2006 please refer section mda entitled “segment results” discussion revenues segment revenues increased regions revenues sales united states canadian clients increased 8 6819 million 2007 6313 million 2006 revenues sales clients europe middle east africa “emea” increased 4039 million 2007 3377 million 2006 20 increase revenues sales clients international region increased 13 1033 million 2007 913 million 2006 cost services product development increased 399 million 8 comparing 2007 2006 5453 million 5053 million respectively excluding unfavorable effects foreign currency translation cost services product development would increased 4 399 million increase primarily due impact foreign currency added 170 million additional expense 182 million merit salary bonus fringe increases 64 million higher event fulfillment costs driven higher events revenue additional stockbased compensation costs sfas 123r 25 million increases offset extent lower nonsales headcount charges years ended december 31 2007 2006 cost services product development percentage revenue 46 48 respectively selling general administrative sga expense increased 592 million 14 4753 million 4161 million comparing 2007 2006 excluding unfavorable effects foreign currency translation sga expense would increased 12 yearoveryear 592 million increase sga yearoveryear resulted primarily increased investment sales organization expenses approximately 300 million foreign currency translation added 201 million expense additional stockbased compensation sfas 123r 54 million 806 sales associates 22 increase prior yearend sga expense increased 14 yearoveryear salesrelated expenses excluded general administrative ga expense actually one percentage point yearoveryear percentage revenue depreciation expense year ended december 31 2007 243 million compared 234 million 2006 driven higher capital expenditures 242 million 211 million capital expenditures 2007 2006 respectively 2008 company projects capital expenditures approximately 250 million 270 million amortization intangibles 21 million 2007 compared 107 million 2006 decrease due certain intangibles acquired meta acquisition becoming fully amortized 2006 meta integration charges zero 2007 15 million 2006 expenses primarily severance consulting accounting tax services charges 91 million zero 2007 2006 respectively 91 million charge 2007 includes 87 million charge expert choice litigation settlement 27 million restructuring costs related company’s exit consulting operations asia offsetting charges credit 23 million related excess facility company returned service interest expense net 222 million 166 million years ended december 31 2007 2006 respectively increase interest expense due higher weightedaverage amount debt outstanding 2007 increased interest expense additional debt outstanding partially offset slight decline rates higher interest income expense net 32 million 08 million years ended december 31 2007 2006 respectively 2007 includes gain settlement claim 18 million majority income expense net balances years consists net foreign currency exchange gains losses provision income taxes 406 million 2007 compared 277 million 2006 effective tax rate 2007 356 compared 322 2006 higher effective tax rate 2007 compared 2006 attributable several items significant items includes following company generated smaller percentage income low tax jurisdictions 2007 compared 2006 b differences relating release valuation allowances changes reserves 2006 versus 2005 revenues increased 7 713 million 10603 million 2006 9890 million 2005 excluding impact foreign currency translation total revenues 2006 would increased slightly less 7 see segment results section discussion segment revenues gartner acquired meta april 1 2005 result gartner’s first quarter 2005 operating results contain meta completely integrated gartner could approximate impact 2006 results acquisition revenues increased regions revenues sales united states canadian clients increased 3 6313 million 2006 6110 million 2005 revenues sales clients europe middle east africa “emea” increased 14 3377 million 2006 2967 million 2005 revenues sales clients international regions increased 12 913 million 2006 813 million 2005 cost services product development expense increased 187 million 4 5053 million 2006 4866 million 2005 excluding effects foreign currency translation cost services product development expense would increased 3 year ended december 31 2006 4 yearoveryear increase cost services product development expense primarily due charges 80 million stockbased compensation sfas 123r approximately 60 million incremental delivery costs associated continued growth events business inclusion full year salary benefit expense former meta employees 2006 compared nine months 2005 higher compensation costs related merit salary increases company adopted sfas 123r january 1 2006 modified prospective transition method prior year excludes charges addition expense increases cost services product development expense 2005 benefited reversal 21 million prior year’s bonus accruals 2006 2005 cost services product development expense percentage sales 48 49 respectively selling general administrative “sga” expenses increased 5 188 million 4161 million 2006 3973 million 2005 excluding effects foreign currency translation sga expense would increased 4 yearoveryear 5 increase sga expense yeartodate basis resulted primarily increased investment sales organization 663 sales associates 21 increase prior year added approximately 180 million costs also contributing increase charges 87 million stockbased compensation sfas 123r increased recruiting relocation expenses offsetting increases reductions number ga expense categories include consulting travel facilities fulfillment addition sga expense 2005 benefited reversal 08 million prior year’s bonus accruals depreciation expense 2006 decreased 8 234 million compared 255 million 2005 reduction due decline capital spending current prior periods reflecting focus disciplined capital spending projects support strategic initiatives amortization intangibles 107 million 2006 102 million 2005 256 million intangibles recorded related meta intellectual property database intangibles fully amortized 50 million customer relationship intangibles remaining amortized meta integration charges 15 million 150 million 2006 2005 respectively expenses primarily severance consulting accounting tax services related integration meta company record additional meta integration charges 2007 later charges zero 2006 291 million 2005 charges consisted 106 million employee severance costs 82 million charges mostly related excess office space 60 million related option buyback 43 million primarily restructuring international operations loss investments net zero 58 million 2006 2005 respectively 2005 loss primarily due writedown investment venture capital fund net realizable value investment sold late 2005 book value interest expense net 166 million 111 million 2006 2005 respectively 55 million increase primarily related increase rates increase amount debt outstanding lesser extent higher amortization writeoff debt issue costs weightedaverage interest rate debt 63 2006 compared 49 prior year addition weightedaverage debt outstanding 50 million higher 2006 compared 2005 income expense net 2006 2005 consists primarily net foreign currency exchange gains losses provision income taxes 277 million 2006 compared 79 million 2005 effective tax rate 322 1448 2006 2005 respectively lower effective tax rate 2006 compared 2005 attributable several items significant items include following company generated larger percentage income low tax jurisdictions 2006 compared 2005 b 2006 included significant decrease valuation allowances state local net operating losses 2005 included significant increase valuation allowances foreign tax credits impact items partially offset benefits taken reduce overall tax expense 2005 relating repatriated earnings items occurred 2006 b larger benefits taken 2005 compared 2006 foreign tax credits generated c overall increase reserve needs 2006 compared overall decrease 2005 note impact various positive negative adjustments amplified lower pretax book income 2005 compared 2006 march 2005 repatriated approximately 520 million cash nonus subsidiaries also 2005 took account technical corrections issued treasury department related repatriating earnings american jobs creation act ajca result favorable provisions technical corrections realized tax benefit 36 million 2005 reduced cumulative charge repatriated earnings 14 million addition consequence application technical corrections reevaluated ability use foreign tax credits future took charge 25 million reestablish valuation allowance foreign tax credits likely expire unused upon filing 2005 income tax return 2006 company determined would beneficial avail provision ajca respect taxation repatriation therefore repatriation taxed ordinary dividend existing tax law excluding impact sfas 123r amortization certain intangibles acquired part meta acquisition various meta integration charges effective tax rate 324 2006 excluding impact amortization certain intangibles acquired part meta acquisition various meta integration charges certain onetime charges facility closures capital asset impairments effective tax rate 366 2005 respectively lower effective tax rate 2006 compared 2005 attributable several items significant items include following company generated income low tax jurisdictions 2006 compared 2005 b 2006 included significant decrease valuation allowances state local net operating losses 2005 included significant increase valuation allowances foreign tax credits impact items partially offset benefits taken reduce overall tax expense 2005 relating repatriated earnings items occurred 2006 b larger benefits taken 2005 compared 2006 foreign tax credits generated c overall increase reserve needs 2006 compared overall decrease 2005 impact various positive negative adjustments amplified lower pretax book income 2005 compared 2006 2007 segment results evaluate reportable segment performance allocate resources based gross contribution margin gross contribution defined operating income excluding certain cost services product development charges selling general administrative expenses depreciation meta integration charges amortization intangibles charges gross contribution margin defined gross contribution percentage revenues research revenue research business increased 1021 million 18 2007 6733 million compared 5712 million 2006 yearoveryear growth across entire product portfolio geographic regions excluding favorable impact foreign currency revenue 15 prior year research gross contribution increased 4291 million 2007 3455 million 2006 24 increase contribution margin increased 4 points 64 60 contribution margin improved primarily due better operating leverage stronger revenue performance contract value 7525 million december 31 2007 18 6403 million december 31 2006 yearoveryear increase driven increases core research executive programs reflects great success new rolebased product offerings contract value growth across major geographic regions client industry segments adjusted favorable impact foreign currency translation contract value 14 yearoveryear december 31 2007 research client retention rate remained strong 82 81 december 31 2006 wallet retention 101 december 31 2007 96 december 31 2006 reflecting higher spending retained clients executive program membership 3753 december 31 2007 3 prior yearend consulting revenues 3250 million 2007 compared 3052 million 2006 increase 6 198 million despite decline billable headcount excluding favorable impact foreign currency translation revenues 3 yearoveryear increased revenue driven substantial improvement contract optimization business well higher utilization billing rates core consulting business contract optimization business weak fourth quarter 2006 due changes sales incentives since rectified billable headcount 472 december 31 2007 compared 518 december 31 2006 9 decrease reduced billable headcount primarily reflects decision exit consulting business asia consulting gross contribution 1282 million 2007 increased 6 1207 million 2006 contribution margin decreased 1 point 39 2007 40 prior year decrease gross contribution margin yearoveryear driven lower sas revenue performance additional investment senior level consultants consultant utilization rate 69 64 years ended december 31 2007 2006 respectively billing rate remained 350 per hour 2007 2006 average annualized revenue per billable headcount 5 approximately 430000 2007 410000 2006 consulting backlog represents future revenues recognized inprocess consulting measurement sas increased 11 1214 million december 31 2007 1096 million december 31 2006 events revenues 2007 increased 7 114 million 1808 million compared 1694 million 2006 adjusted favorable impact foreign exchange revenues 3 held 78 events held 2007 74 2006 increased revenue primarily due addition 10 new events 2007 increase attendee volume ticket prices attendance events 44216 2007 8 increase 2006 2008 currently projecting hold 82 events gross contribution 882 million 2007 compared 837 million 2006 5 increase gross contribution margin 49 periods february 20 2008 announced contracted sell vision events portfolio events see note 15 subsequent events notes consolidated financial statements 2006 segment results evaluate reportable segment performance allocate resources based gross contribution margin gross contribution defined operating income excluding certain cost services product development charges sga expense depreciation meta integration charges amortization intangibles charges gross contribution margin defined gross contribution percentage revenues research strong revenue performance research business 2006 revenue 9 5712 million 5230 2005 foreign currency immaterial impact revenue year revenue growth year across regions client sectors well across entire client portfolio client wallet retention rates remained strong december 31 2006 research client retention rate 81 rate december 31 2005 wallet retention 3 points prior year 96 december 31 2006 93 december 31 2005 executive program membership 3646 december 31 2006 compared 3522 prior year end research gross contribution 3455 million 2006 increased 11 3100 million 2005 gross contribution margin increased 1 point 2006 60 59 prior year improvement contribution margin mainly due operating leverage resulting strong revenue performance sfas 123r decreased gross contribution margin research segment 1 point 2006 contract value december 31 2006 highest company’s history 6403 million 8 prior year value 5926 million excluding impact foreign currency contract value increased approximately 11 contract value increased 12 consecutive quarters increase driven growth core research executive programs consulting revenues increased 1 3052 million 2006 compared 3011 million 2005 strong emphasis growing research segment coupled decline revenues contract optimization portion consulting business change due change sales incentives growth slowed second half 2006 excluding impact foreign currency translation revenues slightly less 1 yearoveryear revenue increase reflects increases annualized revenue per billable headcount billing rate consultant utilization billable headcount 518 december 31 2006 compared 525 prior year decline 1 consultant utilization rates 64 62 2006 2005 respectively billing rate remained 300 per hour 2006 average annualized revenue per billable headcount 410000 consulting gross contribution 1207 million 2006 decreased 4 1257 million 2005 contribution margin 2006 decreased 40 42 prior year margin decline primarily due costs related sfas 123r costs related exiting less profitable geographies investments made senior level hires related growth strategy impact sfas 123r adopted january 1 2006 decreased gross contribution margin consulting segment 2006 approximately half point consulting backlog represents future revenues recognized inprocess consulting measurement sas 1096 million december 31 2006 compared 1077 million september 30 2006 1199 million december 31 2005 events revenues 2006 12 181 million 1694 million 1513 million prior year held 74 events 2006 41000 attendees compared 70 events 2005 35000 attendees increase revenue due new events well strong performance ongoing events 11 new events 2006 higher revenues events eliminated revenue existing events 7 reflecting underlying strength ongoing summit events excluding impact foreign currency translation events revenues approximately 11 2006 events gross contribution 837 million 49 revenues 2006 compared 761 million 50 revenues 2005 decrease gross contribution margin primarily due mix new events existing events sfas 123r immaterial impact events gross contribution margin 2006 liquidity capital resources cash provided operating activities totaled 1483 million year ended december 31 2007 compared cash provided 1063 million year ended december 31 2006 increase 421 million 40 increase cash flow operating activities primarily due increase cash core operations approximately 390 million lower cash payments taxes 210 million lesser extent lower cash payments severance items 50 million offsetting improvements payment 95 million related legal settlement higher cash payments interest outstanding debt 80 million higher reduction excess tax benefits stockbased compensation 56 million cash used investing activities 241 million year ended december 31 2007 compared 218 million 2006 increase due yearoveryear increase capital expenditures increased 242 million 2007 211 million 2006 cash used financing activities increased slightly 937 million year ended december 31 2007 compared 915 million 2006 net basis borrowed additional 240 million 2007 compared 1230 million additional borrowings 2006 decrease 990 million yearoveryear decreased use cash repurchase shares 1039 million repurchased 1668 million common stock 2007 compared 2707 million 2006 received proceeds stock issued stock plans 345 million 2007 compared 467 million 2006 decrease 122 million excess tax benefits stock compensation increased approximately 56 million 148 million 2007 compared 92 million 2006 december 31 2007 cash equivalents totaled 1099 million effect exchange rates increased cash equivalents 116 million 2007 cash provided operating activities totaled 1063 million year ended december 31 2006 compared 271 million 2005 increase cash flow operating activities 792 million primarily due increase cash core operations approximately 500 million improved cash flow also reflects lower cash payments severance charges 210 million well decrease 280 million payments related integration meta improvements somewhat offset higher cash payments bonus lesser extent interest items cash used investing activities 218 million 2006 compared 1810 million 2005 decrease cash used primarily due net expenditure 1613 million acquisition meta 2005 capital expenditures 211 million 12 million prior year period reflecting company’s continued focus disciplined capital spending cash used financing activities totaled 915 million 2006 compared 700 million cash provided year ended december 31 2005 decline cash provided due repurchase 2707 million common shares 2006 includes 2000 million repurchased directly silver lake december 2006 borrowed additional 1900 million utilized 100 million existing cash 2005 96 million common share repurchases borrowed additional amounts 2006 2005 outstanding debt increased 1230 million 2006 compared increase approximately 560 million prior year realized 157 million cash stock issued stock plans 2006 467 million proceeds 2006 compared 310 million prior year period increase result higher stock price 2006 compared 2005 resulted stock option exercises employees 2006 also 92 million excess tax benefits stockbased compensation awards sfas 123r obligations commitments company borrowing arrangement provides fiveyear 1800 million term loan 3000 million revolving credit facility revolving credit facility may increased additional 1000 million lenders’ discretion “expansion feature” total revolving credit facility 4000 million however 1000 million expansion feature may available us depending upon prevailing credit market conditions term loan repaid 18 consecutive quarterly installments commenced september 30 2007 plus final payment due january 31 2012 may prepaid time without penalty premium option revolving credit facility may used loans 150 million may used letters credit revolving loans may borrowed repaid reborrowed january 31 2012 time amounts borrowed must repaid december 31 2007 company 1740 million outstanding term loan 2200 million outstanding revolver december 31 2007 company approximately 770 million available borrowing capacity revolving credit facility including expansion feature believe existing cash balances together cash operating activities borrowing capacity fiveyear revolving credit facility sufficient expected shortterm foreseeable longterm needs following table represents contractual cash commitments thousands due december 31 2007 1 company leases various facilities furniture computer equipment expiring 2008 2025 2 represents amounts due company’s credit facility 3 excludes required interest payments debt due variable nature interest rates resulting payment amounts information regarding current interest rates company’s debt contained note 6debt notes consolidated financial statements contained within form 10k 4 represents liability company’s supplemental deferred compensation arrangement amounts payable active employees whose payment date unknown included 5 years category since company cannot determine amounts paid 5 includes interest penalties addition 403 liability approximately 17711 unrecognized tax benefits recorded liabilities accordance fasb interpretation 48 uncertain amounts may settled related unrecognized tax benefits included table company also recorded liability potential interest penalties 2470 6 represents amounts due stock repurchase transactions amounts paid january 2008 quarterly financial data 1 includes 91 million pretax charges second quarter 2007 15 million pretax meta integration charges first quarter 2006 2 aggregate four quarters’ basic diluted earnings per common share may equal reported full calendar amounts due effects dilutive equity compensation rounding new accounting standards september 2006 fasb issued sfas 157 “fair value measurements” “sfas 157” establishes framework measuring fair value generally accepted accounting principles expands disclosures fair value measurements statement applies accounting pronouncements require permit fair value measurements sfas 157 effective fiscal years beginning november 15 2007 company believe adoption sfas 157 material impact financial position results operations february 2007 fasb issued sfas 159 “the fair value option financial assets financial liabilities including amendment fasb statement 115” “sfas 159” sfas 159 permits entities choose measure certain financial instruments certain items fair value specified election dates fair value option elected business entity shall report unrealized gains losses elected items earnings subsequent reporting date upon initial adoption statement entity permitted elect fair value option availableforsale heldtomaturity securities previously accounted sfas 115 “accounting certain investments debt equity securities” effect reclassifying securities trading category included cumulativeeffect adjustment retained earnings currentperiod earnings separately disclosed sfas 159 effective beginning first fiscal year begins november 15 2007 company believe adoption sfas 159 material impact financial position results operations december 2007 fasb issued sfas 141 revised 2007 “business combinations” “sfas 141r” replaces fasb statement 141 sfas 141r establishes principles requirements acquirer recognizes measures financial statements identifiable assets acquired liabilities assumed non controlling interest acquiree goodwill acquired business combination statement also establishes disclosure requirements enable users evaluate nature financial effects business combination sfas 141r effective beginning entity’s fiscal year begins december 15 2008 company’s fiscal year beginning january 1 2009 company currently evaluating potential impact adoption sfas 141r company’s financial position results operations december 2007 fasb issued sfas 160 “noncontrolling interests consolidated financial statementamendments arb 51 “sfas 160”” sfas 160 requires accounting reporting minority interests noncontrolling interests classified component equity statement also establishes reporting requirements provide sufficient disclosures clearly identify distinguish interests parent interests noncontrolling owners sfas 160 applies entities prepare consolidated financial statements except notforprofit organizations affect entities outstanding noncontrolling interest one subsidiaries deconsolidate subsidiary statement effective beginning entity’s first fiscal year beginning december 15 2008 company’s fiscal year beginning january 1 2009 company currently evaluating potential impact adoption sfas 160 company’s financial position results operations sec staff issued staff accounting bulletin “sab” 110 permits companies certain circumstances continue use simplified method calculating expected term “plain vanilla” share options originally use simplified method due expire december 31 2007 company may use simplified method concludes reasonable base estimate expected term experience exercising historical share options although expiration date sab 110 sec staff believes detailed external information exercise behavior time become readily available effective date sab 110 january 1 2008 company expects continue use simplified method awards stockbased compensation january 1 2008 item 7aitem 7 management’s discussion analysis financial condition results operations purpose following management’s discussion analysis “mda” help facilitate understanding significant factors influencing operating results financial condition cash flows gartner inc additionally mda also conveys expectations potential impact known trends events uncertainties may impact future results read discussion conjunction consolidated financial statements related notes included report historical results percentage relationships necessarily indicative operating results future periods references “the company” “we” “our” “us” gartner inc consolidated subsidiaries following items impact presentation discussion results mda section december 18 2009 acquired amr research inc “amr research” december 30 2009 acquired burton group inc “burton group” see note 2 acquisitions notes consolidated financial statements operating results businesses included consolidated results beginning respective dates acquisition results businesses material consolidated segment results 2009 2008 sold vision events business part events segment result results operations business 2008 earlier periods reported discontinued operation see note 3 discontinued operations notes consolidated financial statements forwardlooking statements addition historical information annual report form 10k contains certain forwardlooking statements forwardlooking statements historical fact including statements regarding expectations beliefs hopes intentions strategies regarding future cases forwardlooking statements identified use words “may” “will” “expect” “should” “could” “believe” “plan” “anticipate” “estimate” “predict” “potential” “continue” words similar meaning forwardlooking statements subject risks uncertainties could cause actual results differ materially discussed implied forwardlooking statements factors might cause difference include limited discussed part 1 item 1a risk factors readers place undue reliance forwardlooking statements reflect management’s opinion date made except required law disclaim obligation review update forwardlooking statements reflect events circumstances occur readers review carefully risk factors described reports filed sec business overview gartner inc world’s leading information technology research advisory company helps executives use technology build guide grow enterprises offer independent objective research analysis information technology computer hardware software communications related technology industries provide comprehensive coverage industry 11601 client organizations including approximately 400 fortune 500 companies 85 countries client base consists primarily cios senior executives wide variety business enterprises government agencies investment community three business segments research consulting events • research provides insight cios executives professionals business leaders technology companies investment community research reports briefings access analysts well peer networking services membership programs • consulting consists primarily consulting engagements utilize research insight benchmarking data problemsolving methodologies hands experience improve return organization’s investment assessments cost performance efficiency quality • events consists various symposia summits conferences focused industry whole well applicable particular industries particular roles within organization business measurements believe following business measurements important performance indicators business segments business segment business measurements research contract value represents value attributable subscriptionrelated research products recognize revenue ratable basis contract value calculated annualized value subscription research contracts effect specific point time without regard duration contract client retention rate represents measure client satisfaction renewed business relationships specific point time client retention calculated percentage basis dividing current clients also clients year ago clients year ago wallet retention rate represents measure amount contract value retained clients twelvemonth period wallet retention calculated percentage basis dividing contract value clients one year earlier total contract value year earlier excluding impact foreign currency exchange wallet retention exceeds client retention indication retention higherspending clients increased spending retained clients number executive program members represents number paid participants executive programs consulting backlog represents future revenue derived inprocess consulting measurement strategic advisory services engagements utilization rates represent measure productivity consultants utilization rates calculated billable headcount percentage basis dividing total hours billed total hours available bill billing rate represents earned billable revenue divided total billable hours average annualized revenue per billable headcount represents measure revenue generating ability average billable consultant calculated periodically multiplying average billing rate per hour times utilization percentage times billable hours available one year events number events represents total number hosted events completed period number attendees represents number people attend events executive summary operations financial position cornerstones growth strategy focus producing extraordinary research content deliver innovative highly differentiated product offerings enhance sales capability provide world class client service improve operational effectiveness total revenues 12885 million 2010 increase 13 prior year diluted earnings per share increased 11 per share 096 revenues increased across geographic regions three business segments total revenues also 13 excluding impact foreign currency research revenues rose 15 yearoveryear 86500 million 2010 contribution margin flat 65 december 31 2010 research contract value almost 9780 million highest company’s history increase 25 december 31 2009 client retention 83 wallet retention 98 december 31 2010 consulting revenues increased 5 2009 gross contribution margin improved 1 point consultant utilization 68 2010 2009 473 billable consultants december 31 2010 events revenues increased 21 compared 2009 held 56 events 2010 two prior year attendance events increased 22 37219 segment contribution margin 46 2010 increase 5 points 2009 detailed discussion segment results see segment results refinanced debt late 2010 take advantage favorable financing conditions obtain greater financial flexibility liquidity larger revolving credit facility new credit arrangement provides fiveyear 2000 million term loan 4000 million revolving credit facility gartner generated 2050 million cash operating activities 2010 1202 million cash equivalents december 31 2010 3760 million available borrowing capacity new revolving credit facility believe strong cash position liquidity fluctuations quarterly results quarterly annual revenue operating income cash flow fluctuate result many factors including timing symposiumitxpo series normally held fourth calendar quarter events amount new business generated mix domestic international business changes market demand products services changes foreign currency rates timing development introduction marketing new products services competition industry factors potential fluctuations operating income could cause periodtoperiod comparisons operating results meaningful could provide unreliable indication future operating results critical accounting policies estimates preparation financial statements requires application appropriate accounting policies use estimates significant accounting policies described note 1 notes consolidated financial statements management considers policies discussed critical understanding financial statements application requires complex subjective management judgments estimates specific risks critical accounting policies also described preparation financial statements also requires us make estimates assumptions future events develop estimates using current historical experience well factors including general economic environment actions may take future adjust estimates facts circumstances dictate however estimates may involve significant uncertainties judgments cannot determined precision addition estimates based best judgment point time estimates may ultimately differ actual results ongoing changes estimates could material would reflected company’s financial statements future periods critical accounting policies follows revenue recognition recognize revenue accordance sec staff accounting bulletin 101 revenue recognition financial statements “sab 101” sec staff accounting bulletin 104 revenue recognition “sab 104” required criteria revenue recognition met revenue significant source accounted follows • research revenues derived subscription contracts research products deferred recognized ratably applicable contract term fees research reprints recognized reprint shipped • consulting revenues principally generated fixed fee time material engagements revenues fixed fee contracts recognized proportional performance basis revenues time materials engagements recognized work delivered andor services provided revenues related contract optimization contracts contingent nature recognized upon satisfaction conditions related payment • events revenues deferred recognized upon completion related symposium conference exhibition majority research contracts billable upon signing absent special terms granted limited basis time research contracts noncancelable nonrefundable except government contracts may cancellation fiscal funding clauses policy record entire amount contract billable fee receivable time contract signed corresponding amount deferred revenue since contract represents legally enforceable claim government contracts permit cancellation historically recorded fees receivables extent amounts earned deferred revenue extent cash received september 30 2010 based analysis historic contract cancellations determined likelihood cancellations remote accordingly date record entire billable contract amount fees receivable time contract signed corresponding amount deferred revenue consistent contracts change estimate immaterial impact uncollectible fees receivable allowance losses composed bad debt allowance sales reserve provisions charged earnings either reduction revenues increase expense measurement likely probable losses allowance losses based historical loss experience aging outstanding receivables assessment current economic conditions financial health specific clients evaluation inherently judgmental requires material estimates valuation reserves periodically reevaluated adjusted information ultimate collectibility fees receivable becomes available circumstances could cause valuation reserves increase include changes clients’ liquidity credit quality factors negatively impacting clients’ ability pay obligations come due effectiveness collection efforts following table provides total fees receivable related allowance losses thousands impairment goodwill intangible assets evaluation goodwill performed accordance financial accounting standards board fasb accounting standards codification asc topic 350 requires goodwill assessed impairment least annually whenever events changes circumstances indicate carrying value may recoverable addition impairment evaluation amortizable intangible assets performed periodic basis annual goodwill assessment requires us estimate fair values reporting units based estimates future business operations market economic conditions developing longterm forecasts determine fair value reporting unit less carrying amount must recognize impairment charge portion associated goodwill reporting unit earnings financial statements factors consider important could trigger review impairment include following • significant underperformance relative historical projected future operating results • significant changes manner use acquired assets strategy overall business • significant negative industry economic trends • significant decline stock price sustained period • market capitalization relative net book value due numerous variables associated judgments assumptions relating valuation reporting units effects changes circumstances affecting valuations precision reliability resulting estimates subject uncertainty additional information becomes known may change estimates completed required annual goodwill impairment testing quarter ended september 30 2010 concluded fair values company’s reporting units substantially exceeded respective carrying values addition management concluded none goodwill impairment triggers discussed occurred fourth quarter 2010 see note 1 business significant accounting policies notes consolidated financial statements additional goodwill disclosures accounting income taxes prepare consolidated financial statements estimate income taxes jurisdictions operate process involves estimating current tax expense together assessing temporary differences resulting differing treatment items tax accounting purposes differences result deferred tax assets liabilities included within consolidated balance sheets record valuation allowance reduce deferred tax assets future realization question consider availability loss carryforwards existing deferred tax liabilities future taxable income ongoing prudent feasible tax planning strategies assessing need valuation allowance event determine able realize deferred tax assets future excess net recorded amount adjustment made reduce valuation allowance increase income period determination made likewise determine able realize part net deferred tax asset future adjustment valuation allowance charged income period determination made accounting stockbased compensation company accounts stockbased compensation accordance fasb asc topics 505 718 interpreted sec staff accounting bulletins 107 “sab 107” 110 “sab 110” company recognizes stockbased compensation expense based fair value award date grant related service period net estimated forfeitures see note 9 stockbased compensation notes consolidated financial statements determining appropriate fair value model calculating fair value stock compensation awards requires input certain highly complex subjective assumptions including expected life stock compensation awards company’s common stock price volatility addition determining appropriate amount associated periodic expense requires management estimate rate employee forfeitures likelihood achievement certain performance targets assumptions used calculating fair value stock compensation awards associated periodic expense represent management’s best estimates involve inherent uncertainties application judgment result factors change company deems necessary future modify assumptions made use different assumptions quantity nature company’s stockbased compensation awards changes amount expense may need adjusted future stock compensation expense could materially different recorded current period restructuring accruals may record accruals severance costs associated excess facilities leased contract terminations asset impairments costs result ongoing actions undertake streamline organization reposition certain businesses reduce ongoing costs estimates costs incurred complete actions future lease payments sublease income fair value assets severance related benefits based assumptions time actions initiated accruals may need adjusted extent actual costs differ estimates addition actions may revised due changes business conditions foresee time plans approved also record accruals year various employee cash incentive programs amounts accrued end reporting period based estimates may require adjustment ultimate amount paid incentives sometimes known certainty year end results operations overall results following tables summarize changes selected line items consolidated statements operation three years ended december 31 2010 dollars thousands twelve months ended december 31 2010 2009 twelve months ended december 31 2009 2008 1 december 2009 acquired amr research burton group operating results businesses included consolidated results operations beginning respective dates acquisition results businesses material company’s 2009 consolidated operating results 2 includes gain sale operating results company’s vision events business sold 2008 2010 versus 2009 total revenues twelve months ended december 31 2010 increased 1487 million 13 compared twelve months ended december 31 2009 revenues increased across geographic regions three business segments total revenues also 13 excluding impact foreign currency immaterial impact yearoveryear overview results geographic region follows overview results segment follows please refer section mda entitled “segment results” discussion revenues results segment cost services product development “cos” increased 11 2010 539 million 5522 million compared 4984 million 2009 impact foreign currency yearoveryear increase significant recognized 368 million higher payroll commissions related personnel costs 2010 primarily due impact increased headcount amr research burton group businesses 120 million higher conference travel costs 2010 due additional events held increased attendees well general increase travel activity depressed 2009 levels company strict travel restrictions place due economic downturn also 22 million higher equity compensation expense due higher level achievement performancebased stock units cost services product development percentage sales 43 2010 44 2009 1 point improvement primarily driven substantial increase fourth quarter 2010 revenues increased 16 fourth quarter 2009 substantially greater increase quarterly cost services improvement reflects operating leverage business model selling general administrative “sga” expense increased 662 million 2010 14 5432 million 4770 million 2009 excluding unfavorable impact foreign exchange sga expense increased 13 yearoveryear 470 million higher sales commissions payroll benefits personnel charges 2010 included additional headcount costs attributable amr research burton group businesses also 43 million additional stockbased compensation expense due higher level achievement performancebased stock units higher travel charges 71 million primarily due additional sales headcount loosening travel restrictions unfavorable impact foreign currency added 31 million additional expense depreciation expense decreased slightly yearoveryear capital spending increased 217 million 2010 151 million 2009 43 increase company reduced capital expenditures 2009 due economic downturn amortization intangibles 105 million 2010 compared 16 million 2009 increase due amortization intangibles acquired amr research burton group acquisition integration charges 79 million 2010 29 million 2009 included charges legal fees consultant fees connection acquisitions integration amr research burton group well severance costs related redundant headcount operating income increased 11 yearoveryear 1493 million 2010 1345 million 2009 increase due significantly higher gross contribution three business segments 2010 increased 15 yearoveryear 7423 million 2010 6429 million 2009 increased gross contribution partially offset higher charges 2010 sga well higher intangible amortization acquisition integration charges related acquisitions operating income percentage revenues 12 2010 2009 please refer section mda entitled “segment results” discussion revenues results segment interest expense net 156 million 2010 160 million 2009 3 decline 2010 period includes 37 million incremental expense related refinancing debt december 2010 see note 6 debt notes consolidated financial statements excluding 37 million incremental charge interest expense net would declined approximately 26 yearoveryear due lower average debt outstanding lower weightedaverage rate income expense net 04 million 2010 consisted 24 million gain insurance recovery related prior period loss offset net foreign currency exchange losses 29 expense 2009 primarily consisted net foreign currency exchange losses provision income taxes 378 million 2010 compared 326 million 2009 effective tax rate 282 periods yearoveryear increases rate attributable higher financial statement cost repatriation higher net reserve increases substantially offset reductions rate year attributable larger releases valuation allowances internal revenue service “irs” completed examination federal income tax return company tax year ended december 31 2007 december 2010 company received report audit findings company disagrees certain proposed adjustments intends vigorously dispute matter applicable irs judicial procedures appropriate company believes recorded reserves sufficient cover exposures related issues however resolution matters involves uncertainties assurances ultimate resolution exceed amounts recorded although final resolution proposed adjustments uncertain believe ultimate disposition matter material adverse effect consolidated financial position cash flows results operations net income 963 million 2010 830 million 2009 increase 133 million 16 primarily due 148 million yearoveryear increase operating income also 04 million gain income expense activity 2010 compared loss 29 million 2009 well slightly lower interest expense 2010 increases partially offset higher income tax charges 2010 basic earnings per share increased 15 yearoveryear diluted earnings per share increased 13 yearoveryear increased earnings per share due higher net income 2010 slightly reduced higher weightedaverage shares outstanding 2010 2009 versus 2008 total revenues twelve months ended december 31 2009 decreased 1393 million 11 compared twelve months ended december 31 2008 revenues declined across geographic regions three business segments impact foreign currency negative impact revenues 2009 excluding impact total revenues 2009 8 compared 2008 revenues operating results negatively impacted global economic conditions 2009 overview results geographic region follows overview results segment follows please refer section mda entitled “segment results” discussion revenues results segment cost services product development decreased 738 million yearoveryear 13 favorable impact foreign currency translation reduced expense 190 million lower conference expenses 185 million primarily due discontinued events also reduced travel internal meeting charges 167 million lower personnel costs 125 million primarily due tight cost controls remaining 71 million net decrease spread across number expense categories cost services product development percentage sales declined 1 point 44 2009 45 2008 primarily due tight expense controls across businesses selling general administrative “sga” expense decreased 380 million 2009 7 compared 2008 despite increasing sales force impact foreign currency translation reduced expense 180 million also lower travel internal meeting recruiting costs 190 million due tight cost controls remaining net reduction spread across number expense categories excluding 60 sales associates joined us amr research burton group 942 quotabearing sales associates december 31 2009 2 increase prior year end additional investment sales associates resulted 90 million higher payroll benefits costs offset lower ga charges depreciation expense decreased 2 yearoveryear reflects reduced capital spending 2009 capital spending decreased 151 million 2009 243 million 2008 38 decline reflects company’s reduced 2009 capital expenditures amortization intangibles 16 million 2009 2008 acquisition integration charges 29 million 2009 zero 2008 included charges legal fees consultant fees connection acquisitions integration amr research burton group well severance costs related redundant headcount operating income decreased 18 yearoveryear 1345 million 2009 1644 million 2008 operating income percentage revenues declined 1 point yearoveryear primarily due lower profitability consulting events segments 29 million acquisition integration charge related amr research burton group please refer section mda entitled “segment results” discussion revenues results segment interest expense net 160 million 2009 193 million 2008 17 decline 2009 period includes 11 million expense related discontinuance hedge accounting interest rate swap contract see note 6 debt notes consolidated financial statements excluding 11 million charge interest expense net would declined approximately 22 yearoveryear decline primarily attributable reduction weightedaverage amount debt outstanding expense income net 29 million 2009 consisted net foreign currency exchange losses 04 million expense 2008 primarily consisted 12 million gain related settlement litigation matter offset net foreign currency exchange losses provision income taxes continuing operations 326 million 2009 compared 476 million 2008 effective tax rate 282 2009 329 2008 lower effective tax rate 2009 compared 2008 attributable several items significant items include following release reserves uncertain tax positions relating expiration statutes limitation larger 2009 2008 pretax income lower b differences relating taxability life insurance contracts yearoveryear income discontinued operations net taxes includes results company’s vision events business sold early 2008 67 million income 2008 includes net gain sale approximately 71 million 04 million operating loss net income 830 million 2009 1039 million 2008 decline 209 million 20 decline primarily driven reduced contributions three business segments 2009 period lesser extent 29 million acquisition integration charge recorded related amr research burton group decreases partially offset lower sga charges lower effective income tax rate reduced interest expense also contributing yearoveryear decline net income 67 million net gain sale company’s former vision events business recorded 2008 period basic earnings per share continuing operations decreased 14 yearoveryear diluted earnings per share continuing operations decreased 13 yearoveryear segment results evaluate reportable segment performance allocate resources based gross contribution margin gross contribution defined operating income excluding certain cost services product development charges sga depreciation acquisition integration charges amortization intangibles charges gross contribution margin defined gross contribution percentage revenues following sections present results three segments research 2010 versus 2009 research revenues increased 15 2010 excluding favorable effect foreign currency translation revenues increased 14 approximately 39 1125 million revenue increase attributable amr research burton group businesses segment gross contribution margin flat 65 despite additional headcount expenses amr research burton group businesses research contract value 9777 million december 31 2010 increase 25 compared december 31 2009 highest reported contract value company’s history excluding favorable impact foreign currency translation research contract value increased 20 2009 attribute increase continuing focus sales effectiveness improving economic environment increase also due amr research burton group businesses contributed approximately 30 1933 million increase contract value client retention wallet retention improved 5 points 11 points respectively 2009 versus 2008 research revenues declined 4 yearoveryear excluding unfavorable effect foreign currency translation research revenues 1 spite lower revenues research contribution margin increased 2 points yearoveryear improved margin primarily driven tight cost controls resulted lower costs concentrated personnel travel internal meetings ability implement price increases products contract value decreased 6 comparing december 31 2009 december 31 2008 excluding impact foreign currency translation contract value 1 yearoveryear contract value increased 420 million fourth quarter 2009 6 growth across industries geographies client sizes believe increase reflects improved sales effectiveness well improving economic environment consulting 2010 versus 2009 consulting revenues increased 5 2010 excluding unfavorable impact foreign currency translation revenues increased 6 amr research burton group businesses added approximately 35 153 million revenue increase gross contribution margin improved 1 point primarily due additional revenues contract optimization sas businesses higher margins core consulting billable headcount 473 december 31 2010 increase 7 yearoveryear backlog 1008 million december 31 2010 increase 99 million 11 prior year backlog increased across geographic regions amr research burton group businesses added approximately 03 million increase 2009 versus 2008 consulting revenues declined 17 comparing 2009 2008 majority decline core consulting lesser extent sas contract optimization businesses decline core consulting driven lower headcount utilization billing rates decline revenue contract optimization business reflects large contract received end 2008 repeated 2009 sas revenues declined due approximately 17 fewer fulfilled sas days excluding unfavorable impact foreign currency overall consulting revenues 15 2 point decline consulting contribution margin reflects lower revenue sas contract optimization businesses higher margins core consulting lesser extent decline also reflects lower utilization billing rates core consulting ended 2009 442 billable consultants decline 11 prior year end tightly managed resources match demand decline reflects normal attrition well termination approximately 30 consultants january 2009 better align delivery resources lower backlog consulting backlog declined 6 yearoveryear increased 7 sequentially fourth quarter 2009 909 million demand consulting services solid us demand europe lagged events 2010 versus 2009 events revenues increased 209 million 2010 21 compared 2009 little impact foreign currency translation held 2 additional events 2010 total 56 events consisted 48 ongoing events 8 new event launches discontinued 6 events held prior years 22 increase attendees 24 increase exhibitors average revenue increased 12 attendees slightly exhibitors revenues increased 211 million 52 million ongoing new events respectively partially offset 54 million revenue loss discontinued events gross contribution margin increased 5 points primarily due higher contribution ongoing events reflecting strength attendee volume average revenue per attendee well higher exhibitor volume 2009 versus 2008 events revenue 496 million 33 2009 due impact discontinued events decline revenue ongoing events held 54 events 2009 decline 16 events compared prior year 54 events held 2009 consisted 51 ongoing events 3 new events number attendees 51 ongoing events 12 number exhibitors 31 excluding unfavorable impact foreign currency events revenues 32 yearoveryear approximately 240 million revenue decrease due 19 discontinued events including spring symposium significant event prior years discontinued events 2009 response difficult operating environment tight travel restrictions budget cuts many companies due weak economy also 300 million decline revenue 51 ongoing events declines slightly offset approximately 40 million higher revenue new event launches miscellaneous events revenues events contribution margin 2 points yearoveryear primarily due lower average attendee exhibitor revenue 51 ongoing events number attendees significantly yearoveryear trend began show improvement fourth quarter 2009 attendance ongoing events 2 also began see improvement exhibitor participation believe trends reflect loosening corporate travel budgets resumed growth marketing spend technology companies continuing efforts increase client retention enhancing value experience clients derive events liquidity capital resources december 22 2010 company entered new credit facility syndication banks led jpmorgan chase take advantage favorable financing conditions obtain greater financial flexibility liquidity larger revolving credit facility new credit arrangement provides fiveyear 2000 million term loan 4000 million revolving credit facility new credit facility contains expansion feature term loan revolving credit facility may increased company’s option certain conditions additional 1500 million aggregate finance operations primarily cash generated ongoing operating activities 2010 operating cash flow increased 27 prior year december 31 2010 1202 million cash equivalents 3760 million available borrowing capacity revolving credit facility cash equivalents held numerous locations throughout world approximately 75 held outside united states december 31 2010 believe adequate liquidity cash expect earn ongoing operating activities existing cash balances expanded borrowing capacity revolving credit facility sufficient expected shortterm foreseeable longterm operating needs following table summarizes company’s changes cash equivalents three years ending december 31 2010 versus 2009 operating 2010 operating cash flow increased 436 million 27 primarily due 133 million increase net income 90 million decrease cash payments income taxes 121 million decrease payments severance interest payments debt excess facilities also received 24 million cash 2010 insurance recovery approximately 198 million improvements working capital accounts includes increased cash collections receivables partially offsetting increases 80 million acquisition integration payments made 2010 related acquisitions amr research burton group 50 million 2010 bonus payments investing cash used investing activities declined 858 million 2010 due acquisitions amr research burton group 2009 paid 1045 million cash acquisitions december 2009 additional 122 million january 2010 used 217 million cash 2010 capital expenditures compared 151 million 2009 period increase 66 million 43 financing cash used financing activities 978 million higher 2010 compared 2009 total 1716 million used 2010 compared 738 million used 2009 additional cash used due higher debt repayments additional share repurchases 2010 net basis repaid 1088 million debt 2010 compared 873 million prior year increase cash used 216 million used 998 million cash share repurchases 2010 compared 37 million 2009 increase cash used 961 million also paid 48 million cash 2010 fees related debt refinancing partially offsetting higher uses cash additional 247 million cash realized option exercises excess tax benefits higher average stock price 2010 resulted significantly increased number option exercises 2009 versus 2008 operating cash flow decreased 12 2009 224 million decline approximately 230 million cash core operations along 145 million cash taxes paid 80 million higher severance payments due workforce reduction completed early january 2009 partially offsetting declines 148 million lower interest payments debt bonus payments excess facilities 83 million improvement working capital improved working capital primarily reflects improved cash collection receivables investing used additional 1032 million cash investing activities 2009 due 1045 million cash used acquisitions amr research burton group 151 million capital expenditures 2009 decline 38 compared 243 million capital expenditures 2008 decline reflects company’s tight focus reducing costs also realized 78 million cash proceeds 2008 sale vision events business financing cash used financing activities declined 461 million primarily due significant decline use cash stock repurchases cash used stock repurchases declined 1971 million offsetting decline cash used share repurchases increase use cash repay debt 1087 million decline cash proceeds option exercises excess tax benefits equity compensation approximately 423 million obligations commitments december 31 2010 2200 million outstanding 2010 credit agreement provides fiveyear 2000 million term loan 4000 million revolving credit facility 2010 credit agreement contains expansion feature term loan revolving credit facility may increased company’s option certain conditions additional 1500 million aggregate term loan repaid 19 consecutive quarterly installments commencing march 31 2011 plus final payment due december 22 2015 may prepaid time without penalty premium company’s option revolving credit facility may used loans 400 million may used letters credit revolving loans may borrowed repaid reborrowed december 22 2015 time amounts borrowed must repaid see note 6 debt notes consolidated financial statements additional information regarding 2010 credit agreement commitments following table presents contractual cash commitments due december 31 2010 thousands 1 company leases various facilities furniture computer equipment expiring 2011 2025 2 represents amounts due 2010 credit agreement amounts drawn revolver credit arrangement classified 45 years category since amounts contractually due december 2015 interest payments outstanding debt excluded amounts payable due variable nature interest rates resulting payment amounts information regarding current interest rates company’s debt contained note 6 debt notes consolidated financial statements years ended december 31 2010 2009 2008 paid cash interest debt 115 million 139 million 224 million respectively 3 represents company’s liability participants supplemental deferred compensation arrangement amounts payable active employees whose payment date unknown included 5 years category since company cannot determine amounts paid 4 includes interest penalties addition 13 million liability approximately 158 million unrecognized tax benefits recorded liabilities uncertain amounts may settled related unrecognized tax benefits included table company also recorded liability potential interest penalties 25 million quarterly financial data following tables present quarterly operating results two year period ended december 31 2010 1 aggregate four quarters’ basic diluted earnings per common share may equal reported full calendar year amounts due effects share repurchases dilutive equity compensation rounding new accounting standards accounting guidance issued various standard setting governmental authorities yet become effective respect consolidated financial statements described together assessment potential impact may consolidated financial statements january 2010 fasb issued asu 201006 “fair value measurements disclosures” asu 201006 requires fair value hierarchy disclosures disaggregated class assets liabilities class often subset assets liabilities within line item balance sheet addition significant transfers levels 1 2 fair value hierarchy required disclosed additional disclosure requirements became effective january 1 2010 general anticipate transfers different levels fair value hierarchy year ended december 31 2010 none required fair value disclosures presented note 12 fair value disclosures herein notes consolidated financial statements beginning january 1 2011 fasb also require additional disclosures regarding changes level 3 instruments company currently level 3 instruments september 2009 fasb issued asu 200913 “revenue arrangements multiple deliverables” asu 200913 requires companies allocate revenue arrangements involving multiple deliverables based estimated selling price deliverable even though deliverables sold separately either company vendors asu 200913 eliminates requirement undelivered elements must objective reliable evidence fair value company recognize portion overall arrangement fee attributable items already delivered result new guidance expected allow companies recognize revenue transactions involve multiple deliverables earlier current requirements asu 200913 effective gartner beginning january 1 2011 company’s multiple revenue arrangements limited result expect impact consolidated statement operations related adoption guidance item 7aitem 7 management’s discussion analysis financial condition results operations purpose following management’s discussion analysis “mda” help facilitate understanding significant factors influencing operating results financial condition cash flows gartner inc additionally mda also conveys expectations potential impact known trends events uncertainties may impact future results read discussion conjunction consolidated financial statements related notes included report historical results percentage relationships necessarily indicative operating results future periods references “the company” “we” “our” “us” gartner inc consolidated subsidiaries following item impacts presentation discussion results mda section december 2009 acquired amr research inc “amr research” burton group inc “burton group” see note 2 acquisitions notes consolidated financial statements operating results businesses included consolidated results beginning respective dates acquisition results businesses material consolidated segment results 2009 forwardlooking statements addition historical information annual report form 10k contains certain forwardlooking statements forwardlooking statements historical fact including statements regarding expectations beliefs hopes intentions strategies regarding future cases forwardlooking statements identified use words “may” “will” “expect” “should” “could” “believe” “plan” “anticipate” “estimate” “predict” “potential” “continue” words similar meaning forwardlooking statements subject risks uncertainties could cause actual results differ materially discussed implied forwardlooking statements factors might cause difference include limited discussed part 1 item 1a risk factors readers place undue reliance forwardlooking statements reflect management’s opinion date made except required law disclaim obligation review update forwardlooking statements reflect events circumstances occur readers review carefully risk factors described reports filed sec business overview gartner inc world’s leading information technology research advisory company helps executives use technology build guide grow enterprises offer independent objective research analysis information technology computer hardware software communications related technology industries provide comprehensive coverage industry thousands client organizations across globe client base consists primarily cios senior executives wide variety business enterprises government agencies investment community three business segments research consulting events • research provides objective insight critical timely technology supply chain initiatives cios professionals supply chain leaders technology companies investment community reports briefings proprietary tools access analysts peer networking services membership programs enable clients make better decisions supply chain investments • consulting provides customized solutions unique client needs onsite daytoday support well proprietary tools measuring improving performance focus cost performance efficiency quality • events provide supply chain business professionals opportunity attend various symposia conferences exhibitions learn contribute network peers flagship event symposiumitxpo summits focused specific technologies industries experimental workshopstyle seminars events distill latest gartner research applicable insight advice business measurements believe following business measurements important performance indicators business segments business segment business measurements research contract value represents value attributable subscriptionrelated research products recognize revenue ratable basis contract value calculated annualized value subscription research contracts effect specific point time without regard duration contract client retention rate represents measure client satisfaction renewed business relationships specific point time client retention calculated percentage basis dividing current clients also clients year ago clients year ago wallet retention rate represents measure amount contract value retained clients twelvemonth period wallet retention calculated percentage basis dividing contract value clients one year earlier total contract value year earlier excluding impact foreign currency exchange wallet retention exceeds client retention indication retention higherspending clients increased spending retained clients consulting backlog represents future revenue derived inprocess consulting measurement strategic advisory services engagements utilization rate represents measure productivity consultants utilization rates calculated billable headcount percentage basis dividing total hours billed total hours available bill billing rate represents earned billable revenue divided total billable hours average annualized revenue per billable headcount represents measure revenue generating ability average billable consultant calculated periodically multiplying average billing rate per hour times utilization percentage times billable hours available one year events number events represents total number hosted events completed period number attendees represents total number people attend events executive summary operations financial position executed consistent growth strategy since 2005 drive doubledigit annual revenue earnings growth fundamentals strategy include focus creating extraordinary research content deliver innovative highly differentiated product offerings build strong sales capability provide world class client service focus client engagement retention continuously improve operational effectiveness total revenues 14686 million 2011 increase 14 2010 diluted earnings per share increased 43 per share 139 revenues increased across geographic regions three business segments excluding impact foreign currency 2011 total revenues increased 11 2010 research revenues rose 17 yearoveryear 10121 million 2011 first time research segment revenues exceeded one billion dollars contribution margin increased 2 points 2011 67 december 31 2011 research contract value 11158 million highest company’s history increase 14 december 31 2010 client retention 82 wallet retention 99 december 31 2011 consulting revenues increased 2 2010 gross contribution margin 37 consultant utilization 65 2011 481 billable consultants december 31 2011 compared 473 yearend 2010 events revenues increased 22 compared 2010 held 60 events 2011 four prior year attendance events increased 15 42748 segment contribution margin 45 2011 detailed discussion segment results see segment results gartner generated almost 2560 million cash operating activities 2011 increase 24 2010 excluding 90 million landlord reimbursements received 2011 related renovation stamford headquarters facility recorded operating cash flow benefit operating cash flow increased 20 yearoveryear continued focus maximizing shareholder value 2011 repurchased 59 million common shares outstanding approximately 6 total common shares outstanding beginning 2011 believe adequate liquidity meet currently anticipated needs addition strong operating cash flow refinanced debt late 2010 take advantage favorable financing conditions obtain greater financial flexibility liquidity larger revolving credit facility credit arrangement provides fiveyear 2000 million term loan 4000 million revolving credit facility december 31 2011 1427 million cash equivalents almost 3770 million available borrowing capacity revolving credit facility fluctuations quarterly results quarterly annual revenue operating income cash flow fluctuate result many factors including timing symposiumitxpo series normally held fourth calendar quarter well events amount new business generated mix domestic international business changes market demand products services changes foreign currency rates timing development introduction marketing new products services competition industry general economic conditions factors potential fluctuations operating income could cause periodtoperiod comparisons operating results meaningful could provide unreliable indication future operating results cash flows critical accounting policies estimates preparation financial statements requires application appropriate accounting policies use estimates significant accounting policies described note 1 notes consolidated financial statements management considers policies discussed critical understanding financial statements application requires complex subjective management judgments estimates specific risks critical accounting policies described preparation financial statements also requires us make estimates assumptions future events develop estimates using current historical experience well factors including general economic environment actions may take future adjust estimates facts circumstances dictate however estimates may involve significant uncertainties judgments cannot determined precision addition estimates based best judgment point time estimates may ultimately differ actual results ongoing changes estimates could material would reflected company’s financial statements future periods critical accounting policies follows revenue recognition revenue recognized accordance sec staff accounting bulletin 101 revenue recognition financial statements “sab 101” sec staff accounting bulletin 104 revenue recognition “sab 104” revenue recognized required criteria revenue recognition met revenue significant source accounted follows • research revenues derived subscription contracts research products deferred recognized ratably applicable contract term fees research reprints recognized reprint shipped • consulting revenues principally generated fixed fee time material engagements revenues fixed fee contracts recognized proportional performance basis revenues time materials engagements recognized work delivered andor services provided revenues related contract optimization contracts contingent nature recognized upon satisfaction conditions related payment • events revenues deferred recognized upon completion related symposium conference exhibition majority research contracts billable upon signing absent special terms granted limited basis time research contracts noncancelable nonrefundable except government contracts may cancellation fiscal funding clauses policy record entire amount contract billable fee receivable time contract signed corresponding amount deferred revenue since contract represents legally enforceable claim uncollectible fees receivable maintain allowance losses composed bad debt allowance sales reserve provisions charged earnings either reduction revenues increase expense measurement likely probable losses allowance losses based historical loss experience aging outstanding receivables assessment current economic conditions financial health specific clients evaluation inherently judgmental requires estimates valuation reserves periodically reevaluated adjusted information ultimate collectibility fees receivable becomes available circumstances could cause valuation reserves increase include changes clients’ liquidity credit quality factors negatively impacting clients’ ability pay obligations come due effectiveness collection efforts following table provides total fees receivable related allowance losses thousands goodwill intangible assets company evaluates recorded goodwill accordance financial accounting standards board fasb accounting standards codification asc topic 350 requires goodwill assessed impairment least annually whenever events changes circumstances indicate carrying value may recoverable addition impairment evaluation amortizable intangible assets may also performed periodic basis events circumstances indicate potential impairment determine fair value reporting unit intangible asset less related carrying amount must recognize impairment charge earnings among factors consider important could trigger impairment review following • significant underperformance relative historical projected future operating results • significant changes manner use acquired assets strategy overall business • significant negative industry general economic trends • significant decline stock price sustained period • market capitalization relative net book value since 2002 us gaap goodwill impairment rules required quantitative approach fair values reporting units determined based estimates future business results market economic conditions developing longterm forecasts september 2011 fasb issued accounting standards update “asu” 201108 intangiblesgoodwill testing goodwill impairment “asu 201108” asu 201108 optionally permits evaluation goodwill based qualitative assessment whether likely reporting unit’s fair value less carrying amount result issuance asu 201108 required annual goodwill impairment test may either quantitative qualitative nature annual determination estimated fair value reporting unit goodwill whether quantitative qualitative contains judgments assumptions regarding future trends events result precision reliability resulting estimates subject uncertainty 2010 completed required annual goodwill impairment test utilizing quantitative approach concluded fair values company’s reporting units substantially exceeded respective carrying values 2011 early adopted asu 201108 evaluated reporting unit goodwill utilizing qualitative assessment based assessment company believes fair value goodwill company’s reporting units continue substantially exceed respective carrying values thus concluded necessary conduct twostep goodwill impairment test see note 1 business significant accounting policies notes consolidated financial statements additional discussion accounting income taxes prepare consolidated financial statements estimate income taxes jurisdictions operate process involves estimating current tax expense together assessing temporary differences resulting differing treatment items tax accounting purposes differences result deferred tax assets liabilities included within consolidated balance sheets record valuation allowance reduce deferred tax assets future realization question consider availability loss carryforwards existing deferred tax liabilities future taxable income ongoing prudent feasible tax planning strategies assessing need valuation allowance event determine able realize deferred tax assets future excess net recorded amount adjustment made reduce valuation allowance increase income period determination made likewise determine able realize part net deferred tax asset future adjustment valuation allowance charged income period determination made accounting stockbased compensation company accounts stockbased compensation accordance fasb asc topics 505 718 interpreted sec staff accounting bulletins 107 “sab 107” 110 “sab 110” company recognizes stockbased compensation expense based fair value award date grant related service period net estimated forfeitures see note 8 stockbased compensation notes consolidated financial statements determining appropriate fair value model calculating fair value stock compensation awards requires input certain complex subjective assumptions including expected life stock compensation award company’s common stock price volatility addition determining appropriate amount associated periodic expense requires management estimate rate employee forfeitures likelihood achievement certain performance targets assumptions used calculating fair value stock compensation awards associated periodic expense represent management’s best estimates involve inherent uncertainties application judgment result factors change company deems necessary future modify assumptions made use different assumptions quantity nature company’s stockbased compensation awards changes amount expense may need adjusted future stock compensation expense could materially different recorded current period restructuring accruals may record accruals severance costs associated excess facilities leased contract terminations asset impairments costs result ongoing actions undertake streamline organization reposition certain businesses reduce ongoing costs estimates costs incurred complete actions future lease payments sublease income fair value assets severance related benefits based assumptions time actions initiated accruals may need adjusted extent actual costs differ estimates addition actions may revised due changes business conditions foresee time plans approved also record accruals year various employee cash incentive programs amounts accrued end reporting period based estimates may require adjustment ultimate amount paid incentives sometimes known certainty year end results operations consolidated results following tables summarize changes selected line items consolidated statements operation three years ended december 31 2011 dollars thousands twelve months ended december 31 2011 2010 twelve months ended december 31 2010 2009 1 december 2009 acquired amr research burton group operating results businesses included consolidated results operations beginning respective dates acquisition results businesses material company’s 2009 consolidated operating results 2011 versus total revenues twelve months ended december 31 2011 increased 1801 million 14 compared twelve months ended december 31 2010 total revenues increased 11 excluding impact foreign currency revenues increased across geographic regions three business segments reported basis overview results geographic region follows • revenues sales united states canadian clients increased 12 8615 million 2011 7658 million 2010 • revenues sales clients europe middle east africa increased 4372 million 2011 3808 million 2010 15 increase • revenues sales clients international region increased 20 1699 million 2011 1419 million 2010 overview results segment follows • research revenues increased 17 2011 10121 million compared 8650 million 2010 comprised 69 67 total revenues 2011 2010 respectively • consulting revenues increased 2 2011 3080 million compared 3021 million 2010 comprised approximately 21 23 total revenues 2011 2010 respectively • events revenues increased 22 2011 1485 million compared 1213 million 2010 comprised approximately 10 total revenues 2011 2010 please refer section mda entitled “segment results” discussion revenues results segment cost services product development “cos” expense increased 10 2011 565 million 6088 million compared 5522 million 2010 approximately half increase due higher payroll related benefits costs resulting investment additional headcount merit salary increases rest increase primarily due negative impact foreign currency translation well incremental expenses additional investment events business cost services product development percentage revenues improved 2 points yearoveryear primarily driven higher research revenues operating leverage inherent research business selling general administrative “sga” expense increased 705 million 2011 13 6137 million 5432 million 2010 increase primarily due higher payroll lesser extent negative impact foreign currency translation excluding unfavorable impact foreign exchange sga expense increased 11 yearoveryear higher payroll costs resulted additional investment headcount well higher sales commissions merit salary increases increased headcount primarily due investment additional quotabearing sales associates increased 21 compared december 31 2010 depreciation expense increased slightly yearoveryear capital spending increased 420 million 2011 217 million 2010 420 million capital expenditures 2011 included 95 million expenditures related renovation stamford headquarters facility 90 million reimbursed landlord 2011 05 million reimbursed 2012 see note 1 business significant accounting policies notes consolidated financial statements additional information amortization intangibles decreased 38 yearoveryear due certain intangibles becoming fully amortized 2010 acquisition integration charges zero 2011 79 million 2010 charges related acquisitions amr research burton group december 2009 included legal consulting severance costs operating income increased 648 million yearoveryear 43 2141 million 2011 1493 million 2010 operating income percentage revenues improved 3 points yearoveryear 15 2011 compared 12 2010 primarily due significantly higher segment contribution research business lesser extent lower intangible amortization acquisition integration charges please refer section mda entitled “segment results” discussion revenues results segment interest expense net 100 million 2011 compared 156 million 2010 36 decline 156 million interest expense 2010 included 37 million incremental expense related refinancing debt see note 5 debt notes consolidated financial statements excluding 37 million incremental charge interest expense net declined approximately 15 yearoveryear primarily due lower average amount debt outstanding declined 2200 million 2011 3260 million 2010 expense income net 19 million 2011 primarily consisted net foreign currency exchange losses 04 million 2010 consisted 24 million gain insurance recovery related prior period loss offset net foreign currency exchange losses provision income taxes 653 million 2011 compared 378 million 2010 effective tax rate 323 2011 compared 282 2010 lower effective tax rate 2010 primarily attributable release valuation allowances relating certain net operating losses net income 1369 million 2011 963 million 2010 increase 406 million 42 primarily due substantially higher operating income partially offset higher income tax charges basic earnings per share increased 42 yearoveryear diluted earnings per share increased 45 due higher net income 2010 versus total revenues twelve months ended december 31 2010 increased 1487 million 13 compared twelve months ended december 31 2009 revenues increased across geographic regions three business segments total revenues also 13 excluding impact foreign currency immaterial impact yearoveryear overview results geographic region follows • revenues sales united states canadian clients increased 15 7658 million 2010 6638 million 2009 substantial portion increase due amr research burton group businesses company acquired december 2009 • revenues sales clients europe middle east africa increased 3808 million 2010 3608 million 2009 6 increase • revenues sales clients international region increased 23 1419 million 2010 1152 million 2009 overview results segment follows • research revenues increased 15 2010 8650 million compared 7525 million 2009 comprised 67 66 total revenues 2010 2009 respectively • consulting revenues increased 5 2010 3021 million compared 2868 million 2009 comprised approximately 23 25 total revenues 2010 2009 respectively • events revenues 1213 million 2010 increase 21 1004 million 2009 comprised approximately 10 9 total revenues 2010 2009 respectively please refer section mda entitled “segment results” discussion revenues results segment cost services product development increased 11 2010 539 million 5522 million compared 4984 million 2009 impact foreign currency yearoveryear increase significant recognized 368 million higher payroll commissions related personnel costs 2010 primarily due impact increased headcount amr research burton group businesses 120 million higher conference travel costs 2010 due additional events held increased attendees well general increase travel activity depressed 2009 levels company strict travel restrictions place due economic downturn also 22 million higher equity compensation expense due higher level achievement performancebased stock units cost services product development percentage sales 43 2010 44 2009 1 point improvement primarily driven substantial increase fourth quarter 2010 revenues increased 16 fourth quarter 2009 substantially greater increase quarterly cost services selling general administrative “sga” expense increased 662 million 2010 14 5432 million 4770 million 2009 excluding unfavorable impact foreign exchange sga expense increased 13 yearoveryear 470 million higher sales commissions payroll benefits personnel charges 2010 included additional headcount costs attributable amr research burton group businesses also 43 million additional stockbased compensation expense due higher level achievement performancebased stock units higher travel charges 71 million primarily due additional sales headcount loosening travel restrictions unfavorable impact foreign currency added 31 million additional expense depreciation expense decreased slightly yearoveryear capital spending increased 217 million 2010 151 million 2009 43 increase company reduced capital expenditures 2009 due economic downturn amortization intangibles 105 million 2010 compared 16 million 2009 increase due amortization intangibles acquired amr research burton group acquisition integration charges 79 million 2010 29 million 2009 charges related acquisitions amr research burton group included legal consulting severance costs operating income increased 11 yearoveryear 1493 million 2010 1345 million 2009 increase due significantly higher gross contribution three business segments 2010 increased 15 yearoveryear 7423 million 2010 6429 million 2009 increased gross contribution partially offset higher charges 2010 sga well higher intangible amortization acquisition integration charges related acquisitions operating income percentage revenues 12 2010 2009 please refer section mda entitled “segment results” discussion revenues results segment interest expense net 156 million 2010 160 million 2009 3 decline 2010 period includes 37 million incremental expense related refinancing debt december 2010 see note 5 debt notes consolidated financial statements excluding 37 million incremental charge interest expense net would declined approximately 26 yearoveryear due lower average debt outstanding lower weightedaverage rate expense income net 04 million 2010 consisted 24 million gain insurance recovery related prior period loss offset net foreign currency exchange losses 29 expense 2009 primarily consisted net foreign currency exchange losses provision income taxes 378 million 2010 compared 326 million 2009 effective tax rate 282 periods yearoveryear increases rate attributable higher financial statement cost repatriation higher net reserve increases substantially offset reductions rate yearoveryear attributable larger releases valuation allowances net income 963 million 2010 830 million 2009 increase 133 million 16 primarily due 148 million yearoveryear increase operating income also 04 million gain income expense activity 2010 compared loss 29 million 2009 well slightly lower interest expense 2010 increases partially offset higher income tax charges 2010 basic earnings per share increased 15 yearoveryear diluted earnings per share increased 13 yearoveryear increased earnings per share due higher net income 2010 slightly reduced higher weightedaverage shares outstanding 2010 segment results evaluate reportable segment performance allocate resources based gross contribution margin gross contribution defined operating income excluding certain cost services product development charges sga depreciation acquisition integration charges amortization intangibles gross contribution margin defined gross contribution percentage revenues following sections present results three segments research 1 operating results amr research burton group included beginning respective dates acquisition december 2009 operating results businesses material research segment 2009 business measurements exclude acquisitions 2 dollars thousands 2011 versus research segment revenues increased 17 2011 compared 2010 reached one billion dollar level first time research revenues increased across regions products client types excluding favorable effect foreign currency translation research segment revenues increased 14 segment gross contribution margin increased 2 points 67 higher segment revenues operating leverage business resulted higher segment contribution margin improved spite 8 increase headcount deliver revenue growth new clients research contract value increased 14 2011 11158 million highest reported contract value company’s history foreign currency translation immaterial impact yearoveryear contract value doubledigit contract value growth research product lines client sizes industry groups number research client organizations serve 20 since 2009 attribute increase contract value extraordinary research content continuing focus sales effectiveness expansion number quotabearing sales associates client retention wallet retention remained strong 82 99 respectively 2010 versus 2009 research revenues increased 15 2010 excluding favorable effect foreign currency translation revenues increased 14 approximately 39 1125 million revenue increase attributable amr research burton group businesses segment gross contribution margin flat 65 despite additional headcount expenses amr research burton group businesses research contract value 9777 million december 31 2010 increase 25 compared december 31 2009 excluding favorable impact foreign currency translation research contract value increased 20 2009 amr research burton group businesses contributed approximately 30 increase contract value client retention wallet retention improved 5 points 11 points respectively consulting 1 operating results amr research burton group included beginning respective dates acquisition december 2009 operating results businesses material consulting segment 2009 business measurements exclude acquisitions 2 dollars thousands 2011 versus consulting revenues increased 2 yearoveryear primarily due higher revenues core consulting excluding favorable impact foreign currency translation revenues slightly gross contribution margin declined 3 points due lower utilization core consulting higher payroll benefit costs resulting merit salary increases full year impact 2011 additional headcount added fourth quarter 2010 backlog slightly yearoveryear 1006 million december 31 2011 2010 versus 2009 consulting revenues increased 5 2010 excluding unfavorable impact foreign currency translation revenues increased 6 amr research burton group businesses added approximately 35 revenue increase gross contribution margin improved 1 point primarily due additional revenues contract optimization sas businesses higher margins core consulting billable headcount 473 december 31 2010 increase 7 yearend 2009 majority additional headcount added fourth quarter 2010 backlog increased 11 yearoveryear increases across geographic regions events 1 operating results amr research burton group included beginning respective dates acquisition december 2009 operating results businesses material events segment 2009 business measurements exclude acquisitions 2 dollars thousands 2011 versus events revenues increased 22 yearoveryear 271 million excluding favorable impact foreign currency translation revenues increased 21 yearoveryear held 60 events 2011 consisted 53 ongoing events 7 new event launches compared 56 events 2010 discontinued 3 events 2011 held prior years additional revenue earned 2011 attributable significantly higher revenue ongoing events doubledigit increases number attendees exhibitors average revenue per attendee rose 2 average revenue per exhibitor increased 5 events revenue strong fourth quarter 2011 rising 764 million increase 22 fourth quarter 2010 highest reported fourth quarter revenue gartner history full year 2011 gross contribution margin decreased 1 point primarily due incremental expenses additional investment business strengthen portfolio provide foundation future growth 2010 versus 2009 events revenues increased 209 million 2010 21 compared 2009 little impact foreign currency translation held 2 additional events 2010 total 56 events consisted 48 ongoing events 8 new event launches discontinued 6 events held prior years 22 increase attendees 24 increase exhibitors average revenue increased 12 attendees slightly exhibitors revenues increased 211 million 52 million ongoing new events respectively partially offset 54 million revenue loss discontinued events gross contribution margin increased 5 points primarily due higher contribution ongoing events reflecting strength attendee volume average revenue per attendee well higher exhibitor volume liquidity capital resources finance operations primarily cash generated ongoing operating activities 2011 operating cash flow 2556 million highest company’s history increase 24 2010 december 31 2011 1427 million cash equivalents 3768 million available borrowing capacity revolving credit facility believe adequate liquidity meet currently anticipated needs cash equivalents held numerous locations throughout world december 31 2011 1230 million cash held outside us approximately onethird amount represented unremitted earnings nonus subsidiaries us gaap accounting rules provision us federal local taxes required unremitted overseas earnings company intends reinvest funds overseas current plans demonstrate need repatriate undistributed earnings fund us operations otherwise satisfy us liquidity needs intend reinvest earnings nonus operations except instances repatriation earnings would result minimal additional tax result provision us federal state income taxes recorded unremitted earnings however decide repatriate unremitted earnings may required accrue us taxes result charges could material would recorded future periods changes cash equivalents following tables summarize changes cash equivalents three years ending december 31 2011 thousands 2011 versus operating cash flow increased 24 501 million 2011 compared 2010 increase primarily due 406 million higher net income approximately 150 million lower cash payments acquisition costs severance costs also received 90 million landlord cash reimbursements capital expenditures renovation stamford headquarters facility increased cash flows partially offset higher cash bonus commission payments paid 2011 due stronger financial performance excluding 90 million landlord reimbursements received 2011 related renovation stamford headquarters facility operating cash flow increased 20 yearoveryear investing used 81 million additional cash investing activities 2011 compared 2010 due higher capital expenditures capital expenditures 420 million 2011 compared 217 million 2010 also made 122 million payments related acquisition burton group early 2010 acquired december 2009 420 million capital expenditures 2011 period included 95 million paid renovation stamford headquarters facility fully reimbursable landlord company received reimbursement 90 million amount 2011 recorded operating cash flow benefit company receive remaining 05 million landlord reimbursement 2012 also recorded operating cash flow benefit received financing used additional 150 million cash financing activities 2011 compared 2010 primarily due additional share repurchases 2011 used 2120 million share repurchases compared 998 million 2010 increase cash used share repurchases 2011 substantially offset lower debt repayments 2011 compared 2010 net basis repaid 998 million debt 2010 paid 48 million fees related refinancing compared 201 million debt repayments 2011 2010 versus operating cash flow increased 436 million 27 comparing 2010 2009 primarily due 133 million yearoveryear increase net income 90 million decrease cash payments income taxes 121 million decrease payments severance interest payments debt excess facilities also received 24 million cash 2010 insurance recovery approximately 198 million improvements working capital accounts included improved cash collection receivables partially offsetting increases 80 million acquisition integration payments made 2010 related acquisitions amr research burton group 50 million 2010 bonus payments investing cash used investing activities declined 858 million 2010 due acquisitions amr research burton group 2009 paid 1045 million cash acquisitions december 2009 additional 122 million january 2010 used 217 million cash 2010 capital expenditures compared 151 million 2009 period increase 66 million 43 financing cash used financing activities 978 million higher 2010 compared 2009 total 1716 million used 2010 compared 738 million used 2009 additional cash used due higher debt repayments additional share repurchases 2010 net basis repaid 1088 million debt 2010 compared 873 million prior year increase cash used 216 million used 998 million cash share repurchases 2010 compared 37 million 2009 increase cash used 961 million also paid 48 million cash 2010 fees related debt refinancing partially offsetting higher uses cash additional 247 million cash realized option exercises excess tax benefits higher average stock price 2010 resulted significantly increased number option exercises obligations commitments december 31 2011 2000 million outstanding 2010 credit agreement provides fiveyear 2000 million term loan 4000 million revolving credit facility 2010 credit agreement contains expansion feature term loan revolving credit facility may increased company’s option certain conditions additional 1500 million aggregate term loan repaid 19 consecutive quarterly installments commenced march 2011 final payment due december 2015 may prepaid time without penalty premium company’s option revolving credit facility may used loans 400 million may used letters credit revolving loans may borrowed repaid reborrowed december 2015 time amounts borrowed must repaid see note 5 debt notes consolidated financial statements additional information regarding 2010 credit agreement cash commitments following table presents contractual cash commitments due december 31 2011 thousands 1 represents amounts due company’s 2010 credit agreement interest rate swap contract see note 5 debt notes consolidated financial statements amounts drawn revolving credit arrangement classified 45 years category since amounts contractually due december 2015 company 2000 million notional interest rate swap converts variable interest payments debt fixed rate resulting effective interest rate debt 376 december 31 2011 rate used estimate contractual interest due periods presented 2 company leases various facilities furniture computer equipment leases expire 2012 2027 3 represents company’s liability participants supplemental deferred compensation arrangement see note 13 employee benefits notes consolidated financial statements amounts payable active employees whose payment date unknown included 5 years category since company cannot determine amounts paid 4 company remaining contractual commitment 155 million leasehold improvements stamford headquarters facility see property equipment leasehold improvements note 1 business significant accounting policies 155 million commitment contractually reimbursable company’s landlord 5 includes interest penalties addition 21 million liability approximately 176 million unrecognized tax benefits recorded liabilities uncertain amounts may settled related unrecognized tax benefits included table company also recorded liability potential interest penalties 34 million 6 includes contractual commitments software services quarterly financial data following tables present quarterly operating results two year period ended december 31 2011 1 aggregate four quarters’ basic diluted earnings per common share may equal reported full calendar year amounts due effects share repurchases dilutive equity compensation rounding recently issued accounting standards accounting guidance issued various standard setting governmental authorities yet become effective respect consolidated financial statements described together assessment potential impact may consolidated financial statements comprehensive income june 2011 financial accounting standards board “fasb” issued accounting standards update “asu” 201105 comprehensive income topic 22010 presentation comprehensive income new guidance eliminates current option report comprehensive income components statement stockholders’ equity instead new rule require entity present net income comprehensive income one continuous statement referred statement comprehensive income two separate consecutive statements new guidance changes presentation comprehensive income changes components recognized net income comprehensive income current accounting guidance new guidance effective fiscal years interim periods beginning december 15 2011 company adopt new rule quarter ending march 31 2012 adoption new guidance change presentation comprehensive income expected impact company’s results operations cash flows financial position fair value measurements may 2011 fasb issued asu 201104 fair value measurement topic 820 amendments achieve common fair value measurement disclosure requirements us gaap ifrss asu 201104 establishes number new requirements fair value measurements include 1 prohibition grouping financial instruments purposes determining fair value except entity manages market credit risks basis entity’s net exposure group 2 extension prohibition use blockage factor fair value measurements prohibition currently applies financial instruments quoted prices active markets 3 requirement recurring level 3 fair value measurements entities disclose quantitative information unobservable inputs description valuation process used qualitative details sensitivity measurements addition items carried fair value fair value disclosed entities required disclose level within fair value hierarchy applies fair value measurement disclosed asu effective interim annual periods beginning december 15 2011 company adopt new rule quarter ending march 31 2012 adoption asu may result additional fair value disclosures expected impact company’s results operations cash flows financial position item 7aitem 7 management’s discussion analysis financial condition results operations purpose following management’s discussion analysis “mda” help facilitate understanding significant factors influencing operating results financial condition cash flows gartner inc additionally mda also conveys expectations potential impact known trends events uncertainties may impact future results read discussion conjunction consolidated financial statements related notes included report historical results percentage relationships necessarily indicative operating results future periods references “the company” “we” “our” “us” gartner inc consolidated subsidiaries 2012 acquired ideas international limited “ideas international” publiclyowned australian corporation see note 2 acquisition notes consolidated financial statements additional information ideas international’s business operations integrated company’s research segment operating results business measurements included company’s consolidated segment results beginning date acquisition impact acquisition material forwardlooking statements addition historical information annual report form 10k contains certain forwardlooking statements forwardlooking statements historical fact including statements regarding expectations beliefs hopes intentions strategies regarding future cases forwardlooking statements identified use words “may” “will” “expect” “should” “could” “believe” “plan” “anticipate” “estimate” “predict” “potential” “continue” words similar meaning forwardlooking statements subject risks uncertainties could cause actual results differ materially discussed implied forwardlooking statements factors might cause difference include limited discussed part 1 item 1a risk factors readers place undue reliance forwardlooking statements reflect management’s opinion date made except required law disclaim obligation review update forwardlooking statements reflect events circumstances occur readers review carefully risk factors described reports filed sec business overview gartner inc world’s leading information technology research advisory company helps executives use technology build guide grow enterprises offer independent objective research analysis information technology computer hardware software communications related technology industries provide comprehensive coverage industry thousands client organizations across globe client base consists primarily cios senior executives wide variety business enterprises government agencies investment community three business segments research consulting events •research provides objective insight critical timely technology supply chain initiatives cios professionals supply chain leaders technology companies investment community reports briefings proprietary tools access analysts peer networking services membership programs enable clients make better decisions supply chain investments •consulting provides customized solutions unique client needs onsite daytoday support well proprietary tools measuring improving performance focus cost performance efficiency quality •events provide supply chain business professionals opportunity attend various symposia conferences exhibitions learn contribute network peers flagship event symposiumitxpo summits focused specific technologies industries experimental workshopstyle seminars events distill latest gartner research applicable insight advice business measurements believe following business measurements important performance indicators business segments business segment business measurements research contract value represents value attributable subscriptionrelated research products recognize revenue ratable basis contract value calculated annualized value subscription research contracts effect specific point time without regard duration contract client retention rate represents measure client satisfaction renewed business relationships specific point time client retention calculated percentage basis dividing current clients also clients year ago clients year ago wallet retention rate represents measure amount contract value retained clients twelvemonth period wallet retention calculated percentage basis dividing contract value clients one year earlier total contract value year earlier excluding impact foreign currency exchange wallet retention exceeds client retention indication retention higherspending clients increased spending retained clients consulting backlog represents future revenue derived inprocess consulting measurement strategic advisory services engagements utilization rate represents measure productivity consultants utilization rates calculated billable headcount percentage basis dividing total hours billed total hours available bill billing rate represents earned billable revenue divided total billable hours average annualized revenue per billable headcount represents measure revenue generating ability average billable consultant calculated periodically multiplying average billing rate per hour times utilization percentage times billable hours available one year events number events represents total number hosted events completed period number attendees represents total number people attend events executive summary operations financial position executed consistent growth strategy since 2005 drive doubledigit annual revenue earnings growth fundamentals strategy include focus creating extraordinary research content delivering innovative highly differentiated product offerings building strong sales capability providing world class client service focus client engagement retention continuously improving operational effectiveness total revenues 16158 million 2012 increase 10 2011 diluted earnings per share increased 34 per share 173 excluding impact foreign currency 2012 total revenues increased 12 2011 research revenues rose 12 yearoveryear 11371 million 2012 contribution margin increased 1 point 68 december 31 2012 research contract value 12629 million increase 14 december 31 2011 adjusted impact foreign exchange client retention 83 wallet retention 99 december 31 2012 consulting revenues 2012 decreased 1 compared 2011 gross contribution margin 36 consultant utilization 67 2012 compared 65 2011 503 billable consultants december 31 2012 compared 481 yearend 2011 backlog increased 2 yearoveryear 1027 million december 31 2012 events revenues increased 17 yearoveryear 1738 million segment contribution margin 46 held 62 events 2012 compared 60 2011 increase overall attendance 8 46307 detailed discussion results see segment results section cash flow operating activities increased 9 2012 compared 2011 2798 million continued focus maximizing shareholder value 2012 repurchased 27 million common shares outstanding year ended 2012 almost 3000 million cash equivalents addition record yearend cash balance yearend 2012 also almost 3470 million borrowing capacity 4000 million revolving credit facility believe adequate liquidity meet currently anticipated needs company’s 2010 credit agreement expires december 2015 company currently exploring refinancing options take advantage favorable market conditions fluctuations quarterly results quarterly annual revenue operating income cash flow fluctuate result many factors including timing symposiumitxpo series normally held fourth calendar quarter well events timing amount new business generated mix domestic international business changes market demand products services changes foreign currency rates timing development introduction marketing new products services competition industry general economic conditions factors beyond control potential fluctuations operating income could cause periodtoperiod comparisons operating results meaningful could provide unreliable indication future operating results cash flows critical accounting policies estimates preparation financial statements requires application appropriate accounting policies use estimates significant accounting policies described note 1 notes consolidated financial statements management considers policies discussed critical understanding financial statements application requires complex subjective management judgments estimates specific risks critical accounting policies described preparation financial statements also requires us make estimates assumptions future events develop estimates using current historical experience well factors including general economic environment actions may take future adjust estimates facts circumstances dictate however estimates may involve significant uncertainties judgments cannot determined precision addition estimates based best judgment point time estimates may ultimately differ actual results ongoing changes estimates could material would reflected company’s financial statements future periods critical accounting policies follows revenue recognition revenue recognized accordance sec staff accounting bulletin 101 revenue recognition financial statements “sab 101” sec staff accounting bulletin 104 revenue recognition “sab 104” revenue recognized required criteria revenue recognition met revenue significant source accounted follows •research revenues derived subscription contracts research products deferred recognized ratably applicable contract term fees research reprints recognized reprint shipped •consulting revenues principally generated fixed fee time material engagements revenues fixed fee contracts recognized proportional performance basis revenues time materials engagements recognized work delivered andor services provided revenues related contract optimization contracts contingent nature recognized upon satisfaction conditions related payment •events revenues deferred recognized upon completion related symposium conference exhibition majority research contracts billable upon signing absent special terms granted limited basis time research contracts noncancelable nonrefundable except government contracts may cancellation fiscal funding clauses policy record entire amount contract billable fee receivable time contract signed corresponding amount deferred revenue since contract represents legally enforceable claim uncollectible fees receivable maintain allowance losses composed bad debt allowance sales reserve provisions charged earnings either reduction revenues increase expense measurement likely probable losses allowance losses based historical loss experience aging outstanding receivables assessment current economic conditions financial health specific clients evaluation inherently judgmental requires estimates valuation reserves periodically reevaluated adjusted information ultimate collectability fees receivable becomes available circumstances could cause valuation reserves increase include changes clients’ liquidity credit quality factors negatively impacting clients’ ability pay obligations come due effectiveness collection efforts following table provides total fees receivable related allowance losses thousands goodwill intangible assets company evaluates recorded goodwill accordance financial accounting standards board fasb accounting standards codification asc topic 350 requires goodwill assessed impairment least annually whenever events changes circumstances indicate carrying value may recoverable addition impairment evaluation amortizable intangible assets may also performed periodic basis events circumstances indicate potential impairment determine fair value reporting unit intangible asset less related carrying amount must recognize impairment charge earnings among factors consider important could trigger impairment review following •significant underperformance relative historical projected future operating results •significant changes manner use acquired assets strategy overall business •significant negative industry general economic trends •significant decline stock price sustained period •our market capitalization relative net book value annual assessment recoverability recorded goodwill based either qualitative assessment combination two methods require use estimates turn contain judgments assumptions regarding future trends events result precision reliability resulting estimates subject uncertainty 2012 completed required annual goodwill impairment test utilizing qualitative approach based assessment company believes fair values company’s reporting units continue substantially exceed respective carrying amounts see note 1 business significant accounting policies notes consolidated financial statements additional discussion accounting income taxes prepare consolidated financial statements estimate income taxes jurisdictions operate process involves estimating current tax expense together assessing temporary differences resulting differing treatment items tax accounting purposes differences result deferred tax assets liabilities included within consolidated balance sheets record valuation allowance reduce deferred tax assets future realization question consider availability loss carryforwards existing deferred tax liabilities future taxable income ongoing prudent feasible tax planning strategies assessing need valuation allowance event determine able realize deferred tax assets future excess net recorded amount adjustment made reduce valuation allowance increase income period determination made likewise determine able realize part net deferred tax asset future adjustment valuation allowance charged income period determination made accounting stockbased compensation company accounts stockbased compensation accordance fasb asc topics 505 718 interpreted sec staff accounting bulletins 107 “sab 107” 110 “sab 110” company recognizes stockbased compensation expense based fair value award date grant related service period net estimated forfeitures see note 8 stockbased compensation notes consolidated financial statements additional information regarding stockbased compensation determining appropriate fair value model calculating fair value stock compensation awards requires input certain complex subjective assumptions including expected life stock compensation award company’s common stock price volatility addition determining appropriate amount associated periodic expense requires management estimate rate employee forfeitures likelihood achievement certain performance targets assumptions used calculating fair value stock compensation awards associated periodic expense represent management’s best estimates involve inherent uncertainties application judgment result factors change company deems necessary future modify assumptions made use different assumptions quantity nature company’s stockbased compensation awards changes amount expense may need adjusted future stock compensation expense could materially different recorded current period restructuring accruals may record accruals severance costs associated excess facilities leased contract terminations asset impairments costs result ongoing actions undertake streamline organization reposition certain businesses reduce ongoing costs estimates costs incurred complete actions future lease payments sublease income fair value assets severance related benefits based assumptions time actions initiated accruals may need adjusted extent actual costs differ estimates addition actions may revised due changes business conditions foresee time plans approved also record accruals year various employee cash incentive programs amounts accrued end reporting period based estimates may require adjustment ultimate amount paid incentives sometimes known certainty year end results operations consolidated results following tables summarize changes selected line items consolidated statements operation three years ended december 31 2012 dollars thousands 2012 versus 2011 total revenues twelve months ended december 31 2012 increased 1472 million 10 compared twelve months ended december 31 2011 total revenues increased 12 excluding unfavorable impact foreign currency revenues increased doubledigits research events segments declined slightly consulting revenues increased across geographic regions doubledigit increase research revenues every region overview revenues geographic region follows •revenues sales united states canadian clients increased 10 9471 million 2012 8615 million 2011 •revenues sales clients europe middle east africa increased 4586 million 2012 4372 million 2011 5 increase •revenues sales clients international region increased 2101 million 2012 1699 million 2011 24 increase overview revenues segment follows •research revenues increased 12 2012 11371 million compared 10121 million 2011 comprised 70 69 total revenues 2012 2011 respectively •consulting revenues decreased 1 2012 3049 million compared 3080 million 2011 comprised 19 21 total revenues 2012 2011 respectively •events revenues increased 17 2012 1738 million compared 1485 million 2011 comprised 11 total revenues 2012 10 2011 please refer section mda entitled “segment results” discussion revenues results segment cost services product development “cos” expense increased 8 2012 503 million 6591 million compared 6088 million 2011 increase primarily due higher payroll related benefits costs additional headcount continued invest support growth business lesser extent merit salary increases also higher conference costs related travel expenses due increase number events well additional attendees exhibitors events additional costs partially offset favorable impact foreign currency cos percentage revenues 41 periods selling general administrative “sga” expense increased 651 million 2012 11 6788 million compared 6137 million 2011 increase primarily due higher payroll related benefits costs partially offset favorable foreign currency impact higher payroll benefit cost primarily driven investment additional headcount lesser extent higher sales commissions merit salary increases increased headcount includes additional quotabearing sales associates increased 1417 december 31 2012 12 increase prior yearend depreciation expense decreased slightly yearoveryear due certain assets becoming fully depreciated partially offset additional depreciation related asset additions capital expenditures increased 443 million 2012 420 million 2011 includes 170 million 95 million respectively expenditures renovation stamford headquarters facility 250 million expenditures reimbursable facility landlord december 31 2012 220 million reimbursed amortization intangibles decreased yearoveryear due certain intangibles becoming fully amortized partially offset additional amortization intangible assets recorded ideas international acquisition mid2012 acquisition integration charges 24 million 2012 zero 2011 charges related acquisition ideas international included legal consulting severance costs operating income increased 316 million yearoveryear 15 2457 million 2012 2141 million 2011 operating income percentage revenues 15 periods although research events higher segment contributions 2012 increases partially offset lower contribution consulting well higher sga expenses discussed interest expense net declined 11 2012 compared 2011 decline primarily due lower average amount debt outstanding declined 2070 million 2012 2200 million 2011 well lower amortization capitalized debt refinancing costs expense net 13 million 2012 19 million 2011 expenses primarily consisted net foreign currency exchange gains losses provision income taxes 697 million 2012 compared 653 million 2011 effective tax rate 296 2012 compared 323 2011 lower effective tax rate 2012 primarily attributable recognition tax benefits 2012 resulting settlement tax audits well benefits recorded 2012 relating recognition certain state tax credits 2012 company closed internal revenue service “irs” audit 2007 federal income tax return resolution audit material adverse effect consolidated financial position cash flows results operations company 2011 irs commenced audit company’s federal income tax returns 2008 2009 tax years irs proposed adjustments 2008 2009 company expects settle audit early 2013 although audit fully resolved company believes ultimate disposition material adverse effect consolidated financial position cash flows results operations american taxpayer relief act 2012 “tax act” enacted january 2013 contains beneficial tax provisions company apply retroactively 2012 however since tax act passed 2013 approximately 15 million tax benefits relating retroactive application recorded company first quarter 2013 net income 1659 million 2012 1369 million 2011 increase 290 million 21 primarily due higher operating income partially offset 44 million higher income tax charges although yearoveryear effective tax rate declined pretax income increased substantially resulting higher dollar amount tax charges basic diluted earnings per share increased 24 yearoveryear due higher net income lesser extent lower number weightedaverage shares outstanding 2011 versus 2010 total revenues twelve months ended december 31 2011 increased 1801 million 14 compared twelve months ended december 31 2010 total revenues increased 11 excluding impact foreign currency revenues increased across geographic regions three business segments reported basis overview results geographic region follows •revenues sales united states canadian clients increased 12 8615 million 2011 7658 million 2010 •revenues sales clients europe middle east africa increased 4372 million 2011 3808 million 2010 15 increase •revenues sales clients international region increased 20 1699 million 2011 1419 million 2010 overview results segment follows •research revenues increased 17 2011 10121 million compared 8650 million 2010 comprised 69 67 total revenues 2011 2010 respectively •consulting revenues increased 2 2011 3080 million compared 3021 million 2010 comprised approximately 21 23 total revenues 2011 2010 respectively •events revenues increased 22 2011 1485 million compared 1213 million 2010 comprised approximately 10 total revenues 2011 2010 please refer section mda entitled “segment results” discussion revenues results segment cost services product development “cos” expense increased 10 2011 565 million 6088 million compared 5522 million 2010 approximately half increase due higher payroll related benefits costs resulting investment additional headcount merit salary increases rest increase primarily due negative impact foreign currency translation well incremental expenses additional investment events business cos percentage revenues improved 2 points yearoveryear primarily driven higher research revenues operating leverage inherent research business selling general administrative “sga” expense increased 705 million 2011 13 6137 million 5432 million 2010 increase primarily due higher payroll lesser extent negative impact foreign currency translation excluding unfavorable impact foreign exchange sga expense increased 11 yearoveryear higher payroll costs resulted additional investment headcount well higher sales commissions merit salary increases increased headcount primarily due investment additional quotabearing sales associates increased 21 compared december 31 2010 depreciation expense increased slightly yearoveryear capital spending increased 420 million 2011 217 million 2010 420 million capital expenditures 2011 included 95 million expenditures related renovation stamford headquarters facility 90 million reimbursed landlord 2011 amortization intangibles decreased 38 yearoveryear due certain intangibles becoming fully amortized 2010 acquisition integration charges zero 2011 79 million 2010 charges related acquisitions amr research burton group december 2009 included legal consulting severance costs operating income increased 648 million yearoveryear 43 2141 million 2011 1493 million 2010 operating income percentage revenues improved 3 points yearoveryear 15 2011 compared 12 2010 primarily due significantly higher segment contribution research business lesser extent lower intangible amortization acquisition integration charges interest expense net 100 million 2011 compared 156 million 2010 36 decline 156 million interest expense 2010 included 37 million incremental expense related refinancing debt see note 5 debt notes consolidated financial statements excluding 37 million incremental charge interest expense net declined approximately 15 yearoveryear primarily due lower average amount debt outstanding declined 2200 million 2011 3260 million 2010 expense income net 19 million 2011 primarily consisted net foreign currency exchange losses 04 million 2010 consisted 24 million gain insurance recovery related prior period loss offset net foreign currency exchange losses provision income taxes 653 million 2011 compared 378 million 2010 effective tax rate 323 2011 compared 282 2010 lower effective tax rate 2010 primarily attributable release valuation allowances relating certain net operating losses net income 1369 million 2011 963 million 2010 increase 406 million 42 primarily due substantially higher operating income partially offset higher income tax charges basic earnings per share increased 42 yearoveryear diluted earnings per share increased 45 due higher net income segment results evaluate reportable segment performance allocate resources based gross contribution margin gross contribution defined operating income excluding certain cost services product development charges sga depreciation acquisition integration charges amortization intangibles gross contribution margin defined gross contribution percentage revenues following sections present results three business segments research 1dollars thousands 2012 versus 2011 research segment revenues increased 12 2012 compared 2011 excluding unfavorable effect foreign currency translation research segment revenues increased 14 segment gross contribution margin increased 1 point driven higher revenues operating leverage business contribution margin improved spite 10 increase segment headcount continue invest future growth research contract value increased 13 2012 12629 million increased 14 yearoveryear excluding unfavorable impact foreign currency translation doubledigit contract value growth across research product lines client sizes almost every industry group number research client organizations serve increased 7 2012 13305 increased 27 since 2009 attribute increase contract value number client organizations serve extraordinary research content continuing focus sales effectiveness expansion number quotabearing sales associates client retention wallet retention remained strong 2012 83 99 respectively 2011 versus 2010 research segment revenues increased 17 2011 compared 2010 reached one billion dollar level first time excluding favorable effect foreign currency translation research segment revenues increased 14 segment gross contribution margin increased 2 points 67 higher segment revenues operating leverage business resulted higher segment contribution research contract value increased 14 2011 11158 million foreign currency translation immaterial impact yearoveryear contract value doubledigit contract value growth research product lines client sizes industry groups client retention wallet retention remained strong 82 99 respectively consulting 1dollars thousands 2012 versus consulting revenues decreased 1 yearoveryear due lower revenues contract optimization business contract optimization revenues fluctuate period currently represent 10 total consulting segment revenues declining time percentage overall segment revenue decrease contract optimization revenue substantially offset higher core consulting revenues increased 5 yearoveryear driven additional demand increased headcount strategic advisory “sas” revenues flat yearoveryear accordance segment plan excluding unfavorable impact foreign currency translation revenues increased 1 yearoveryear gross contribution margin declined 1 point due lower revenues contract optimization business higher contribution margin core consulting sas backlog increased 2 yearoveryear 1027 million december 31 2012 2011 versus consulting revenues increased 2 yearoveryear primarily due higher revenues core consulting excluding favorable impact foreign currency translation revenues slightly gross contribution margin declined 3 points due lower utilization core consulting higher payroll benefit costs resulting merit salary increases full year impact 2011 additional headcount added fourth quarter 2010 backlog slightly yearoveryear 1006 million december 31 2011 events 1dollars thousands 2012 versus 2011 events revenues increased 17 yearoveryear 253 million excluding unfavorable impact foreign currency translation revenues increased 20 yearoveryear held 62 events 2012 compared 60 2011 62 events held 2012 consisted 57 ongoing events 5 new event launches 3 events held prior years discontinued overall number attendees exhibitors increased 8 20 respectively average revenue per attendee rose 3 average revenue per exhibitor increased 1 additional revenue higher contribution margin 2012 primarily due significantly higher exhibitor volume ongoing events 2011 versus 2010 events revenues increased 22 yearoveryear 271 million excluding favorable impact foreign currency translation revenues increased 21 held 60 events 2011 consisted 53 ongoing events 7 new event launches compared 56 events 2010 discontinued 3 events 2011 held prior years additional revenue earned 2011 attributable significantly higher revenue ongoing events doubledigit increases number attendees exhibitors average revenue per attendee rose 2 average revenue per exhibitor increased 5 full year 2011 gross contribution margin decreased 1 point primarily due incremental expenses additional investment business strengthen portfolio provide foundation future growth liquidity capital resources finance operations primarily cash generated operating activities 2012 operating cash flow 2798 million highest company’s history increase 9 2011 operating cash flow continuously enhanced leverage characteristics subscriptionbased business model well focus operational efficiencies revenues research segment increased 12 2012 compared 2011 constituted 70 69 total revenues 2012 2011 respectively research contracts generally renew annually typically paid advance combined strong customer retention rate high incremental margins generally resulted strong growth operating cash flow year cash flow generation also enhanced continuing efforts improve operating efficiencies businesses well effective management working capital increase sales volume addition strong increase operating cash flows also almost 3000 million cash equivalents yearend 2012 highest cash balance company’s history 3470 million available borrowing capacity revolving credit facility yearend 2012 believe strong operating cash flow well existing cash balances available borrowing capacity provide us adequate liquidity meet currently anticipated needs company’s 2010 credit agreement expires december 2015 company currently exploring refinancing options take advantage favorable market conditions cash equivalents held numerous locations throughout world december 31 2012 approximately 1670 million cash held outside us approximately half amount cash held overseas represents unremitted earnings nonus subsidiaries us accounting rules provision us federal local taxes required unremitted overseas earnings company intends reinvest funds overseas current plans demonstrate need repatriate undistributed earnings fund us operations otherwise satisfy liquidity needs us operations result intend reinvest earnings nonus operations except instances repatriation earnings would result minimal additional tax result provision us federal state income taxes recorded unremitted earnings however liquidity needs change decide repatriate unremitted earnings may required accrue us taxes result charges could material would recorded future periods changes cash equivalents following disclosure summarizes explains changes cash equivalents three years ending december 31 2012 thousands 2012 versus 2011 operating cash flow increased 9 242 million 2012 compared 2011 primarily due higher net income also lower cash payments interest debt items well higher cash reimbursements related renovation stamford headquarters facility increased cash flows partially offset higher cash payments income taxes 2012 investing cash used investing purposes 547 million 2012 increase cash used 127 million compared 2011 due 103 million cash used acquisition ideas international higher capital expenditures capital expenditures 443 million 2012 compared 420 million 2011 included 170 million 95 million respectively paid renovation stamford headquarters facility 250 million expenditures reimbursable facility landlord 130 million reimbursed 2012 90 million 2011 reimbursements included operating cash flows financing used 1140 million less cash financing activities 2012 compared 2011 primarily due lower number shares repurchased cash used share repurchases 1113 million 2012 compared 2120 million 2011 27 million 59 million shares repurchased respectively cash used also declined due net debt activity borrowed additional 50 million 2012 compared 201 million debt repayments 2011 versus 2010 operating cash flow increased 24 501 million 2011 compared 2010 increase primarily due 406 million higher net income lower cash payments acquisition costs severance costs also received 90 million landlord cash reimbursements capital expenditures renovation stamford headquarters facility increased cash flows partially offset higher cash bonus commission payments paid 2011 due stronger financial performance investing used 81 million additional cash investing activities 2011 compared 2010 due higher capital expenditures capital expenditures 420 million 2011 compared 217 million 2010 also made 122 million payments related acquisition burton group early 2010 acquired december 2009 420 million capital expenditures 2011 period included 95 million paid renovation stamford headquarters facility fully reimbursable landlord company received reimbursement 90 million amount 2011 financing used additional 150 million cash financing activities 2011 compared 2010 primarily due additional share repurchases 2011 used 2120 million share repurchases compared 998 million 2010 increase cash used share repurchases 2011 substantially offset lower debt repayments 2011 compared 2010 net basis repaid 998 million debt 2010 paid 48 million fees related refinancing compared 201 million debt repayments 2011 obligations commitments december 31 2012 2000 million outstanding 2010 credit agreement provides fiveyear 2000 million term loan 4000 million revolving credit facility 2010 credit agreement contains expansion feature term loan revolving credit facility may increased company’s option certain conditions additional 1500 million aggregate term loan repaid 19 consecutive quarterly installments final payment due december 2015 may prepaid time without penalty premium company’s option revolving credit facility may used loans 400 million may used letters credit revolving loans may borrowed repaid reborrowed december 2015 time amounts borrowed must repaid see note 5 debt notes consolidated financial statements additional information regarding 2010 credit agreement cash commitments company certain contractual commitments require future payment following table presents company’s contractual cash commitments due december 31 2012 thousands 1 includes term revolver principal amounts borrowed company’s 2010 credit agreement matures december 2015see note 5 debt notes consolidated financial statements additional information well estimated interest payments amounts borrowed term loan arrangement classified table based scheduled repayment dates revolver borrowings classified due 23 years category since amounts contractually due december 2015 also included 50 million company borrowed december 2012 state connecticut economic development program 10 year maturity included due 5 years category interest payments amounts outstanding 2010 credit facility based floating rate however company 2000 million notional interest rate swap converts variable interest payments debt 226 fixed rate first 2000 million borrowings result order calculate estimate future interest payments company used rate 376 includes swap rate 226 plus loan margin 150 2010 credit facility 2 company leases various facilities furniture autos computer equipment leases expire 2013 2027 see note 1 business significant accounting policies notes consolidated financial statements additional information 3 represents company’s liability participants supplemental deferred compensation arrangement see note 13 employee benefits notes consolidated financial statements additional information amounts payable active employees whose payment date unknown included due 5 years category since company cannot determine amounts paid 4 includes interest penalties addition 22 million tax liability 165 million unrecognized tax benefits recorded liabilities uncertain amounts may settled related unrecognized tax benefits included table company also recorded liability potential interest penalties 34 million 5 includes contractual commitments software building maintenance telecom services quarterly financial data following tables present quarterly operating results two year period ended december 31 2012 1 aggregate four quarters’ basic diluted earnings per common share may equal reported full calendar year amounts due effects share repurchases dilutive equity compensation rounding recently issued accounting standards fasb issued new accounting rules yet become effective new rules described together assessment potential impact may financial statements related disclosures future periods comprehensive income reclassifications february 2013 financial accounting standards board “fasb” issued accounting standards update “asu” 201302 reporting amounts reclassified accumulated comprehensive income standard requires public companies present information reclassification adjustments accumulated comprehensive income financial statements single note face financial statements public companies also provide information annual interim financial statements new requirements take effect gartner beginning january 1 2013 applied prospectively company completed analysis new standard believes new rule may result additional disclosures changes presentation statement comprehensive income balance sheet offsetting december 2011 fasb issued asu 201111 disclosures offsetting assets liabilities new guidance requires disclosures assets liabilities offset potential offset us gaap rules new disclosure requirements mandate entities disclose gross net information financial instruments transactions eligible offset statement financial position well instruments transactions subject agreement similar master netting arrangement addition standard requires disclosure collateral received posted connection master netting agreements similar arrangements disclosures intended address differences asset liability offsetting requirements us gaap international financial reporting standards new guidance effective gartner interim annual reporting periods beginning january 1 2013 retrospective application required adoption new guidance may result additional disclosures expect impact company’s consolidated balance sheets fasb also continues work number significant accounting rules may impact company’s accounting disclosures future periods since rules yet issued effective dates potential impact unknown item 7aitem 7 management’s discussion analysis financial condition results operations purpose following management’s discussion analysis “mda” help facilitate understanding significant factors influencing operating results financial condition cash flows gartner inc additionally mda also conveys expectations potential impact known trends events uncertainties may impact future results read discussion conjunction consolidated financial statements related notes included report historical results percentage relationships necessarily indicative operating results future periods references “the company” “we” “our” “us” gartner inc consolidated subsidiaries forwardlooking statements addition historical information annual report form 10k contains certain forwardlooking statements forwardlooking statements historical fact including statements regarding expectations beliefs hopes intentions strategies regarding future cases forwardlooking statements identified use words “may” “will” “expect” “should” “could” “believe” “plan” “anticipate” “estimate” “predict” “potential” “continue” words similar meaning forwardlooking statements subject risks uncertainties could cause actual results differ materially discussed implied forwardlooking statements factors might cause difference include limited discussed part 1 item 1a risk factors readers place undue reliance forwardlooking statements reflect management’s opinion date made except required law disclaim obligation review update forwardlooking statements reflect events circumstances occur readers review carefully risk factors described reports filed sec business overview gartner inc world’s leading information technology research advisory company helps executives use technology build guide grow enterprises offer independent objective research analysis information technology computer hardware software communications related technology industries provide comprehensive coverage industry thousands client organizations across globe client base consists primarily cios senior executives wide variety business enterprises government agencies investment community three business segments research consulting events • research provides objective insight critical timely technology supply chain initiatives cios professionals supply chain leaders technology companies investment community reports briefings proprietary tools access analysts peer networking services membership programs enable clients make better decisions supply chain investments • consulting provides customized solutions unique client needs onsite daytoday support well proprietary tools measuring improving performance focus cost performance efficiency quality • events provide supply chain business professionals opportunity attend various symposia conferences exhibitions learn contribute network peers flagship event symposiumitxpo summits focused specific technologies industries experimental workshopstyle seminars events distill latest gartner research applicable insight advice business measurements believe following business measurements important performance indicators business segments business segment business measurements research contract value represents value attributable subscriptionrelated research products recognize revenue ratable basis contract value calculated annualized value subscription research contracts effect specific point time without regard duration contract client retention rate represents measure client satisfaction renewed business relationships specific point time client retention calculated percentage basis dividing current clients also clients year ago clients year ago wallet retention rate represents measure amount contract value retained clients twelvemonth period wallet retention calculated percentage basis dividing contract value clients one year earlier total contract value year earlier excluding impact foreign currency exchange wallet retention exceeds client retention indication retention higherspending clients increased spending retained clients consulting backlog represents future revenue derived inprocess consulting measurement strategic advisory services engagements utilization rate represents measure productivity consultants utilization rates calculated billable headcount percentage basis dividing total hours billed total hours available bill billing rate represents earned billable revenue divided total billable hours average annualized revenue per billable headcount represents measure revenue generating ability average billable consultant calculated periodically multiplying average billing rate per hour times utilization percentage times billable hours available one year events number events represents total number hosted events completed period number attendees represents total number people attend events executive summary operations financial position executed consistent growth strategy since 2005 drive doubledigit annual revenue earnings growth fundamentals strategy include focus creating extraordinary research content delivering innovative highly differentiated product offerings building strong sales capability providing world class client service focus client engagement retention continuously improving operational effectiveness total revenues 17842 million 2013 increase 10 2012 diluted earnings per share increased 20 per share 193 excluding impact foreign currency 2013 total revenues increased 11 2012 research revenues rose 12 yearoveryear 12710 million 2013 contribution margin increased 1 point 69 december 31 2013 research contract value 14232 million increase 13 december 31 2012 12 adjusted impact foreign exchange client retention 82 wallet retention 98 december 31 2013 consulting revenues 2013 increased 3 compared 2012 gross contribution margin 34 consultant utilization 64 2013 compared 67 2012 509 billable consultants december 31 2013 compared 503 yearend 2012 backlog increased 3 yearoveryear 1061 million december 31 2013 events revenues increased 14 yearoveryear 1989 million segment contribution margin 46 held 64 events 2013 compared 62 2012 slight decline number attendees detailed discussion results see segment results section cash flow operating activities increased 13 2013 compared 2012 3157 million continued focus maximizing shareholder value 2013 repurchased 34 million outstanding common shares year ended 2013 almost 4240 million cash equivalents record yearend cash balance refinanced debt 2013 take advantage favorable market conditions yearend 2013 5410 million borrowing capacity revolving credit facility believe adequate liquidity meet currently anticipated needs fluctuations quarterly results quarterly annual revenue operating income cash flow fluctuate result many factors including timing symposiumitxpo series normally held fourth calendar quarter well events timing amount new business generated mix domestic international business changes market demand products services changes foreign currency rates timing development introduction marketing new products services competition industry general economic conditions factors beyond control potential fluctuations operating income could cause periodtoperiod comparisons operating results meaningful could provide unreliable indication future operating results cash flows critical accounting policies estimates preparation financial statements requires application appropriate accounting policies use estimates significant accounting policies described note 1 notes consolidated financial statements management considers policies discussed critical understanding financial statements application requires complex subjective management judgments estimates specific risks critical accounting policies described preparation financial statements also requires us make estimates assumptions future events develop estimates using current historical experience well factors including general economic environment actions may take future adjust estimates facts circumstances dictate however estimates may involve significant uncertainties judgments cannot determined precision addition estimates based best judgment point time estimates may ultimately differ actual results ongoing changes estimates could material would reflected company’s financial statements future periods critical accounting policies follows revenue recognition revenue recognized accordance sec staff accounting bulletin 101 revenue recognition financial statements “sab 101” sec staff accounting bulletin 104 revenue recognition “sab 104” revenue recognized required criteria revenue recognition met revenue significant source accounted follows • research revenues derived subscription contracts research products deferred recognized ratably applicable contract term fees research reprints recognized reprint shipped • consulting revenues principally generated fixed fee time material engagements revenues fixed fee contracts recognized proportional performance basis revenues time materials engagements recognized work delivered andor services provided revenues related contract optimization contracts contingent nature recognized upon satisfaction conditions related payment • events revenues deferred recognized upon completion related symposium conference exhibition majority research contracts billable upon signing absent special terms granted limited basis time research contracts noncancelable nonrefundable except government contracts may cancellation fiscal funding clauses policy record entire amount contract billable fee receivable time contract signed corresponding amount deferred revenue since contract represents legally enforceable claim uncollectible fees receivable maintain allowance losses composed bad debt allowance sales reserve provisions charged earnings either reduction revenues increase expense measurement likely probable losses allowance losses based historical loss experience aging outstanding receivables assessment current economic conditions financial health specific clients evaluation inherently judgmental requires estimates valuation reserves periodically reevaluated adjusted information ultimate collectability fees receivable becomes available circumstances could cause valuation reserves increase include changes clients’ liquidity credit quality factors negatively impacting clients’ ability pay obligations come due effectiveness collection efforts following table provides total fees receivable related allowance losses thousands goodwill intangible assets company evaluates recorded goodwill accordance financial accounting standards board fasb accounting standards codification asc topic 350 requires goodwill assessed impairment least annually whenever events changes circumstances indicate carrying value may recoverable addition impairment evaluation amortizable intangible assets may also performed periodic basis events circumstances indicate potential impairment determine fair value reporting unit intangible asset less related carrying amount must recognize impairment charge earnings among factors consider important could trigger impairment review following • significant underperformance relative historical projected future operating results • significant changes manner use acquired assets strategy overall business • significant negative industry general economic trends • significant decline stock price sustained period • market capitalization relative net book value annual assessment recoverability recorded goodwill based either qualitative assessment combination two methods require use estimates turn contain judgments assumptions regarding future trends events result precision reliability resulting estimates subject uncertainty 2013 completed required annual goodwill impairment test utilizing qualitative approach based assessment company believes fair values company’s reporting units continue substantially exceed respective carrying amounts see note 1 business significant accounting policies notes consolidated financial statements additional discussion accounting income taxes estimate income taxes jurisdictions operate process involves estimating current tax expense together assessing temporary differences resulting differing treatment items tax accounting purposes differences result deferred tax assets liabilities included within consolidated balance sheets record valuation allowance reduce deferred tax assets future realization question consider availability loss carryforwards existing deferred tax liabilities future taxable income ongoing prudent feasible tax planning strategies assessing need valuation allowance event determine able realize deferred tax assets future excess net recorded amount adjustment made reduce valuation allowance increase income period determination made likewise determine able realize part net deferred tax asset future adjustment valuation allowance charged income period determination made accounting stockbased compensation company accounts stockbased compensation accordance fasb asc topics 505 718 interpreted sec staff accounting bulletins 107 “sab 107” 110 “sab 110” company recognizes stockbased compensation expense based fair value award date grant related service period net estimated forfeitures see note 8 stockbased compensation notes consolidated financial statements additional information regarding stockbased compensation determining appropriate fair value model calculating fair value stock compensation awards requires input certain complex subjective assumptions including expected life stock compensation award company’s common stock price volatility addition determining appropriate amount associated periodic expense requires management estimate rate employee forfeitures likelihood achievement certain performance targets assumptions used calculating fair value stock compensation awards associated periodic expense represent management’s best estimates involve inherent uncertainties application judgment result factors change company deems necessary future modify assumptions made use different assumptions quantity nature company’s stockbased compensation awards changes amount expense may need adjusted future stock compensation expense could materially different recorded current period restructuring accruals may record accruals severance costs associated excess facilities leased contract terminations asset impairments costs result ongoing actions undertake streamline organization reposition certain businesses reduce ongoing costs estimates costs incurred complete actions future lease payments sublease income fair value assets severance related benefits based assumptions time actions initiated accruals may need adjusted extent actual costs differ estimates addition actions may revised due changes business conditions foresee time plans approved also record accruals year various employee cash incentive programs amounts accrued end reporting period based estimates may require adjustment ultimate amount paid incentives sometimes known certainty year end results operations consolidated results 2013 versus 2012 following table presents changes selected line items consolidated statements operations two years ended december 31 2013 dollars thousands total revenues twelve months ended december 31 2013 increased 1684 million 10 compared twelve months ended december 31 2012 total revenues increased 11 excluding unfavorable impact foreign currency revenues increased three business segments across geographic regions following table presents total revenues geographic region twelve months ended following table presents revenues segment twelve months ended please refer section mda entitled “segment results” discussion revenues results segment cost services product development “cos” expense increased 8 2013 compared 2012 544 million 7135 million compared 6591 million 2012 increase primarily due higher payroll related benefits costs additional headcount continued invest support growth business lesser extent merit salary increases also higher conference costs due increase number events doubledigit increase number exhibitors events upgrading facilities several locations support anticipated growth events business additional costs partially offset favorable impact foreign currency cos percentage revenues 40 2013 period compared 41 2012 period selling general administrative “sga” expense increased 816 million 2013 12 7605 million compared 6788 million 2012 increase primarily due higher payroll related benefits costs partially offset favorable foreign currency impact higher payroll benefit cost primarily driven investment additional headcount lesser extent higher sales commissions merit salary increases increased headcount includes additional quotabearing sales associates increased 1643 december 31 2013 16 increase yearend 2012 depreciation expense increased 14 2013 compared 2012 primarily due additional depreciation leasehold improvements two renovated buildings stamford headquarters campus placed service 2013 amortization intangibles increased 24 yearoveryear due full year amortization 2013 intangible assets recorded ideas international acquisition mid2012 acquisition integration charges 03 million 2013 compared 24 million 2012 charges related acquisition ideas international mid2012 include legal consulting severance costs operating income increased 298 million yearoveryear 12 2755 million 2013 2457 million 2012 increased operating income primarily attributable substantially higher segment contribution research segment operating income percentage revenues 15 periods interest expense net flat yearoveryear expense net 02 million 2013 13 million 2012 expenses primarily consisted net foreign currency exchange gains losses provision income taxes 836 million 2013 compared 697 million 2012 effective tax rate 314 2013 compared 296 2012 higher effective tax rate 2013 primarily attributable change annual mix pretax income jurisdiction well impact certain state tax credits recognized 2012 2013 company closed internal revenue service “irs” audit 2008 2009 federal income tax returns resolution audit material adverse effect consolidated financial position cash flows results operations company late 2013 company received notice irs intends conduct audit companys 2010 2011 tax years audits years commenced early stages examination although final resolution audits uncertain company believes ultimate disposition material adverse effect consolidated financial position cash flows results operations american taxpayer relief act 2012 “2012 tax act” enacted january 2013 contained beneficial tax provisions company applied retroactively 2012 however since 2012 tax act passed 2013 approximately 15 million tax benefits relating retroactive application recorded company early 2013 net income 1828 million 2013 1659 million 2012 increase 169 million 10 primarily due higher operating income partially offset higher income tax charges diluted earnings per share increased 12 yearoveryear due higher net income lesser extent lower number weightedaverage shares outstanding 2012 versus 2011 following table presents changes selected line items consolidated statements operations two years ended december 31 2012 dollars thousands total revenues twelve months ended december 31 2012 increased 1472 million 10 compared twelve months ended december 31 2011 total revenues increased 12 excluding unfavorable impact foreign currency revenues increased doubledigits research events segments declined slightly consulting revenues increased across geographic regions doubledigit increase research revenues every region overview total revenues geographic region follows overview total revenues segment follows please refer section mda entitled “segment results” discussion revenues results segment cost services product development “cos” expense increased 8 2012 503 million 6591 million compared 6088 million 2011 increase primarily due higher payroll related benefits costs additional headcount continued invest support growth business lesser extent merit salary increases also higher conference costs related travel expenses due increase number events well additional attendees exhibitors events additional costs partially offset favorable impact foreign currency cos percentage revenues 41 periods selling general administrative “sga” expense increased 651 million 2012 11 6788 million compared 6137 million 2011 increase primarily due higher payroll related benefits costs partially offset favorable foreign currency impact higher payroll benefit cost primarily driven investment additional headcount lesser extent higher sales commissions merit salary increases increased headcount includes additional quotabearing sales associates increased 1417 december 31 2012 12 increase prior yearend depreciation expense decreased slightly yearoveryear due certain assets becoming fully depreciated partially offset additional depreciation related asset additions capital expenditures increased 443 million 2012 420 million 2011 includes 170 million 95 million respectively expenditures renovation stamford headquarters facility 250 million expenditures reimbursable facility landlord december 31 2012 220 million reimbursed amortization intangibles decreased yearoveryear due certain intangibles becoming fully amortized partially offset additional amortization intangible assets recorded ideas international acquisition mid2012 acquisition integration charges 24 million 2012 zero 2011 charges related acquisition ideas international mid2012 included legal consulting severance costs operating income increased 316 million yearoveryear 15 2457 million 2012 2141 million 2011 operating income percentage revenues 15 periods although research events higher segment contributions 2012 increases partially offset lower contribution consulting well higher sga expenses discussed interest expense net declined 11 2012 compared 2011 decline primarily due lower average amount debt outstanding declined 2070 million 2012 2200 million 2011 well lower amortization capitalized debt refinancing costs expense net 13 million 2012 19 million 2011 expenses primarily consisted net foreign currency exchange gains losses provision income taxes 697 million 2012 compared 653 million 2011 effective tax rate 296 2012 compared 323 2011 lower effective tax rate 2012 primarily attributable recognition tax benefits 2012 resulting settlement tax audits well benefits recorded 2012 relating recognition certain state tax credits 2012 company closed irs audit 2007 federal income tax return resolution audit material adverse effect consolidated financial position cash flows results operations company net income 1659 million 2012 1369 million 2011 increase 290 million 21 primarily due higher operating income partially offset 44 million higher income tax charges although yearoveryear effective tax rate declined pretax income increased substantially resulting higher dollar amount tax charges basic diluted earnings per share increased 24 yearoveryear due higher net income lesser extent lower number weightedaverage shares outstanding segment results evaluate reportable segment performance allocate resources based gross contribution margin gross contribution defined operating income excluding certain cost services product development charges sga depreciation acquisition integration charges amortization intangibles gross contribution margin defined gross contribution percentage revenues following sections present results three business segments research following table presents financial results business measurements research segment twelve months ended december 31 1 dollars thousands 2013 versus 2012 research segment revenues 2013 increased compared 2012 impact foreign exchange translation significant segment gross contribution margin increased 1 point 69 driven operating leverage business contribution margin improved spite 8 increase segment headcount continue invest future growth research contract value increased 13 2013 14232 million increased 12 yearoveryear adjusted impact foreign currency translation growth contract value broadbased almost every region industry segment client size growing doubledigit rates compared 2012 number research client organizations serve increased 6 2013 14099 client retention wallet retention remained strong 2013 82 98 december 31 2013 respectively 2012 versus 2011 research segment revenues increased 12 2012 compared 2011 excluding unfavorable effect foreign currency translation research segment revenues increased 14 segment gross contribution margin increased 1 point research contract value increased 13 2012 12629 million increased 14 yearoveryear excluding unfavorable impact foreign currency translation doubledigit contract value growth across research product lines client sizes almost every industry segment client retention wallet retention remained strong 2012 83 99 respectively consulting following table presents financial results business measurements consulting segment twelve months ended december 31 1 dollars thousands 2013 versus 2012 consulting revenues increased 3 yearoveryear 4 adjusted impact foreign exchange increase due higher contract optimization revenue fluctuate period generally 10 total consulting segment revenues increased contract optimization revenues partially offset slightly lower core consulting strategic advisory “sas” revenues gross contribution margin declined 2 points due higher payroll benefit costs additional headcount merit salary increases lesser extent lower utilization core consulting backlog increased 34 million 3 yearoveryear 1061 million december 31 2013 2012 versus 2011 consulting revenues decreased 1 yearoveryear due lower revenues contract optimization business decrease contract optimization revenue substantially offset higher core consulting revenues increased 5 yearoveryear driven additional demand increased headcount sas revenues flat yearoveryear excluding unfavorable impact foreign currency translation revenues increased 1 yearoveryear gross contribution margin declined 1 point due lower revenues contract optimization business higher contribution margin core consulting sas backlog increased 2 yearoveryear 1027 million december 31 2012 events following table presents financial results business measurements events segment twelve months ended december 31 1 dollars thousands 2013 versus 2012 events revenues increased 252 million comparing 2013 2012 14 excluding impact foreign currency translation revenues increased 15 yearoveryear held 64 events 2013 consisting 58 ongoing events 6 new events compared 62 events 2012 yearoveryear revenue increase primarily attributable higher exhibitor revenue ongoing events overall number attendees declined slightly number exhibitors increased 11 average revenue per attendee rose 15 average revenue per exhibitor increased 6 gross contribution margin flat yearoveryear 46 2012 versus 2011 events revenues increased 17 yearoveryear 253 million excluding unfavorable impact foreign currency translation revenues increased 20 yearoveryear held 62 events 2012 compared 60 2011 62 events held 2012 consisted 57 ongoing events 5 new event launches 3 events held prior years discontinued overall number attendees exhibitors increased 8 20 respectively average revenue per attendee rose 3 average revenue per exhibitor increased 1 additional revenue higher contribution margin 2012 primarily due significantly higher exhibitor volume ongoing events liquidity capital resources finance operations primarily cash generated operating activities 2013 operating cash flow 3157 million highest company’s history represented increase 13 2012 operating cash flow continuously enhanced leverage characteristics subscriptionbased business model well focus operational efficiencies revenues research segment increased 12 2013 compared 2012 constituted 71 70 total revenues 2013 2012 respectively research contracts generally renew annually typically paid advance combined strong customer retention rate high incremental margins generally resulted strong growth operating cash flow year cash flow generation also benefited continuing efforts improve operating efficiencies businesses well focus optimal management working capital increase sales volume addition strong increase operating cash flows also almost 4240 million cash equivalents yearend 2013 highest cash balance company’s history refinanced debt 2013 take advantage favorable market conditions 5411 million available borrowing capacity revolving credit facility yearend 2013 believe strong operating cash flow well existing cash balances available borrowing capacity provide us adequate liquidity meet currently anticipated needs cash equivalents held numerous locations throughout world december 31 2013 2470 million cash equivalents held outside us approximately half cash equivalents held overseas represents unremitted earnings nonus subsidiaries us accounting rules provision income taxes may result remittance earnings required company intends reinvest funds overseas current plans demonstrate need repatriate undistributed earnings fund us operations otherwise satisfy liquidity needs us operations intend reinvest earnings nonus operations except instances repatriation earnings would result minimal additional tax result company recognized additional income tax expense may result remittance earnings however liquidity needs change decide repatriate unremitted earnings may required accrue additional taxes could material effect consolidated financial position cash flows result operations changes cash equivalents following disclosure summarizes explains changes cash equivalents three years ending december 31 2013 thousands 2013 versus 2012 operating cash flow increased 358 million 13 comparing 2013 2012 increase primarily due higher net income 2013 period well additional receivable collections positive working capital changes increases partially offset additional cash payments 2013 period bonus commissions taxes also lower cash reimbursements 2013 period related completion renovation stamford headquarters facility investing cash used investing activities declined 182 million 2013 compared 2012 decrease primarily due 103 million cash used 2012 acquisition ideas international lesser extent higher capital expenditures 2012 capital expenditures 365 million 2013 compared 443 million 2012 included 77 million 170 million respectively paid renovation stamford headquarters facility companys total expenditures renovation approximately 342 million company received total 250 million reimbursements facility landlord renovation 30 million received 2013 130 million 2012 90 million 2011 recorded operating cash flows financing used 1539 million cash financing activities 2013 compared 726 million 2012 increase cash used 813 million primarily due share repurchases used 1817 million cash 2013 share repurchases compared 1113 million 2012 also lower cash proceeds employee sharebased activity 2013 period also paid 36 million fees related debt refinancing 2013 period 2012 versus 2011 operating cash flow increased 9 242 million 2012 compared 2011 primarily due higher net income also lower cash payments interest debt items well higher cash reimbursements related renovation stamford headquarters facility increased cash flows partially offset higher cash payments income taxes 2012 investing cash used investing purposes 547 million 2012 increase cash used 127 million compared 2011 due 103 million cash used acquisition ideas international lesser extent higher capital expenditures capital expenditures 443 million 2012 compared 420 million 2011 included 170 million 95 million respectively paid renovation stamford headquarters facility company received reimbursements facility landlord 130 million 2012 90 million 2011 recorded operating cash flows financing used 1140 million less cash financing activities 2012 compared 2011 primarily due lower number shares repurchased cash used share repurchases 1113 million 2012 compared 2120 million 2011 27 million 59 million shares repurchased respectively cash used also declined due net debt activity borrowed additional 50 million 2012 compared 201 million debt repayments 2011 obligations commitments 2013 credit agreement company fiveyear credit arrangement entered march 2013 provides 1500 million term loan 6000 million revolving credit facility “2013 credit agreement” revolving credit facility amounts may borrowed repaid reborrowed maturity date agreement march 2018 credit arrangement contains expansion feature term loan revolving credit facility may increased company’s option certain conditions additional 2500 million aggregate company total 2000 million outstanding 2013 credit agreement december 31 2013 consisted 1444 million outstanding term loan 556 million outstanding revolver december 31 2013 5411 million borrowing availability revolver term loan repaid 16 consecutive quarterly installments commenced june 30 2013 plus final payment due march 7 2018 may prepaid time without penalty premium company’s option revolving credit facility may used loans 400 million may used letters credit revolving loans may borrowed repaid reborrowed march 7 2018 time amounts borrowed must repaid see note 5 debt herein notes condensed consolidated financial statements additional information regarding 2013 credit agreement offbalance sheet arrangements december 31 2013 entered offbalance sheet arrangements transactions unconsolidated entities persons contractual cash commitments company certain contractual commitments require future payment following table summarizes company’s contractual cash commitments due december 31 2013 thousands 1 includes contractual principal due company’s 2013 credit agreement matures march 2018 amounts borrowed term loan arrangement classified table based scheduled repayment dates revolver borrowings classified due 45 years category since amounts contractually due 2018 interest payments amounts outstanding 2013 credit facility based floating rate however company 2000 million notional interest rate swap converts variable interest payments debt 226 fixed rate first 2000 million borrowings result order calculate estimate future interest payments company used rate 364 includes swap rate 226 plus loan margin 138 see note 5 debt notes consolidated financial statements additional information companys 2013 credit agreement 2 companys 50 million state connecticut economic development loan included due 5 years category since 10 year maturity interest payments loan calculated based contractual fixed rate interest 3 see note 5 debt notes consolidated financial statements additional information loan 3 company leases various facilities furniture autos computer equipment leases expire 2013 2027 see note 1 business significant accounting policies notes consolidated financial statements additional information companys leases 4 represents company’s liability participants supplemental deferred compensation arrangement see note 13 employee benefits notes consolidated financial statements additional information amounts payable active employees whose payment date unknown included due 5 years category since company cannot determine amounts paid 5 includes interest penalties addition amount presented table company also recorded liabilities 131 million unrecognized tax benefits 31 million related potential interest penalties uncertain amounts may settled 6 includes contractual commitments software building maintenance telecom services also included amounts due share repurchase transactions occurred late december 2013 settled early january 2014 see note 7 stockholders equity notes consolidated financial statements additional information companys share repurchases quarterly financial data following tables present quarterly operating results two year period ended december 31 2013 1 aggregate four quarters’ basic diluted earnings per common share may equal reported full calendar year amounts due effects share repurchases dilutive equity compensation rounding recently issued accounting standards fasb issued new accounting rules yet become effective new rules described together assessment potential impact may financial statements related disclosures future periods july 2013 fasb issued asu 201311 presentation unrecognized tax benefit net operating loss carryforward similar tax loss tax credit carryforward exists asu 201311 asu 201311 addresses balance sheet presentation unrecognized tax benefit net operating loss carryforward similar tax loss tax credit carryforward exists asu 201311 requires unrecognized tax benefit portion unrecognized tax benefit presented financial statements reduction deferred tax asset net operating loss carryforward similar tax loss tax credit carryforward asu 201311 effective company’s fiscal quarter ending march 31 2014 impacts balance sheet presentation company believes balance sheet impact material march 2013 fasb issued asu 201305 parent’s accounting cumulative translation adjustment upon derecognition certain subsidiaries groups assets within foreign entity investment foreign entity asu 201305 provides updated guidance resolve diversity practice concerning release cumulative foreign currency translation adjustment net income parent sells part investment foreign entity longer holds controlling financial interest subsidiary group assets within foreign entity company ceases controlling financial interest company recognize related cumulative translation adjustment net income sale transfer results complete substantially complete liquidation foreign entity subsidiary resided upon partial sale company release earnings pro rata portion cumulative translation adjustment asu 201305 effective company’s fiscal quarter ending march 31 2014 guidance asu 201305 impact companys financial statements upon occurrence transaction within scope fasb also continues work number significant accounting rules may impact company’s accounting disclosures future periods since rules yet issued effective dates potential impact unknown item 7aitem 7 management’s discussion analysis financial condition results operations purpose following management’s discussion analysis “mda” help facilitate understanding significant factors influencing operating results financial condition cash flows gartner inc additionally mda also conveys expectations potential impact known trends events uncertainties may impact future results read discussion conjunction consolidated financial statements related notes included report historical results percentage relationships necessarily indicative operating results future periods references “the company” “we” “our” “us” gartner inc consolidated subsidiaries forwardlooking statements addition historical information annual report form 10k contains certain forwardlooking statements forwardlooking statements historical fact including statements regarding expectations beliefs hopes intentions strategies regarding future cases forwardlooking statements identified use words “may” “will” “expect” “should” “could” “believe” “plan” “anticipate” “estimate” “predict” “potential” “continue” words similar meaning forwardlooking statements subject risks uncertainties could cause actual results differ materially discussed implied forwardlooking statements factors might cause difference include limited discussed part 1 item 1a risk factors readers place undue reliance forwardlooking statements reflect management’s opinion date made except required law disclaim obligation review update forwardlooking statements reflect events circumstances occur readers review carefully risk factors described reports filed sec business overview gartner inc world’s leading information technology research advisory company helps executives use technology build guide grow enterprises offer independent objective research analysis information technology computer hardware software communications related technology industries provide comprehensive coverage industry thousands client organizations across globe client base consists primarily cios senior executives wide variety business enterprises government agencies investment community three business segments research consulting events • research provides objective insight critical timely technology supply chain initiatives cios professionals supply chain leaders digital marketing professionals technology companies institutional investment community reports briefings proprietary tools access analysts peer networking services membership programs enable clients make better decisions supply chain digital marketing investments • consulting provides customized solutions unique client needs onsite daytoday support well proprietary tools measuring improving performance focus cost performance efficiency quality • events provides supply chain business professionals opportunity attend various symposia conferences exhibitions learn contribute network peers flagship event symposiumitxpo summits focused specific technologies industries experimental workshopstyle seminars events distill latest gartner research applicable insight advice business measurements believe following business measurements important performance indicators business segments business segment business measurements research contract value represents value attributable subscriptionrelated research products recognize revenue ratable basis contract value calculated annualized value subscription research contracts effect specific point time without regard duration contract client retention rate represents measure client satisfaction renewed business relationships specific point time client retention calculated percentage basis dividing current clients also clients year ago clients year ago wallet retention rate represents measure amount contract value retained clients twelvemonth period wallet retention calculated percentage basis dividing contract value clients one year earlier total contract value year earlier excluding impact foreign currency exchange wallet retention exceeds client retention indication retention higherspending clients increased spending retained clients consulting backlog represents future revenue derived inprocess consulting measurement strategic advisory services engagements utilization rate represents measure productivity consultants utilization rates calculated billable headcount percentage basis dividing total hours billed total hours available bill billing rate represents earned billable revenue divided total billable hours average annualized revenue per billable headcount represents measure revenue generating ability average billable consultant calculated periodically multiplying average billing rate per hour times utilization percentage times billable hours available one year events number events represents total number hosted events completed period number attendees represents total number people attend events executive summary operations financial position executed consistent growth strategy since 2005 drive doubledigit annual revenue earnings growth fundamentals strategy include focus creating extraordinary research content delivering innovative highly differentiated product offerings building strong sales capability providing world class client service focus client engagement retention continuously improving operational effectiveness total revenues 2021 billion 2014 increase 13 2013 reported basis 14 adjusted foreign exchange impact diluted earnings per share increased 10 per share 5 203 per share 2014 research revenues rose 14 yearoveryear 1445 billion 2014 contribution margin 69 2013 december 31 2014 research contract value 1603 billion increase 13 december 31 2013 reported basis 14 adjusted impact foreign exchange enterprise client retention 85 enterprise wallet retention 106 december 31 2014 consulting revenues 2014 increased 11 compared 2013 gross contribution margin 34 2013 consultant utilization 68 2014 compared 64 2013 535 billable consultants december 31 2014 compared 509 yearend 2013 backlog decreased 3 yearoveryear 1026 million december 31 2014 events revenues increased 14 yearoveryear 2277 million 16 adjusted foreign currency impact segment contribution margin 49 2014 3 point increase 2013 held 61 events 2014 compared 64 2013 number attendees increased 9 yearoveryear 49000 detailed discussion results see segment results section cash flow operating activities 3468 million 2014 increase 10 compared 2013 continue focus maximizing shareholder value 2014 repurchased 59 million outstanding common shares ended 2014 3653 million cash equivalents refinanced existing credit facility fourth quarter 2014 take advantage favorable market conditions provide additional liquidity extend maturity debt total borrowing capacity new arrangement 15 billion consists 4000 million term loan 11 billion revolving credit arrangement new facility five year maturity december 31 2014 approximately 11 billion available borrowing revolver believe adequate liquidity meet currently anticipated needs company completed three business acquisitions 2014 acquisitions include software advice inc assists customers software purchases market visio oy finnish company former sales agent gartner research finland russia sircleit inc provider cloudbased search technology identifies subjectmatter experts note 2 acquisitions notes consolidated financial statements included annual report form 10k provides additional information regarding 2014 acquisitions operating results acquisitions included consolidated segment operating results beginning respective dates acquisition results businesses material consolidated segment results year ended december 31 2014 fluctuations quarterly results quarterly annual revenue operating income cash flow fluctuate result many factors including timing symposiumitxpo series normally held fourth calendar quarter well events timing amount new business generated mix domestic international business changes market demand products services changes foreign currency rates timing development introduction marketing new products services competition industry general economic conditions factors beyond control potential fluctuations operating income could cause periodtoperiod comparisons operating results meaningful could provide unreliable indication future operating results cash flows critical accounting policies estimates preparation financial statements requires application appropriate accounting policies use estimates significant accounting policies described note 1 notes consolidated financial statements management considers policies discussed critical understanding financial statements application requires complex subjective management judgments estimates specific risks critical accounting policies described preparation financial statements also requires us make estimates assumptions future events develop estimates using current historical experience well factors including general economic environment actions may take future adjust estimates facts circumstances dictate however estimates may involve significant uncertainties judgments cannot determined precision addition estimates based best judgment point time estimates may ultimately differ actual results ongoing changes estimates could material would reflected company’s financial statements future periods critical accounting policies follows revenue recognition revenue recognized accordance requirements us gaap sec staff accounting bulletin 104 revenue recognition “sab 104” revenue recognized required criteria revenue recognition met revenue significant source accounted follows • research revenues derived subscription contracts research products deferred recognized ratably applicable contract term fees research reprints recognized reprint delivered • consulting revenues principally generated fixed fee time material engagements revenues fixed fee contracts recognized proportional performance basis revenues time materials engagements recognized work delivered andor services provided revenues related contract optimization contracts contingent nature recognized upon satisfaction conditions related payment • events revenues deferred recognized upon completion related symposium conference exhibition majority research contracts billable upon signing absent special terms granted limited basis time research contracts noncancelable nonrefundable except government contracts may cancellation fiscal funding clauses policy record entire amount contract billable fee receivable time contract signed corresponding amount deferred revenue since contract represents legally enforceable claim uncollectible fees receivable maintain allowance losses composed bad debt allowance sales reserve provisions charged earnings either reduction revenues increase expense measurement likely probable losses allowance losses based historical loss experience aging outstanding receivables assessment current economic conditions financial health specific clients evaluation inherently judgmental requires estimates valuation reserves periodically reevaluated adjusted information ultimate collectability fees receivable becomes available circumstances could cause valuation reserves increase include changes clients’ liquidity credit quality factors negatively impacting clients’ ability pay obligations come due effectiveness collection efforts following table provides total fees receivable related allowance losses thousands goodwill intangible assets company evaluates recorded goodwill accordance financial accounting standards board fasb accounting standards codification asc topic 350 requires goodwill assessed impairment least annually whenever events changes circumstances indicate carrying value may recoverable addition impairment evaluation amortizable intangible assets may also performed periodic basis events circumstances indicate potential impairment determine fair value reporting unit less related carrying amount must recognize impairment charge earnings among factors consider important could trigger impairment review following • significant underperformance relative historical projected future operating results • significant changes manner use acquired assets strategy overall business • significant negative industry general economic trends • significant decline stock price sustained period • market capitalization relative net book value annual assessment recoverability recorded goodwill based either quantitative qualitative assessment combination two methods require use estimates turn contain judgments assumptions regarding future trends events result precision reliability resulting estimates subject uncertainty 2014 completed required annual goodwill impairment test utilizing qualitative approach based assessment company believes fair values company’s reporting units continue exceed respective carrying amounts see note 1 business significant accounting policies notes consolidated financial statements additional discussion accounting income taxes company uses asset liability method accounting income taxes estimate income taxes jurisdictions operate process involves estimating current tax expense together assessing temporary differences resulting differing treatment items tax accounting purposes differences result deferred tax assets liabilities included within consolidated balance sheets assessing realizability deferred tax assets management considers likely deferred tax assets realized consider availability loss carryforwards projected reversal deferred tax liabilities projected future taxable income ongoing prudent feasible tax planning strategies making assessment company recognizes tax benefit uncertain tax position likely tax position sustained based technical merits position accounting stockbased compensation company accounts stockbased compensation accordance fasb asc topics 505 718 interpreted sec staff accounting bulletins 107 “sab 107” 110 “sab 110” company recognizes stockbased compensation expense based fair value award date grant related service period net estimated forfeitures see note 8 stockbased compensation notes consolidated financial statements additional information regarding stockbased compensation determining appropriate fair value model calculating fair value stock compensation awards requires input certain complex subjective assumptions including expected life stock compensation award company’s common stock price volatility addition determining appropriate amount associated periodic expense requires management estimate rate employee forfeitures likelihood achievement certain performance targets assumptions used calculating fair value stock compensation awards associated periodic expense represent management’s best estimates involve inherent uncertainties application judgment result factors change company deems necessary future modify assumptions made use different assumptions quantity nature company’s stockbased compensation awards changes amount expense may need adjusted future stock compensation expense could materially different recorded current period restructuring accruals may record accruals severance costs associated excess facilities leased contract terminations asset impairments costs result ongoing actions undertake streamline organization reposition certain businesses reduce ongoing costs estimates costs incurred complete actions future lease payments sublease income fair value assets severance related benefits based assumptions time actions initiated accruals may need adjusted extent actual costs differ estimates addition actions may revised due changes business conditions foresee time plans approved also record accruals year various employee cash incentive programs amounts accrued end reporting period based estimates may require adjustment ultimate amount paid incentives sometimes known certainty year end results operations consolidated results 2014 versus 2013 following table presents changes selected line items consolidated statements operations two years ended december 31 2014 thousands total revenues twelve months ended december 31 2014 increased 2372 million 13 compared twelve months ended december 31 2013 total revenues increased 14 excluding unfavorable impact foreign currency revenues increased three business segments across geographic regions following table presents total revenues geographic region twelve months ended thousands following table presents revenues segment twelve months ended thousands please refer section mda entitled “segment results” discussion revenues results segment cost services product development “cos” expense increased 12 2014 compared 2013 844 million 7979 million compared 7135 million 2013 impact foreign currency exchange full year significant increase primarily due higher payroll related benefits costs additional headcount increased 12 headcount increase reflects continued investment research business includes additional employees resulting 2014 acquisitions cos percentage revenues 39 2014 period compared 40 2013 period selling general administrative “sga” expense increased 1156 million 2014 15 8761 million compared 7605 million 2013 excluding favorable impact foreign currency exchange sga expense increased 16 yearoveryear increase primarily due higher payroll related benefits costs additional headcount higher sales commissions merit salary increases increased headcount includes investment additional quotabearing sales associates increased 1881 december 31 2014 14 increase yearend 2013 depreciation expense increased 8 2014 compared 2013 reflects additional investment fixed assets amortization intangibles increased 51 yearoveryear due intangibles arising 2014 acquisitions acquisition integration charges 219 million 2014 compared 03 million 2013 charges directlyrelated acquisitions primarily include amounts accrued payments contingent achievement certain employment conditions legal consulting severance costs operating income increased 107 million yearoveryear 4 2862 million 2014 2755 million 2013 increased operating income attributable higher segment contributions research events businesses operating income percentage revenues 14 2014 15 2013 interest expense net increased 23 yearoveryear due additional borrowings 2014 period expense net 06 million 2014 02 million 2013 expenses primarily consisted net foreign currency exchange gains losses provision income taxes 909 million 2014 compared 836 million 2013 effective tax rate 331 2014 compared 314 2013 higher effective tax rate 2014 primarily due impact certain favorable items 2013 well unfavorable mix pretax income jurisdiction 2014 partially offset foreign tax credit benefits 2014 favorable items 2013 included enactment certain beneficial legislation 2013 release tax reserves due audit settlements increased tax exempt income 2014 internal revenue service closed audit companys 2011 2010 federal income tax returns resolution audit material adverse effect companys consolidated financial position cash flows results operations net income 1838 million 2014 1828 million 2013 increase 1 increased operating income 2014 substantially offset additional income tax charges diluted earnings per share increased 5 yearoveryear 203 2014 primarily due lower number weightedaverage shares outstanding 2013 versus 2012 following table presents changes selected line items consolidated statements operations two years ended december 31 2013 thousands total revenues twelve months ended december 31 2013 increased 1684 million 10 compared twelve months ended december 31 2012 total revenues increased 11 excluding unfavorable impact foreign currency revenues increased three business segments across geographic regions following table presents total revenues geographic region twelve months ended thousands following table presents revenues segment twelve months ended thousands please refer section mda entitled “segment results” discussion revenues results segment cost services product development “cos” expense increased 8 2013 compared 2012 544 million 7135 million compared 6591 million 2012 increase primarily due higher payroll related benefits costs additional headcount continued invest support growth business lesser extent merit salary increases also higher conference costs due increase number events doubledigit increase number exhibitors events upgrading facilities several locations support anticipated growth events business additional costs partially offset favorable impact foreign currency cos percentage revenues 40 2013 period compared 41 2012 period selling general administrative “sga” expense increased 816 million 2013 12 7605 million compared 6788 million 2012 increase primarily due higher payroll related benefits costs partially offset favorable foreign currency impact higher payroll benefit cost primarily driven investment additional headcount lesser extent higher sales commissions merit salary increases increased headcount includes additional quotabearing sales associates increased 1643 december 31 2013 16 increase yearend 2012 depreciation expense increased 14 2013 compared 2012 primarily due additional depreciation leasehold improvements two renovated buildings stamford headquarters campus placed service 2013 amortization intangibles increased 24 yearoveryear due full year amortization 2013 intangible assets recorded ideas international acquisition mid2012 acquisition integration charges 03 million 2013 compared 24 million 2012 charges directlyrelated acquisitions primarily include legal consulting severance costs operating income increased 298 million yearoveryear 12 2755 million 2013 2457 million 2012 increased operating income primarily attributable substantially higher segment contribution research segment operating income percentage revenues 15 periods interest expense net flat yearoveryear expense net 02 million 2013 13 million 2012 expenses primarily consisted net foreign currency exchange gains losses provision income taxes 836 million 2013 compared 697 million 2012 effective tax rate 314 2013 compared 296 2012 higher effective tax rate 2013 primarily attributable change annual mix pretax income jurisdiction well impact certain state tax credits recognized 2012 2013 company closed internal revenue service “irs” audit 2008 2009 federal income tax returns resolution audit material adverse effect consolidated financial position cash flows results operations company late 2013 company received notice irs would conduct audit companys 2010 2011 tax years american taxpayer relief act 2012 “2012 tax act” enacted january 2013 contained beneficial tax provisions company applied retroactively 2012 however since 2012 tax act passed 2013 approximately 15 million tax benefits relating retroactive application recorded company early 2013 net income 1828 million 2013 1659 million 2012 increase 169 million 10 primarily due higher operating income partially offset higher income tax charges diluted earnings per share increased 12 yearoveryear due higher net income lesser extent lower number weightedaverage shares outstanding segment results evaluate reportable segment performance allocate resources based gross contribution margin gross contribution defined operating income excluding certain cost services product development charges sga depreciation acquisition integration charges amortization intangibles gross contribution margin defined gross contribution percentage revenues following sections present results three business segments research following table presents financial results business measurements research segment twelve months ended december 31 1 dollars thousands 2 define enterprise single company customer define organization buying center within enterprise location department single enterprise may multiple organizations 2014 versus 2013 research segment revenues 2014 increased 14 compared 2013 impact foreign exchange translation significant segment gross contribution margin 69 periods contribution margin remained 69 spite 16 increase segment headcount includes additional employees 2014 acquisitions research contract value increased 13 2014 1603 billion increased 14 yearoveryear adjusted impact foreign currency translation growth contract value broadbased every region industry segment client size growing doubledigit rates compared 2013 number research client enterprises increased 10 2014 9958 enterprise client retention wallet retention remained strong 85 106 december 31 2014 respectively 2013 versus 2012 research segment revenues 2013 increased 12 compared 2012 impact foreign exchange translation significant segment gross contribution margin increased 1 point 69 driven operating leverage business contribution margin improved spite 8 increase segment headcount research contract value increased 13 2013 1423 billion increased 12 yearoveryear adjusted impact foreign currency translation growth contract value broadbased almost every region industry segment client size growing doubledigit rates compared 2012 enterprise client retention wallet retention 83 104 december 31 2013 respectively consulting following table presents financial results business measurements consulting segment twelve months ended december 31 1 dollars thousands 2014 versus 2013 consulting revenues increased 11 yearoveryear 12 adjusted impact foreign exchange increase primarily due higher core consulting revenues lesser extent higher contract optimization revenues contract optimization revenues fluctuate period generally 1015 total annual consulting segment revenues gross contribution margin 34 periods backlog decreased 35 million 3 yearoveryear 1026 million december 31 2014 2013 versus 2012 consulting revenues increased 3 yearoveryear 4 adjusted impact foreign exchange increase due higher contract optimization revenue increased contract optimization revenues partially offset slightly lower core consulting strategic advisory “sas” revenues gross contribution margin declined 2 points due higher payroll benefit costs additional headcount merit salary increases lesser extent lower utilization core consulting backlog increased 34 million 3 yearoveryear 1061 million december 31 2013 events following table presents financial results business measurements events segment twelve months ended december 31 1 dollars thousands 2014 versus 2013 events revenues increased 288 million comparing 2014 2013 14 excluding impact foreign currency translation revenues increased 16 yearoveryear held 61 events 2014 consisting 59 ongoing events 2 new events compared 64 events 2013 five events held 2013 discontinued 2014 yearoveryear revenue increase primarily attributable higher exhibitor revenue ongoing events lesser extent higher attendee revenue overall number attendees increased 9 number exhibitors increased 10 average revenue per attendee rose 6 average revenue per exhibitor increased 9 gross contribution margin increased 3 points yearoveryear 2013 versus 2012 events revenues increased 252 million comparing 2013 2012 14 excluding impact foreign currency translation revenues increased 15 yearoveryear held 64 events 2013 consisting 58 ongoing events 6 new events compared 62 events 2012 yearoveryear revenue increase primarily attributable higher exhibitor revenue ongoing events overall number attendees declined slightly number exhibitors increased 11 average revenue per attendee rose 15 average revenue per exhibitor increased 6 gross contribution margin flat yearoveryear 46 liquidity capital resources finance operations primarily cash generated operating activities 2014 operating cash flow 3468 million highest company’s history represented increase 10 2013 operating cash flow continuously enhanced leverage characteristics subscriptionbased business model well focus operational efficiencies revenues research segment increased 14 2014 compared 2013 constituted 72 71 total revenues 2014 2013 respectively majority research contracts renew annually typically paid advance combined strong customer retention rate high incremental margins generally resulted strong growth operating cash flow year cash flow generation also benefited continuing efforts improve operating efficiencies businesses well focus optimal management working capital increase sales volume 3650 million cash equivalents yearend 2014 refinanced debt 2014 take advantage favorable market conditions approximately 11 billion available borrowing capacity revolving credit facility yearend 2014 believe consistently strong operating cash flow well existing cash balances available borrowing capacity provide us adequate liquidity meet currently anticipated needs cash equivalents held numerous locations throughout world december 31 2014 3050 million cash equivalents held outside us approximately 61 cash equivalents held overseas represents unremitted earnings nonus subsidiaries us accounting rules provision income taxes may result remittance earnings required company intends reinvest funds overseas current plans demonstrate need repatriate undistributed earnings fund us operations otherwise satisfy liquidity needs us operations intend reinvest earnings nonus operations except instances repatriation earnings would result minimal additional tax result company recognized additional income tax expense may result remittance earnings however liquidity needs change decide repatriate unremitted earnings may required accrue additional taxes could material effect consolidated financial position cash flows results operations changes cash equivalents following disclosure summarizes explains changes cash equivalents three years ended december 31 2014 thousands 1 2014 number foreign currencies hold cash weakened relative us dollar result effects exchange rates significant impact december 31 2014 cash equivalent balance 2014 versus 2013 operating cash flow increased 311 million 10 comparing 2014 2013 increase primarily due additional cash collections research events businesses positive working capital changes partially offsetting additional collections higher cash payments bonuses commissions income taxes investing used additional 1263 million cash investing activities 2014 compared 2013 principally due 2014 acquisitions paid total 1099 million net cash acquired additional 144 million placed escrow company used existing cash additional borrowings finance 2014 acquisitions also used additional 20 million cash capital expenditures 2014 period financing used 2087 million cash financing activities 2014 compared 1539 million cash used 2013 2014 company used 4320 million cash share repurchases partially offset 1954 million net proceeds debt issuance related debt issuance costs 280 million employee sharebased activity 2013 company used 1820 million cash share repurchases 40 million debt refinancing fees partially offset 320 million employee sharebased activities 2013 versus 2012 operating cash flow increased 358 million 13 comparing 2013 2012 increase primarily due higher net income 2013 period well additional receivable collections positive working capital changes increases partially offset additional cash payments 2013 period bonus commissions income taxes also lower cash reimbursements 2013 period related completion renovation stamford headquarters facility investing cash used investing activities declined 182 million 2013 compared 2012 decrease primarily due 103 million cash used 2012 acquisition ideas international lesser extent higher capital expenditures 2012 capital expenditures 365 million 2013 compared 443 million 2012 included 77 million 170 million respectively paid renovation stamford headquarters facility companys total expenditures renovation approximately 342 million company received total 250 million reimbursements facility landlord renovation 30 million received 2013 130 million 2012 90 million 2011 recorded operating cash flows financing used 1540 million cash financing activities 2013 compared 730 million 2012 increase cash used 810 million primarily due share repurchases used 1820 million cash 2013 share repurchases compared 1110 million 2012 also lower cash proceeds employee sharebased activity 2013 period also paid 40 million fees related debt refinancing 2013 period obligations commitments 2014 credit agreement company fiveyear credit arrangement entered december 2014 provides 4000 million term loan 11 billion revolving credit facility “2014 credit agreement” revolving credit facility amounts may borrowed repaid reborrowed maturity date agreement december 2019 term revolving facilities may increased companys option additional 5000 million aggregate december 31 2014 company 4000 million outstanding term facility zero revolver see note 5 debt notes consolidated financial statements additional information regarding 2014 credit agreement offbalance sheet arrangements december 31 2014 entered offbalance sheet arrangements transactions unconsolidated entities persons contractual cash commitments company certain contractual commitments require future cash payments following table summarizes contractual cash commitments due december 31 2014 thousands 1 includes amounts due 2014 credit agreement matures december 2019 amounts borrowed term loan arrangement classified table based scheduled repayment dates interest payments amounts outstanding 2014 credit agreement based floating rate december 31 2014 2 companys 50 million state connecticut economic development loan included due 5 years category since 10 year maturity interest payments loan calculated based contractual fixed rate interest 3 certain circumstances part debt may forgiven state see note 5 debt notes consolidated financial statements additional information 3 company leases various facilities furniture autos computer equipment leases expire 2015 2028 see note 1 business significant accounting policies notes consolidated financial statements additional information companys leases 4 represents company’s liability participants supplemental deferred compensation arrangement see note 13 employee benefits notes consolidated financial statements additional information amounts payable active employees whose payment date unknown included due 5 years category since company cannot determine amounts paid 5 includes interest penalties addition amount presented table company also recorded liabilities 199 million unrecognized tax benefits 29 million related potential interest penalties uncertain amounts may settled 6 includes contractual commitments software building maintenance telecom services ii amounts due share repurchase transactions occurred late december 2014 settled early january 2015 iii projected cash contributions companys defined benefit pension plans quarterly financial data following tables present quarterly operating results twoyear period ended december 31 2014 1 aggregate four quarters’ basic diluted earnings per common share may equal reported full calendar year amounts due effects share repurchases dilutive equity compensation rounding recently issued accounting standards accounting rules issued various us standard setting governmental authorities yet become effective may impact consolidated financial statements future periods described together assessment potential impact may consolidated financial statements related disclosures future periods revenue recognition may 2014 fasb issued accounting standards update asu 201409 revenue contracts customers asu 201409 asu 201409 intended clarify principles recognizing revenue removing inconsistencies weaknesses revenue recognition requirements providing robust framework addressing revenue issues improving comparability revenue recognition practices across entities industries jurisdictions capital markets providing useful information users financial statements improved revenue disclosure requirements provisions new rule effective gartner january 1 2017 early adoption permitted continue evaluate impact asu 201409 discontinued operations may 2014 fasb issued asu 201408 reporting discontinued operations disclosures disposals components entity asu 201408 changes criteria determining disposal transactions presented discontinued operations modifies related disclosure requirements new guidance discontinued operation defined disposal component group components disposed classified held sale represents strategic shift major effect entity’s operations financial results company adopted new rule january 1 2015 impact companys consolidated financial statements fasb also continues work number significant accounting rules may impact company’s accounting disclosures future periods since rules yet issued effective dates potential impact unknown item 7aitem 7 management’s discussion analysis financial condition results operations purpose following management’s discussion analysis “mda” help facilitate understanding significant factors influencing operating results financial condition cash flows gartner inc additionally mda also conveys expectations potential impact known trends events uncertainties may impact future results read discussion conjunction consolidated financial statements related notes included report historical results percentage relationships necessarily indicative operating results future periods references “the company” “we” “our” “us” gartner inc consolidated subsidiaries acquired businesses 2016 2015 2014 described note 2 acquisitions notes consolidated financial statements included annual report form 10k operating results acquired businesses included consolidated segment operating results beginning respective dates acquisition results material consolidated segment results forwardlooking statements addition historical information annual report form 10k contains certain forwardlooking statements within meaning section 27a securities act 1933 amended section 21e securities exchange act 1934 amended forwardlooking statements historical fact including statements regarding expectations beliefs hopes intentions strategies regarding future cases forwardlooking statements identified use words “may” “will” “expect” “should” “could” “believe” “plan” “anticipate” “estimate” “predict” “potential” “continue” words similar meaning forwardlooking statements subject risks uncertainties could cause actual results differ materially discussed implied forwardlooking statements factors might cause difference include limited discussed part 1 item 1a risk factors included annual report form 10k readers place undue reliance forwardlooking statements reflect management’s opinion date made except required law disclaim obligation review update forwardlooking statements reflect events circumstances occur business overview gartner world’s leading information technology research advisory company deliver technologyrelated insight necessary clients make right decisions every day cios senior information technology leaders corporations government agencies business leaders hightech telecom enterprises professional services firms supply chain professionals marketing professionals technology investors valuable partner clients 11122 distinct enterprises work clients research analyze interpret business within context individual roles gartner headquartered stamford connecticut usa december 31 2016 8813 employees including 1922 research analysts consultants clients 90 countries foundation gartner products services independent research supply chain digital marketing initiatives findings research delivered three business segments research consulting events • research provides objective insight critical timely technology supply chain initiatives cios professionals supply chain leaders marketing professionals well technology companies institutional investment community reports briefings proprietary tools access analysts peer networking services membership programs enable clients make better decisions supply chain marketing investments • consulting provides customized solutions unique client needs onsite daytoday support well proprietary tools measuring improving performance focus cost performance efficiency quality • events provides supply chain marketing business professionals opportunity attend various symposia conferences exhibitions learn contribute network peers flagship event symposiumitxpo summits focused specific technologies industries experimental workshopstyle seminars events distill latest gartner research applicable insight advice information regarding gartner products services visit gartnercom business measurements believe following business measurements important performance indicators business segments business segment business measurements research total contract value represents value attributable subscriptionrelated contracts calculated annualized value contracts effect specific point time without regard duration contract total contract value primarily includes research deliverables revenue recognized ratable basis well deliverables primarily events tickets revenue recognized deliverable utilized research contract value represents value attributable subscriptionrelated research products recognize revenue ratable basis contract value calculated annualized value subscription research contracts effect specific point time without regard duration contract client retention rate represents measure client satisfaction renewed business relationships specific point time client retention calculated percentage basis dividing current clients also clients year ago clients year ago client retention calculated enterprise level represents single company customer wallet retention rate represents measure amount contract value retained clients 12month period wallet retention calculated percentage basis dividing contract value clients one year ago total contract value year ago excluding impact foreign currency exchange wallet retention exceeds client retention indication retention higherspending clients increased spending retained clients wallet retention calculated enterprise level represents single company customer consulting backlog represents future revenue derived inprocess consulting measurement strategic advisory services engagements utilization rate represents measure productivity consultants utilization rates calculated billable headcount percentage basis dividing total hours billed total hours available bill billing rate represents earned billable revenue divided total billable hours average annualized revenue per billable headcount represents measure revenue generating ability average billable consultant calculated periodically multiplying average billing rate per hour times utilization percentage times billable hours available one year events number events represents total number hosted events completed period number attendees represents total number people attend events executive summary operations financial position executed consistent growth strategy since 2005 drive doubledigit annual revenue earnings growth fundamentals strategy include focus creating extraordinary research insight delivering innovative highly differentiated product offerings building strong sales capability providing world class client service focus client engagement retention continuously improving operational effectiveness total revenues 24 billion 2016 increase 13 2015 reported basis 14 adjusted impact foreign currency exchange diluted earnings per share 231 2016 compared 206 2015 12 increase primarily driven higher net income increased 10 2016 lesser extent lower weightedaverage share count declined 1 research revenues increased 16 yearoveryear 183 billion 2016 adjusted impact foreign currency research revenues increased 17 contribution margin 69 2015 december 31 2016 total contract value 193 billion increase 9 december 31 2015 reported basis 14 adjusted impact foreign currency exchange client wallet retention remained strong 84 104 respectively december 31 2016 consulting revenues increased 6 2016 3462 million impact foreign currency exchange significant gross contribution margin 31 2016 compared 33 2015 consultant utilization 66 periods 628 billable consultants december 31 2016 compared 606 yearend 2015 backlog 1038 million december 31 2016 events revenues increased 7 yearoveryear 2686 million 2016 adjusted impact foreign currency exchange events revenues increased 6 segment contribution margin 51 2016 compared 52 2015 held 66 events 2016 compared 65 2015 number attendees increased 4 2016 54602 detailed discussion results see segment results section cash flow operating activities 3656 million 2016 increase 6 compared 2015 2016 cash flow operating activities benefited early adoption fasb asu 201609 improvements employee sharebased payment accounting changed accounting stockbased compensation awards see note 1 business significant accounting policies notes consolidated financial statements included annual report form 10k additional information ended 2016 4742 million cash equivalents 11 billion available borrowing revolving credit line continue focus maximizing shareholder value 2016 repurchased 06 million shares outstanding common stock also acquired two businesses addition january 2017 announced entered definitive agreement whereby gartner acquire outstanding shares ceb inc industry leader providing best practice talent management insights see note 16 subsequent events notes consolidated financial statements additional information fluctuations quarterly results quarterly annual revenue operating income cash flow fluctuate result many factors including timing symposiumitxpo series normally held fourth calendar quarter well events timing amount new business generated mix domestic international business changes market demand products services changes foreign currency rates timing development introduction marketing new products services competition industry acquisitions general economic conditions factors beyond control potential fluctuations operating income could cause periodtoperiod comparisons operating results meaningful could provide unreliable indication future operating results cash flows critical accounting policies estimates preparation consolidated financial statements requires application appropriate accounting policies use estimates significant accounting policies described note 1 notes consolidated financial statements included form 10k management considers policies discussed critical understanding financial statements application requires complex subjective management judgments estimates specific risks critical accounting policies described preparation consolidated financial statements requires us make estimates assumptions future events develop estimates using current historical experience well factors including general economic environment actions may take future adjust estimates facts circumstances dictate however estimates may involve significant uncertainties judgments cannot determined precision addition estimates based best judgment point time estimates may ultimately differ materially actual results ongoing changes estimates could material would reflected company’s consolidated financial statements future periods critical accounting policies follows revenue recognition revenue recognized accordance requirements us gaap well sec staff accounting bulletin 104 revenue recognition “sab 104” revenue recognized required criteria revenue recognition met revenue significant source accounted follows • research revenues mainly derived subscription contracts research products related revenues deferred recognized ratably applicable contract term fees derived assisting organizations selecting right business software needs recognized leads provided vendors • consulting revenues principally generated fixed fee time material engagements revenues fixed fee contracts recognized proportional performance basis revenues time materials engagements recognized work delivered andor services provided revenues related contract optimization contracts contingent nature recognized upon satisfaction conditions related payment • events revenues deferred recognized upon completion related symposium conference summit exhibition majority research contracts billable upon signing absent special terms granted limited basis time research contracts noncancelable nonrefundable except government contracts may cancellation fiscal funding clauses policy record amount contract billable fee receivable time contract signed corresponding amount deferred revenue since contract represents legally enforceable claim uncollectible fees receivable maintain allowance losses composed bad debt allowance sales reserve provisions charged earnings either reduction revenues increase expense determination allowance losses based historical loss experience assessment current economic conditions aging outstanding receivables financial health specific clients probable losses evaluation inherently judgmental requires estimates valuation reserves periodically reevaluated adjusted information ultimate collectability fees receivable becomes available circumstances could cause valuation reserves increase include changes clients’ liquidity credit quality factors negatively impacting clients’ ability pay obligations come due effectiveness collection efforts following table provides total fees receivable related allowance losses thousands goodwill intangible assets company evaluates recorded goodwill accordance financial accounting standards board fasb accounting standards codification asc topic 350 requires goodwill assessed impairment least annually whenever events changes circumstances indicate carrying value may recoverable addition impairment evaluation amortizable intangible assets may also performed events circumstances indicate potential impairment among factors could trigger impairment review current operating results relative annual plan historical performance changes strategic plan use assets restructuring charges changes business segments competitive pressures changes general economy markets operate significant decline stock price market capitalization relative net book value asc topic 350 requires annual assessment recoverability recorded goodwill either quantitative qualitative nature combination two methods require use estimates turn contain judgments assumptions regarding future trends events result precision reliability resulting estimates subject uncertainty annual goodwill impairment evaluation determines fair value reporting unit less related carrying amount may recognize impairment charge earnings among factors consider qualitative assessment general economic conditions competitive environment actual projected reporting unit financial performance forwardlooking business measurements external market assessments quantitative analysis requires management consider factors relevant qualitative assessment well utilization detailed financial projections include rate revenue growth profitability cash flows well assumptions regarding discount rates companys weightedaverage cost capital data order determine fair value reporting units conducted qualitative assessment fair values companys reporting units third quarter 2016 results test concluded fair values companys reporting units continue exceed respective carrying amounts see note 1 business significant accounting policies notes consolidated financial statements additional information regarding goodwill amortizable intangible assets accounting income taxes company uses asset liability method accounting income taxes estimate income taxes jurisdictions operate process involves estimating current tax expense together assessing temporary differences resulting differing treatment items tax accounting purposes differences result deferred tax assets liabilities included within consolidated balance sheets assessing realizability deferred tax assets management considers likely deferred tax assets realized consider availability loss carryforwards projected reversal deferred tax liabilities projected future taxable income ongoing prudent feasible tax planning strategies making assessment company recognizes tax benefit uncertain tax position likely tax position sustained based technical merits position accounting stockbased compensation company accounts stockbased compensation accordance fasb asc topic 505 718 sec staff accounting bulletins 107 “sab 107” 110 “sab 110” company recognizes stockbased compensation expense based fair value award date grant related service period see note 8 stockbased compensation notes consolidated financial statements additional information determining appropriate fair value model calculating fair value stock compensation awards requires input certain complex subjective assumptions including expected life stock compensation award company’s common stock price volatility addition determining appropriate amount associated periodic expense requires management estimate likelihood achievement certain performance targets assumptions used calculating fair value stock compensation awards associated periodic expense represent management’s best estimates involve inherent uncertainties application judgment result factors change company deems necessary future modify assumptions made use different assumptions quantity nature company’s stockbased compensation awards changes amount expense may need adjusted future stockbased compensation expense could materially different recorded current period 2016 company early adopted fasb asu 201609 improvements employee sharebased payment accounting asu 201609 requires certain changes accounting stock compensation fasb asc topic 718 note 1 business significant accounting policies notes consolidated financial statements provides additional information regarding adoption asu 201609 restructuring accruals may record accruals severance costs associated excess facilities leased contract terminations asset impairments costs result ongoing actions undertake streamline organization reposition certain businesses reduce ongoing costs estimates costs incurred complete actions future lease payments sublease income fair value assets severance related benefits based assumptions time actions initiated accruals may need adjusted extent actual costs differ estimates addition actions may revised due changes business conditions foresee time plans approved also record accruals year various employee cash incentive programs amounts accrued end reporting period based estimates may require adjustment ultimate amount paid incentives sometimes known certainty end fiscal year results operations consolidated results 2016 versus 2015 following table presents changes selected line items consolidated statements operations two years ended december 31 2016 thousands total revenues year ended december 31 2016 increased 2815 million 13 compared year ended december 31 2015 excluding impact foreign currency exchange total revenues increased 14 2016 compared 2015 yearoveryear reported segment revenues increased 16 research segment 6 consulting 7 events following table presents total revenues geographic region years ended thousands following table presents revenues segment years ended thousands please see section mda entitled “segment results” discussion revenues results segment cost services product development “cos expense increased 1066 million 13 2016 compared 2015 9456 million compared 8391 million 2015 cos expense increased 14 2016 compared 2015 adjusted impact foreign exchange yearoveryear increase cos expense due 880 million higher payroll related benefits costs additional headcount merit salary increases 286 million higher charges 2016 events costs program related expenses partially offsetting increased expenses approximately 100 million foreign exchange impact overall cos headcount increased 13 primarily research segment cos percentage revenues 39 2016 2015 periods selling general administrative “sga” expense increased 1265 million 2016 13 10892 million compared 9627 million 2015 excluding impact foreign currency exchange sga expense increased 15 yearoveryear increase primarily due 1150 million higher payroll related benefits costs additional headcount higher sales commissions merit salary increases also 275 million additional legal recruiting training workplace costs partially offsetting additional charges approximately 160 million foreign exchange impact sga headcount increased 13 overall majority increase additional quotabearing sales associates related support staff quotabearing sales associates increased 12 yearoveryear 2423 december 31 2016 2171 yearend 2015 depreciation expense increased 10 2016 compared 2015 reflects additional investment fixed assets amortization intangibles increased 248 million 2016 133 million 2015 due additional intangibles resulting acquisitions acquisition integration charges 426 million 2016 compared 262 million 2015 charges directlyrelated acquisitions primarily include amounts accrued payments contingent achievement certain employment conditions legal consulting severance costs operating income increased 6 2016 compared 2015 3051 million 2016 2880 million 2015 operating income percentage revenues 12 2016 13 2015 decline due number factors include lower gross contribution margins consulting events segments higher charges acquisitions interest expense net increased 21 yearoveryear due higher average borrowings 2016 period income expense net 84 million 2016 included gain 25 million extinguishment portion economic development loan state connecticut sale certain state tax credits recognition tax incentives net impact gains losses foreign currency hedging activities income expense net 50 million 2015 consisted 68 million gain sale certain state tax credits partially offset net loss foreign currency hedging activities provision income taxes 948 million 2016 compared 966 million 2015 effective tax rate 329 2016 compared 355 2015 decrease effective income tax rate primarily attributable early adoption asu 201609 2016 partially offset increases nondeductible expenses relating acquisitions net income 1936 million 2016 1756 million 2015 increase 10 diluted earnings per share increased 12 yearoveryear 231 2016 compared 206 2015 due higher net income lesser extent decrease number weightedaverage shares 2016 period 2015 versus 2014 following table presents changes selected line items consolidated statements operations two years ended december 31 2015 thousands total revenues year ended december 31 2015 increased 1416 million 7 compared year ended december 31 2014 revenues increased doubledigits research events businesses declined 6 consulting excluding impact foreign currency exchange total revenues increased 13 2015 compared 2014 following table presents total revenues geographic region years ended thousands following table presents revenues segment years ended thousands please refer section mda entitled “segment results” discussion revenues results segment cost services product development “cos expense increased 411 million 5 2015 compared 2014 8391 million compared 7979 million 2014 foreign exchange favorable impact cos expense 2015 adjusted impact cos expense increased 11 2015 compared 2014 yearoveryear increase cos expense due 560 million higher payroll related benefits costs additional headcount merit salary increases 310 million higher charges 2015 events costs travel corporate expenses partially offsetting increased expenses approximately 460 million favorable foreign exchange impact additional headcount primarily research business includes additional employees resulting 2015 acquisitions lesser extent increase headcount consulting business cos percentage revenues 39 2015 2014 periods selling general administrative “sga” expense increased 866 million 2015 10 9627 million compared 8761 million 2014 excluding impact foreign currency exchange sga expense increased 16 yearoveryear increase primarily due 1110 million higher payroll related benefits costs additional headcount higher sales commissions merit salary increases also 270 million additional travel training recruiting costs partially offsetting additional charges 510 million foreign exchange impact sga headcount increased 17 overall majority increase additional quotabearing sales associates related support staff quotabearing sales associates increased 15 yearoveryear 2171 december 31 2015 1881 yearend 2014 depreciation expense increased 8 2015 compared 2014 reflects additional investment fixed assets amortization intangibles increased 133 million 2015 82 million 2014 increase 62 yearoveryear due additional intangibles resulting acquisitions acquisition integration charges 262 million 2015 compared 219 million 2014 charges directlyrelated acquisitions primarily include amounts accrued payments contingent achievement certain employment conditions legal consulting severance costs operating income increased 1 2015 compared 2014 2880 million 2015 2862 million 2014 operating income percentage revenues 13 2015 14 2014 decrease primarily driven higher yearoveryear sga costs lesser extent lower gross contribution consulting business additional charges acquisitions interest expense net increased 91 yearoveryear due additional borrowings 2015 period income expense net 50 million 2015 included 68 million gain sale certain state tax credits partially offset net loss resulting foreign currency hedging activities 06 million expense 2014 due net loss foreign currency hedging activities provision income taxes 966 million 2015 compared 909 million 2014 effective tax rate 355 2015 compared 331 2014 higher effective tax rate 2015 primarily due decreases foreign tax credit benefits increases nondeductible expenses relating acquisitions increases valuation allowances foreign net operating losses net income 1756 million 2015 1838 million 2014 decrease 4 diluted earnings per share increased 1 yearoveryear 206 2015 compared 203 2014 due 6 decrease number weightedaverage shares 2015 period segment results evaluate reportable segment performance allocate resources based gross contribution margin gross contribution defined operating income excluding certain cost services product development charges sga depreciation acquisition integration charges amortization intangibles gross contribution margin defined gross contribution percentage revenues research following table presents financial results business measurements research segment year ended december 31 1 thousands 2 total contract value represents value attributable subscriptionrelated contracts calculated annualized value contracts effect specific point time without regard duration contract total contract value primarily includes research deliverables revenue recognized ratable basis well deliverables primarily events tickets revenue recognized deliverable utilized 3 research contract value represents value attributable subscriptionrelated research products recognize revenue ratable basis contract value calculated annualized value subscription research contracts effect specific point time without regard duration contract 2016 versus 2015 research segment revenues increased 16 2016 compared 2015 excluding impact foreign currency exchange research revenues increased 17 2016 segment gross contribution margin 69 annual periods contribution margin remained 69 spite 14 increase segment headcount mostly driven new hires lesser extent additional employees resulting acquisitions headcount increase reflects continuing investment business total contract value increased 9 reported basis 2016 193 billion increased 14 yearoveryear adjusted impact foreign currency exchange growth contract value broadbased every region client size virtually every industry sector growing doubledigit percentage rates increased number research client enterprises 3 2016 11122 client retention wallet retention remained strong 84 104 respectively december 31 2016 2015 versus 2014 research segment revenues increased 10 2015 compared 2014 excluding impact foreign currency research revenues increased 16 2015 segment gross contribution margin 69 annual periods total contract value increased 10 2015 177 billion adjusted impact foreign currency exchange total contract value increased 14 yearoveryear number research client enterprises increased 8 2015 10796 client retention wallet retention 84 105 respectively december 31 2015 consulting following table presents financial results business measurements consulting segment year ended december 31 1 dollars thousands 2016 versus 2015 consulting revenue increased 6 yearoveryear 3462 million increase mostly core consulting practice revenue contract optimization practice increased slightly declined strategic advisory service sas practice impact foreign currency exchange significant yearoveryear gross contribution margin declined 2 points due several factors including higher payroll costs resulting higher headcount severance well revenue decline sas practice higher contribution margin core consulting backlog decreased 139 million yearoveryear 12 mostly due large individual contract booked 2015 excluding contract backlog decreased 4 yearoveryear 1038 million backlog yearend 2016 represents approximately 4 months forward backlog line companys operational target 2015 versus 2014 consulting revenue decreased 6 yearoveryear essentially flat excluding impact foreign exchange revenue decline primarily core consulting practice mainly driven foreign exchange impact also lower revenues contract optimization practice fluctuate period yearoveryear gross contribution margin declined 1 point primarily driven costs resulting higher headcount backlog increased 151 million yearoveryear 15 1177 million december 31 2015 events following table presents financial results business measurements events segment year ended december 31 1 dollars thousands 2016 versus 2015 events revenues increased 168 million comparing 2016 2015 7 excluding impact foreign currency exchange revenues increased 6 yearoveryear held 66 events 2016 consisting 59 ongoing events 7 new events compared 65 events 2015 yearoveryear revenue increase primarily attributable higher exhibitor revenue ongoing events increased 9 attendee revenue increased 2 number attendees 2016 increased 4 54602 average revenue per attendee declined slightly average revenue per exhibitor increased 9 gross contribution margin decreased 1 point yearoveryear 2015 versus 2014 events revenues increased 241 million comparing 2015 2014 11 increased 18 adjusted impact foreign exchange held 65 events 2015 consisting 61 ongoing events 4 new events compared 61 events 2014 revenue increase primarily due higher attendee revenue ongoing events lesser extent higher exhibitor revenue number attendees increased 7 2015 number exhibitors increased 4 average revenue per attendee rose 9 average revenue per exhibitor increased 2 gross contribution margin increased 3 points yearoveryear liquidity capital resources company fiveyear credit arrangement entered june 2016 provides 6000 million term loan 12 billion revolving credit facility “2016 credit agreement” december 31 2016 company 5850 million outstanding term loan 1150 million revolver 11 billion available revolver borrowing capacity 2016 credit agreement 4742 million cash equivalents december 31 2016 credit agreement amended january 20 2017 permit acquisition ceb incurrence additional 1375 billion senior secured term loan b facility 3000 million 364day senior unsecured bridge facility senior unsecured highyield bridge facility 6000 million issuance corresponding amount debt securities finance part acquisition repay certain debt ceb modify certain covenants historically generated significant cash flows operating activities operating cash flow continuously maintained enhanced leverage characteristics subscriptionbased business model research segment largest business segment revenues research segment increased 16 2016 compared 2015 constituted 75 73 total revenues 2016 2015 respectively majority research customer contracts paid advance combined strong customer retention rate high incremental margins resulted continuously strong operating cash flow cash flow generation also benefited continuing efforts improve operating efficiencies businesses well focus optimal management working capital increase sales volume operating cash flow 3656 million 2016 compared 3456 million 2015 2016 used 1250 million cash pay debt related fees used almost 500 million cash capital expenditures also used 342 million cash 2016 acquire businesses 590 million repurchase common stock amount cash used 2016 acquire businesses stock repurchases significantly less 2015 currently 12 billion board approved authorization repurchase companys common stock december 31 2016 approximately 11 billion authorization remains definitive agreement acquire ceb inc january 5 2017 company ceb announced entered definitive agreement whereby gartner acquire outstanding shares ceb transaction valued approximately 26 billion aggregate consideration paid gartner expected approximately 18 billion cash 08 billion gartner common stock gartner also assume refinance approximately 09 billion ceb debt closing transaction expected completed first half 2017 connection proposed acquisition company entered commitment letter purposes financing majority cash consideration payable refinance ceb’s indebtedness commitment letter provides total 2275 billion additional financing includes sevenyear senior secured term loan b facility 1375 billion 364day senior unsecured bridge facility 3000 million senior unsecured highyield bridge facility 6000 million expected prior closing ceb acquisition senior unsecured notes issued sold pursuant offering pursuant rule 144a private placement lieu portion drawings highyield bridge facility company expects proceeds additional financing described together balance sheet cash available borrowing capacity revolving credit facility sufficient pay aggregate cash consideration refinance cebs indebtedness well pay certain fees expenses incurred connection acquisition closing transaction related borrowings significantly increase companys outstanding debt cash equivalents cash equivalents held numerous locations throughout world december 31 2016 approximately 4320 million total 4742 million cash equivalents held outside us 4320 million cash equivalents held outside united states december 31 2016 approximately 3400 million represents accumulated undistributed earnings nonus subsidiaries us gaap rules provision income taxes may result remittance earnings required company ability intent reinvest funds overseas indefinitely current plans demonstrate need repatriate undistributed earnings fund us operations otherwise satisfy liquidity needs us operations intend reinvest earnings nonus operations except instances repatriation earnings would result minimal additional tax result company recognized income tax expense could result remittance earnings however future events change liquidity needs us tax laws could cause us change repatriation policy decide repatriate undistributed earnings result could required accrue additional taxes future could material impact consolidated financial position cash flows results operations future periods following table summarizes explains changes cash equivalents threeyears ended december 31 2016 thousands 1 2016 company early adopted fasb asu 201609 improvements employee sharebased payment accounting asu 201609 changed accounting stockbased compensation awards adoption standard increased 2016 operating cash flow 100 million corresponding decrease financing activities financial results periods prior 2016 impacted see note 1 business significant accounting policies notes consolidated financial statements additional information 2016 versus 2015 operating cash flow increased 201 million 6 2016 compared 2015 2016 increase primarily due higher net income adoption asu 201609 partially offsetting increases higher cash payments acquisition integration costs bonus commissions interest borrowings investing used 840 million cash investing activities 2016 compared 2424 million cash used 2015 cash used 2015 substantially higher due additional expenditures acquisitions financing cash used 1747 million 2016 consisted 590 million paid share repurchases 1250 million payments fees debt partially offset 93 million cash realized employee sharerelated activities 2015 period company used 677 million cash financing activities 5090 million cash used share repurchases net borrowings debt employee sharerelated activities provided cash 4413 million 2015 versus 2014 operating cash flow decreased slightly comparing 2015 2014 decrease reflects negative impact stronger us dollar lower 2015 net income well additional cash payments employee incentives related acquisitions income taxes interest debt obligations 2015 period partially offsetting elements additional collections 2015 period investing used additional 796 million cash investing activities 2015 compared 2014 primarily due acquisitions made 2015 total used 1962 million 1243 million cash net cash acquired acquisitions 2015 2014 respectively company used existing cash additional borrowings finance 2015 acquisitions also used additional 76 million cash capital expenditures 2015 period total 461 million used 2015 compared 385 million 2014 financing total used 677 million cash financing activities 2015 compared 2087 million cash used 2014 company used 5090 million cash share repurchases 2015 compared 4320 million used share repurchases 2014 company borrowed additional 4200 million 2015 net basis compared 2000 million net additional borrowings 2014 additions financing cash flows employee sharebased activities 214 million 2015 280 million 2014 obligations commitments 2016 credit agreement companys 2016 credit agreement provides 6000 million term loan 12 billion revolving credit facility 2016 credit agreement amended january 20 2017 permit acquisition ceb incurrence additional 1375 billion senior secured term loan b facility 3000 million 364day senior unsecured bridge facility senior unsecured highyield bridge facility 6000 million issuance corresponding amount debt securities finance part acquisition repay certain debt ceb modify certain covenants revolving credit facility amounts may borrowed repaid reborrowed maturity date 2016 credit agreement 2021 term revolving facilities may increased companys option additional 7500 million aggregate december 31 2016 company 5850 million outstanding term loan 1150 million revolver see note 5 debt notes consolidated financial statements additional information regarding 2016 credit agreement offbalance sheet arrangements december 31 2016 entered offbalance sheet arrangements transactions unconsolidated entities persons contractual cash commitments company certain commitments contractually require future cash payments following table summarizes companys contractual cash commitments december 31 2016 thousands 1 amounts borrowed companys 2016 credit agreement matures december 2021 classified table based contractual anticipated repayment dates interest payments based effective interest rates december 31 2016 see note 5 debt notes consolidated financial statements additional information regarding companys debt 2 company leases various facilities furniture computer equipment automobiles leases expire 2017 2032 see note 1 business significant accounting policies notes consolidated financial statements additional information companys leases 3 company supplemental deferred compensation arrangement certain employees amounts payable known payment date classified table based scheduled payment date amounts payable whose payment date unknown included due 5 years category since company cannot determine amounts paid see note 13 employee benefits notes consolidated financial statements additional information regarding arrangement 4 category includes contractual commitments software building maintenance telecom services ii projected cash contributions companys defined benefit pension plans see note 13 employee benefits notes consolidated financial statements additional information regarding companys defined benefit pension plans addition contractual cash commitments included table company payables liabilities may legally enforceable considered contractual commitments information regarding companys payables liabilities included note 4 accounts payable accrued liabilities notes consolidated financial statements quarterly financial data following tables present quarterly operating results twoyear period ended december 31 1 2016 company early adopted asu 201609 improvements employee sharebased payment accounting changed accounting stockbased compensation awards see note 1 business significant accounting policies notes consolidated financial statements additional information adoption asu 201609 increased basic diluted income per share 2016 total 012 per share financial results periods prior 2016 impacted 2 aggregate four quarters’ basic diluted earnings per common share may equal reported full calendar year amounts due effects share repurchases dilutive equity compensation rounding recently issued accounting standards accounting standards issued various us standard setting governmental authorities yet become effective may impact consolidated financial statements future periods described together assessment potential impact may consolidated financial statements related disclosures future periods business combinations january 2017 fasb issued asu 201701 clarifying definition business asu 201701 effective gartner january 1 2018 asu 201701 changes gaap definition business impact accounting asset purchases acquisitions goodwill impairment assessments currently evaluating impact asu 201701 consolidated financial statements statement cash flows november 2016 fasb issued asu 201618 restricted cash asu 201618 asu 201618 requires amounts generally described restricted cash restricted cash equivalents presented cash equivalents reconciling beginningofperiod endofperiod total amounts shown statement cash flows different reconciliation cash balances reported cash flow statement balance sheet would need provided along explanatory information asu 201618 effective gartner january 1 2018 currently evaluating impact asu 201618 consolidated financial statements income taxes october 2016 fasb issued asu 201616 intraentity transfers assets inventory asu 201616 asu 201616 accelerates recognition taxes certain intraentity transactions effective gartner january 1 2018 current gaap requires deferral income tax implications intercompany sale assets sold third party recovered use new rule seller’s tax effects buyer’s deferred taxes immediately recognized upon sale completed initial evaluation impact asu 201616 expect material impact consolidated financial statements adopted could impact timing recognition taxes future intraentity transfers statement cash flows august 2016 fasb issued asu 201615 classification certain cash receipts cash payments asu 201615 asu 201615 sets forth classification requirements certain cash flow transactions asu 201615 effective gartner january 1 2018 early adoption permitted completed initial evaluation impact asu 201615 expect material impact consolidated financial statements financial instrument credit losses june 2016 fasb issued asu 201613 financial instrumentscredit losses asu 201613 asu 201613 amends current financial instrument impairment model requiring entities use forwardlooking approach based expected losses estimate credit losses certain types financial instruments including trade receivables asu 201613 effective gartner january 1 2020 early adoption permitted currently evaluating potential impact asu 201613 consolidated financial statements leases february 2016 fasb issued asu 201602 leases asu 201602 require significant changes accounting disclosure lease arrangements currently us gaap lease arrangements meet certain criteria considered operating leases recorded balance sheet companys existing lease arrangements accounted operating leases thus recorded companys balance sheet asu 201602 significantly change accounting leases since rightofuse rou model must used lessee must record rou asset lease liability balance sheet leases terms longer 12 months leases classified either finance operating arrangements classification affecting pattern expense recognition income statement asu 201602 also requires expanded disclosures leasing arrangements asu 201602 effective gartner january 1 2019 currently evaluating impact asu 201602 consolidated financial statements financial instruments recognition measurement january 2016 fasb issued asu 201601 financial instruments overall recognition measurement financial assets liabilities asu 201601 address certain aspects recognition measurement presentation disclosure financial instruments among significant changes required asu 201601 equity investments measured fair value changes fair value recognized net income asu 201601 effective gartner january 1 2018 completed initial evaluation impact asu 201601 expect material impact consolidated financial statements may require additional disclosures revenue may 2014 fasb issued asu 201409 revenue contracts customers asu 201409 asu 201409 related amendments require changes revenue recognition policies well enhanced disclosures asu 201409 intended clarify principles recognizing revenue removing inconsistencies weaknesses existing revenue recognition rules provide robust framework addressing revenue recognition issues improve comparability revenue recognition practices across entities industries jurisdictions capital markets provide useful information users financial statements improved disclosures completed initial assessment impact asu 201409 existing revenue recognition policies plan adopt rule january 1 2018 using cumulative effect method adoption asu 201409 also requires significantly expanded disclosures around nature amount timing uncertainty revenue cash flows arising contracts customers currently compiling completed assessment impact asu 201409 based analysis completed date currently anticipate new rule material impact consolidated financial statements fasb also continues work number accounting rules issued could impact accounting policies disclosures future periods however since rules yet issued effective dates potential impact unknown item 7aitem 7 management’s discussion analysis financial condition results operations purpose following management’s discussion analysis “mda” facilitate understanding significant factors influencing operating results financial condition cash flows gartner inc additionally mda conveys expectations potential impact known trends events uncertainties may impact future results read discussion conjunction consolidated financial statements related notes included annual report form 10k historical results percentage relationships necessarily indicative operating results future periods references gartner company” “we” “our” “us” mda gartner inc consolidated subsidiaries acquisitions ceb inc businesses april 5 2017 company completed acquisition ceb inc ceb note 2 acquisitions divestiture notes consolidated financial statements provides additional information regarding ceb acquisition operating results discussed year ended december 31 2017 include results ceb beginning acquisition date references heritage gartner operating results business measurements refer gartner excluding ceb references ceb refer operating results business measurements ceb subsequent acquisition also acquired businesses 2017 2016 2015 also described note 2 acquisitions divestiture notes consolidated financial statements included annual report form 10k operating results acquired businesses material consolidated segment results talent assessment business announcement definitive agreement sell february 6 2018 company announced reached definitive agreement sell ceb talent assessment business exponent private equity ukbased private equity firm 4000 million agreement comes end previously announced process evaluate strategic alternatives ceb talent assessment formerly shl acquired gartner part ceb acquisition transaction expected close first half 2018 subject customary closing conditions forwardlooking statements addition historical information annual report form 10k contains certain forwardlooking statements within meaning section 27a securities act 1933 amended section 21e securities exchange act 1934 amended forwardlooking statements historical fact including statements regarding expectations beliefs hopes intentions strategies regarding future cases forwardlooking statements identified use words “may” “will” “expect” “should” “could” “believe” “plan” “anticipate” “estimate” “predict” “potential” “continue” words similar meaning forwardlooking statements subject risks estimates uncertainties could cause actual results differ materially discussed implied forwardlooking statements factors might cause difference include limited discussed part 1 item 1a risk factors included annual report form 10k readers place undue reliance forwardlooking statements reflect management’s opinion date made except required law disclaim obligation review update forwardlooking statements reflect events circumstances occur readers carefully review risk factors described annual report form 10k business overview gartner inc nyse world’s leading research advisory company member sp 500 equip business leaders indispensable insights advice tools achieve missioncritical priorities build successful organizations tomorrow believe unmatched combination expertled practitionersourced datadriven research steers clients toward right decisions issues matter we’re trusted objective resource critical partner 12000 organizations 100 countries across major functions every industry enterprise size gartner headquartered stamford connecticut usa december 31 2017 15000 associates including 2650 research analysts consultants gartner delivers products services globally four business segments research consulting events talent assessment • research provides trusted objective insights advice missioncritical priorities leaders across functional areas enterprise research reports briefings proprietary tools access analysts peer networking services membership programs enable clients make better decisions gartners traditional strengths marketing supply chain research enhanced 2017 gartners acquisition ceb inc added cebs best practice talent management research insights across range business functions include human resources sales legal finance • consulting provides customized solutions unique client needs onsite daytoday support well proprietary tools measuring improving performance focus cost performance efficiency quality • events provides business professionals across organization opportunity learn share network flagship cio event gartner symposiumitxpo industryleading conferences focused specific business roles topics memberdriven sessions events enable attendees experience best gartner insight advice live • talent assessment helps organizations assess engage manage improve talent accomplished knowledge skills assessments training programs workshops survey questionnaire services business measurements believe following business measurements important performance indicators business segments business segment business measurements research total contract value represents value attributable subscriptionrelated contracts calculated annualized value contracts effect specific point time without regard duration contract total contract value primarily includes research deliverables revenue recognized ratable basis well deliverables primarily events tickets revenue recognized deliverable utilized client retention rate represents measure client satisfaction renewed business relationships specific point time client retention calculated percentage basis dividing current clients also clients year ago clients year ago client retention calculated enterprise level represents single company customer wallet retention rate represents measure amount contract value retained clients twelvemonth period wallet retention calculated percentage basis dividing contract value clients one year ago total contract value year ago excluding impact foreign currency exchange wallet retention exceeds client retention indication retention higherspending clients increased spending retained clients wallet retention calculated enterprise level represents single company customer consulting backlog represents future revenue derived inprocess consulting measurement engagements utilization rate represents measure productivity consultants utilization rates calculated billable headcount percentage basis dividing total hours billed total hours available bill billing rate represents earned billable revenue divided total billable hours average annualized revenue per billable headcount represents measure revenue generating ability average billable consultant calculated periodically multiplying average billing rate per hour times utilization percentage times billable hours available one year events number events represents total number hosted events completed period single day local events excluded number attendees represents total number people attend events single day local events excluded executive summary operations financial position executed consistent growth strategy since 2005 drive revenue earnings growth fundamentals strategy include focus creating extraordinary research insight delivering innovative highly differentiated product offerings building strong sales capability providing world class client service focus client engagement retention continuously improving operational effectiveness also continue focus maximizing shareholder value 2017 repurchased 04 million shares outstanding common stock acquired ceb industry leader providing best practice talent management insights l2 inc l2 subscriptionbased research business benchmarks digital performance brands note 2 acquisitions divestiture notes consolidated financial statements provides additional information regarding acquisitions total revenues 33 billion 2017 increase 35 2016 reported basis adjusted foreign exchange impact reported basis ceb contributed 5229 million increase total revenues net income declined 33 million 2017 1936 million 2016 result diluted earnings per share 004 2017 compared 231 2016 see note 10 income taxes notes consolidated financial statements information concerning net favorable impact 596 million companys 2017 income tax provision tax cuts jobs act 2017 research revenues increased 25 billion 2017 33 compared 2016 reported basis adjusted impact foreign currency exchange heritage gartner revenues increased 3047 million 2017 compared 2016 represents 16 increase reported basis approximately one point increase due l2 acquired first quarter 2017 adjusted foreign exchange impact heritage gartner revenues also increased 16 yearoveryear reported basis ceb contributed 3096 million 2017 increase research revenues research gross contribution margin declined two points 2017 primarily due impact deferred revenue fair value accounting adjustment resulting ceb acquisition heritage gartner client retention wallet retention remained strong 84 106 respectively december 31 2017 consulting revenues increased 3277 million 2017 3 compared 2016 reported basis adjusted impact foreign currency exchange consulting gross contribution margin 29 2017 compared 28 2016 consultant utilization 64 66 2017 2016 respectively 682 billable consultants december 31 2017 compared 628 december 31 2016 backlog 952 million december 31 2017 events revenues increased 3379 million 2017 26 compared 2016 reported basis 25 adjusted impact foreign currency exchange heritage gartner revenues increased 307 million 2017 compared 2016 11 increase reported basis 10 adjusted foreign exchange impact ceb contributed 386 million revenue increase reported basis heritage gartner events gross contribution margin 49 51 2017 2016 respectively heritage gartner business held 65 events 66 events 2017 2016 respectively number attendees 2017 increased 17 exhibitors increased 3 compared 2016 average revenue per exhibitor 5 average revenue per attendee flat ceb held four events 2017 3578 attendees result ceb acquisition added new reportable segment second quarter 2017 called talent assessment contributed 1747 million revenues 2017 complete discussion results segment see segment results cash provided operating activities 2545 million 3656 million 2017 2016 respectively december 31 2017 5389 million cash equivalents excludes amounts deemed heldforsale 5580 million available borrowing capacity revolving credit facility complete discussion cash flows financial position see liquidity capital resources fluctuations quarterly results quarterly annual revenues operating income loss cash flows fluctuate result many factors including timing symposiumitxpo series normally occurs fourth quarter well events timing amount new business generated including acquisitions mix domestic international business domestic international economic conditions changes market demand products services changes foreign currency rates timing development introduction marketing new products services competition industry payment performance compensation factors beyond control potential fluctuations operating income loss could cause periodtoperiod comparisons operating results meaningful could provide unreliable indication future operating results cash flows critical accounting policies estimates preparation consolidated financial statements requires application appropriate accounting policies use estimates significant accounting policies described note 1 business significant accounting policies notes consolidated financial statements included annual report form 10k management considers policies discussed critical understanding financial statements application requires complex subjective management judgments estimates specific risks critical accounting policies also described preparation consolidated financial statements requires us make estimates assumptions future events develop estimates using current historical experience well factors including general economic environment actions may take future adjust estimates facts circumstances dictate however estimates may involve significant uncertainties judgments cannot determined precision addition estimates based best judgment point time estimates may ultimately differ materially actual results ongoing changes estimates could material would reflected company’s consolidated financial statements future periods critical accounting policies pertaining years presented consolidated financial statements included annual report form 10k follows revenue recognition revenue recognized accordance requirements us gaap well sec staff accounting bulletin 104 revenue recognition revenue recognized required criteria revenue recognition met revenue significant source accounted follows • research revenues mainly derived subscription contracts research products related revenues deferred recognized ratably applicable contract term fees derived assisting organizations selecting right business software needs recognized leads provided vendors • consulting revenues principally generated fixed fee time material engagements revenues fixed fee contracts recognized proportional performance basis revenues time materials engagements recognized work delivered andor services provided revenues related contract optimization contracts contingent nature recognized upon satisfaction conditions related payment • events revenues deferred recognized upon completion related symposium conference exhibition • talent assessment revenues arising knowledge skill assessment services recognized depending nature underlying contract ratably term service period ii upon delivery iii proportional performance basis revenues training programs survey questionnaire products primarily recognized upon delivery service majority research contracts billable upon signing absent special terms granted limited basis time research contracts noncancelable nonrefundable except government contracts may cancellation fiscal funding clauses policy record amount contract billable fee receivable time contract signed corresponding amount deferred revenue contract represents legally enforceable claim company adopted financial accounting standards board fasb accounting standards update 201409 revenue contracts customers january 1 2018 see note 1 business significant accounting policies notes consolidated financial statements information regarding adoption accounting standard impact companys revenue recognition policies uncollectible fees receivable maintain allowance losses comprised bad debt allowance sales reserve provisions charged earnings either reduction revenues increase expense determination allowance losses based historical loss experience assessment current economic conditions aging outstanding receivables financial health specific clients probable losses evaluation inherently judgmental requires estimates valuation reserves periodically reevaluated adjusted information ultimate collectability fees receivable becomes available circumstances could cause valuation reserves increase include changes clients’ liquidity credit quality factors negatively impacting clients’ ability pay obligations come due effectiveness collection efforts following table presents total fees receivable related allowance losses thousands goodwill intangible assets acquire business determine fair value assets acquired liabilities assumed date acquisition may include significant amount intangible assets customer relationships software content intangible assets well resulting goodwill determining fair values acquired intangible assets consider among factors analyses historical financial performance estimate future performance acquired business fair values acquired intangible assets primarily calculated using income approach relies discounted cash flows method starts forecast expected future net cash flows associated asset adjusts forecast present value applying appropriate discount rate reflects risk factors associated cash flow streams consider approach appropriate valuation technique inherent value acquired intangible assets ability generate future income typical acquisition engage thirdparty valuation expert assist us fair value analyses acquired intangible assets determining fair values acquired intangible assets requires us exercise significant judgment select reasonable estimates assumptions based evaluating number factors including limited marketplace participants consumer awareness brand history additionally significant judgments inherent discounted cash flows estimating amount timing projected future cash flows selection appropriate discount rates hypothetical royalty rates contributory asset capital charges specifically discount rates used discounted cash flow analyses intended reflect risk inherent projected future cash flows generated underlying acquired intangible assets determining acquired intangible assets useful life requires significant judgment based evaluating number factors including limited expected use asset historical client retention rates consumer awareness trade name history well contractual provisions could limit extend assets useful life company evaluates recorded goodwill accordance fasb accounting standards codification asc topic 350 requires goodwill assessed impairment least annually whenever events changes circumstances indicate carrying value goodwill may recoverable addition impairment evaluation amortizable intangible assets may also performed events circumstances indicate potential impairment among factors could trigger impairment review current operating results relative annual plan historical performance changes strategic plan use assets restructuring charges changes business segments competitive pressures changes general economy markets operate significant decline stock price market capitalization relative net book value fasb asc topic 350 requires annual assessment recoverability recorded goodwill either quantitative qualitative nature combination two approaches methods utilize estimates turn require judgments assumptions regarding future trends events result precision reliability resulting estimates subject uncertainty goodwill impairment evaluation determines fair value reporting unit less related carrying amount may recognize impairment charge among factors consider qualitative assessment general economic conditions competitive environment actual projected reporting unit financial performance forwardlooking business measurements external market assessments quantitative analysis requires management consider factors relevant qualitative assessment well utilization detailed financial projections include rate revenue growth profitability cash flows well assumptions regarding discount rates companys weighted average cost capital data order determine fair value reporting units conducted qualitative assessment fair value companys reporting units quarter ended september 30 2017 results test determined fair values companys reporting units continue exceed respective carrying values result goodwill impairment indicated see note 1 business significant accounting policies notes consolidated financial statements additional information regarding goodwill amortizable intangible assets accounting income taxes company uses asset liability method accounting income taxes estimate income taxes jurisdictions operate process involves estimating current tax expense together assessing temporary differences resulting differing treatment items tax accounting purposes differences result deferred tax assets liabilities included consolidated balance sheets assessing realizability deferred tax assets consider likely deferred tax assets realized making assessment consider availability loss carryforwards projected reversals deferred tax liabilities projected future taxable income ongoing prudent feasible tax planning strategies company recognizes tax benefit uncertain tax position likely tax position sustained based technical merits position accounting stockbased compensation company accounts stockbased compensation awards accordance fasb asc topics 505 718 sec staff accounting bulletins 107 110 company recognizes stockbased compensation expense based fair value award date grant related service period see note 8 stockbased compensation notes consolidated financial statements additional information determining appropriate fair value model calculating fair value stockbased compensation awards requires use certain complex subjective assumptions including expected life stockbased compensation award company’s common stock price volatility addition determining appropriate periodic stockbased compensation expense requires management estimate likelihood achievement certain performance targets assumptions used calculating fair values stockbased compensation awards related periodic expense represent management’s best estimates involve inherent uncertainties application judgment result circumstances change company deems necessary future modify assumptions made use different assumptions quantity nature company’s stockbased compensation awards changes amount expense may need adjusted future stockbased compensation expense could materially different recorded current period restructuring accruals may record accruals severance costs associated excess facilities leased contract terminations asset impairments costs result ongoing actions undertake streamline organization reposition certain businesses reduce ongoing costs estimates costs incurred complete actions future lease payments sublease income fair value assets severance related benefits based assumptions time actions initiated accruals may need adjusted extent actual costs differ estimates addition actions may revised due changes business conditions foresee time plans approved also record accruals year various employee cash incentive programs amounts accrued end reporting period based estimates may require adjustment ultimate amount paid incentives sometimes known certainty end fiscal year results operations consolidated results 2017 versus 2016 table presents analysis selected line items yearoveryear changes consolidated statements operations two years ended december 31 2017 thousands operating results ceb included beginning april 5 2017 date acquisition total revenues year ended december 31 2017 increased 8670 million 33 billion increase 35 compared year ended december 31 2016 reported basis adjusted foreign exchange impact ceb contributed approximately 5229 million revenue increase table presents total revenues geographic region years indicated thousands table presents revenues segment years indicated thousands please refer section mda entitled “segment results” discussion revenues results segment cost services product development 13 billion 2017 increase 3746 million compared 2016 40 reported basis excluding impact foreign exchange approximately 2380 million increase attributable ceb 1366 million increase attributable heritage gartner primarily due higher payroll related benefits costs resulting increased headcount increased 20 cost services product development percentage revenues 40 39 2017 2016 respectively selling general administrative “sga” expense 16 billion 2017 increase 5098 million compared 2016 47 reported basis excluding impact foreign exchange approximately 2838 million increase attributable ceb heritage gartner sga costs 2017 increased 2260 million primarily due 1074 million higher payroll related benefits costs reflecting 17 overall headcount increase 338 million higher commissions due increased sales bookings 848 million higher corporate costs foreign exchange impact overall headcount growth includes 16 increase quotabearing sales associates increased 2807 december 31 2017 2423 december 31 2016 depreciation increased 267 million 2017 compared 2016 due property equipment leasehold improvements acquired ceb additional heritage gartner investment amortization intangibles increased 1515 million 2017 compared 2016 due additional amortization intangibles recorded connection recent acquisitions acquisition integration charges increased 1159 million 2017 compared 2016 increase reflects additional charges resulting recent acquisitions primarily consist higher professional fees severance stockbased compensation charges accruals exit costs certain office space company intend occupy arlington virginia operating loss income operating loss 63 million 2017 compared operating income 3051 million 2016 decline reflects several factors lower segment contribution margin research business resulting ceb deferred revenue fair value adjustment also higher sga acquisitionrelated costs including depreciation amortization intangibles acquisition integration charges interest expense net increased 998 million 2017 compared 2016 increase primarily due higher borrowings 2017 income net 34 million 2017 primarily reflecting net impact foreign currency gains losses hedging activities well sale certain state tax credits recognition tax incentives income net 84 million 2016 included gain 25 million extinguishment portion economic development loan state connecticut sale certain state tax credits recognition tax incentives net impact gains losses foreign currency hedging activities benefit provision income taxes 2017 benefit 1311 million pretax loss 1278 million compared expense 948 million pretax income 2884 million 2016 effective income tax rate 1026 2017 compared 329 2016 change effective income tax rate primarily attributable favorable impact us tax reform recognition 2017 unrealized capital losses planned divestiture talent assessment business increases tax benefits associated equity compensation net income 33 million 1936 million 2017 2016 respectively yearoveryear change primarily reflects declines operating profitability higher interest expense partially offset income tax benefits 2017 including impact tax cuts jobs act 2017 result substantially lower net income 7 increase number weighted average shares outstanding diluted earnings per share declined 004 2017 231 2016 versus 2015 table presents analysis selected line items yearoveryear changes consolidated statements operations two years ended december 31 2016 thousands total revenues year ended december 31 2016 increased 2815 million 24 billion increase 13 compared year ended december 31 2015 14 adjusted impact foreign currency exchange table presents total revenues geographic region years indicated thousands table presents revenues segment years indicated thousands please refer section mda entitled “segment results” discussion revenues results segment cost services product development “cos increased 1066 million 13 2016 compared 2015 9456 million compared 8391 million 2015 cos increased 14 2016 compared 2015 adjusted impact foreign exchange yearoveryear increase cos due 880 million higher payroll related benefits costs additional headcount merit salary increases 286 million higher charges 2016 events costs program related expenses partially offsetting increased expenses approximately 100 million foreign exchange impact overall cos headcount increased 13 primarily research segment cos percentage revenues 39 2016 2015 selling general administrative “sga” expense increased 1265 million 2016 13 10892 million compared 9627 million 2015 excluding impact foreign currency exchange sga expense increased 15 yearoveryear increase primarily due 1150 million higher payroll related benefits costs additional headcount higher sales commissions merit salary increases also 275 million additional legal recruiting training workplace costs partially offsetting additional charges approximately 160 million foreign exchange impact sga headcount increased 13 overall majority increase additional quotabearing sales associates related support staff quotabearing sales associates increased 12 yearoveryear 2423 december 31 2016 2171 december 31 2015 depreciation increased 10 2016 compared 2015 reflects additional investment fixed assets amortization intangibles increased 248 million 2016 133 million 2015 due additional intangibles resulting acquisitions acquisition integration charges 426 million 2016 compared 262 million 2015 charges directly related acquisitions primarily include amounts accrued payments contingent achievement certain employment conditions legal consulting severance costs operating income increased 6 2016 compared 2015 3051 million 2016 2880 million 2015 operating income percentage revenues 12 2016 13 2015 decline due number factors include lower gross contribution margins consulting events segments higher charges acquisitions interest expense net increased 21 yearoveryear due higher average borrowings 2016 income net 84 million 2016 included gain 25 million extinguishment portion economic development loan state connecticut sale certain state tax credits recognition tax incentives net impact gains losses foreign currency hedging activities income net 50 million 2015 consisted 68 million gain sale certain state tax credits partially offset net loss foreign currency hedging activities benefit provision income taxes 948 million 2016 compared 966 million 2015 effective tax rate 329 2016 compared 355 2015 decrease 2016 effective income tax rate primarily attributable early adoption fasb asu 201609 improvements employee sharebased payment accounting partially offset increases nondeductible expenses relating acquisitions net income 1936 million 2016 1756 million 2015 increase 10 diluted earnings per share increased 12 yearoveryear 231 2016 compared 206 2015 due higher net income lesser extent decrease number weighted average shares outstanding 2016 segment results evaluate reportable segment performance allocate resources based gross contribution margin gross contribution defined operating income loss excluding certain cost services product development charges sga expenses depreciation acquisition integration charges amortization intangibles gross contribution margin defined gross contribution percentage revenues april 5 2017 gartner completed acquisition ceb acquisition gartner began reporting four business segments reflecting company’s enlarged scale breadth advisory services companys reportable segments follows • research provides trusted objective insights advice missioncritical priorities leaders across functional areas enterprise research reports briefings proprietary tools access analysts peer networking services membership programs enable clients make better decisions gartners traditional strengths marketing supply chain research enhanced 2017 gartners acquisition ceb inc added cebs best practice talent management research insights across range business functions include human resources sales legal finance • consulting provides customized solutions unique client needs onsite daytoday support well proprietary tools measuring improving performance focus cost performance efficiency quality • events provides business professionals across organization opportunity learn share network flagship cio event gartner symposiumitxpo industryleading conferences focused specific business roles topics memberdriven sessions events enable attendees experience best gartner insight advice live • talent assessment helps organizations assess engage manage improve talent accomplished knowledge skills assessments training programs workshops survey questionnaire services sections present results four reportable business segments references heritage gartner operating results business measurements refer gartner excluding ceb references ceb operating results business measurements refer ceb subsequent acquisition research 1 dollars thousands 2 2017 company began reporting results strategic advisory services sas business research whereas previously sas business reported consulting although impact reclassification significant operating results sas business 2016 2015 reclassified consulting research comparable current year presentation 3 2016 ceb contract value calculated using gartners methodology well 2017 foreign exchange rates na applicable available 2017 versus 2016 research segment revenues increased 6143 million reported basis 2017 compared 2016 33 reported basis adjusted impact foreign currency exchange heritage gartner revenues increased 3047 million 2017 compared 2016 represents 16 increase reported basis approximately one point increase due l2 acquired first quarter 2017 adjusted foreign exchange impact heritage gartner revenues also increased 16 yearoveryear reported basis ceb contributed 3096 million 2017 increase research segment revenues gross contribution margin declined two points 2017 primarily due impact deferred revenue fair value accounting adjustment resulting ceb acquisition heritage gartner total contract value 22 billion december 31 2017 increase 15 reported 16 foreign exchange neutral basis compared december 31 2016 heritage gartner client retention 84 december 31 2017 2016 wallet retention 106 104 december 31 2017 2016 respectively heritage gartner total contract value december 31 2017 increased doubledigits across company’s sales regions client sizes virtually every industry segment compared december 31 2016 increased number research client enterprises 7 2017 december 31 2017 ceb contract value 5570 million wallet retention 96 2016 versus 2015 research segment revenues increased 15 2016 compared 2015 excluding impact foreign currency exchange research revenues increased approximately 17 2016 segment gross contribution margin 69 annual periods contribution margin remained 69 2016 despite 14 increase segment headcount mostly driven new hires lesser extent additional employees resulting acquisitions headcount increase reflects continued investment business total contract value increased 9 reported basis 2016 19 billion increased 14 yearoveryear adjusted impact foreign currency exchange growth contract value broadbased every region client size virtually every industry sector growing doubledigit percentage rates increased number research client enterprises 3 2016 11122 client retention wallet retention remained strong 84 104 respectively december 31 2016 consulting 1 dollars thousands 2 2017 company began reporting results sas business research whereas previously sas business reported consulting although impact reclassification significant operating results sas business 2016 2015 reclassified consulting research comparable current year presentation 3 heritage gartner backlog 886 million 1008 million december 31 2016 2015 respectively restated reflect reclassification sas business 2017 versus 2016 consulting revenues increased 3 2017 compared 2016 reported basis adjusted impact foreign currency exchange revenue improvements core consulting contract optimization gross contribution margin 29 28 2017 2016 respectively margin improvement 2017 primarily due additional contract optimization revenue higher contribution margin laborbased core consulting partially offset lower consultant utilization investment additional managing partners backlog increased 66 million 7 yearoveryear 952 million backlog december 31 2017 represented approximately four months backlog line companys operational target 2016 versus 2015 consulting revenue increased 8 yearoveryear 3189 million increase mostly core consulting practice additionally revenue contract optimization practice increased slightly 2016 compared 2015 impact foreign currency exchange significant yearoveryear gross contribution margin declined one point due several factors including higher payroll costs resulting higher headcount severance backlog decreased 122 million yearoveryear 12 mostly due large individual contract booked 2015 excluding contract backlog decreased approximately 3 yearoveryear 886 million backlog december 31 2016 represented approximately four months forward backlog line companys operational target events 1 dollars thousands 2 single day local events excluded na applicable available 2017 versus 2016 events revenues increased 693 million 26 2017 compared 2016 reported basis 25 adjusted impact foreign currency exchange heritage gartner revenues increased 307 million 2017 compared 2016 11 increase reported basis 10 adjusted foreign exchange impact attendee exhibitor increased attendee revenue growing doubledigits held 65 events 2017 heritage gartner business 17 increase number attendees 3 increase exhibitors compared 2016 average revenue per exhibitor 5 average revenue per attendee flat ceb contributed 386 million revenue increase four events held 3578 attendees segment gross contribution margin declined 3 points 2017 compared 2016 primarily driven additional investment headcount higher program expenses heritage gartner lesser extent dilutive effect ceb events 2016 versus 2015 events revenues increased 168 million 7 comparing 2016 2015 excluding impact foreign currency exchange revenues increased 6 yearoveryear held 66 events 2016 consisting 59 ongoing events 7 new events compared 65 events 2015 yearoveryear revenue increase primarily attributable higher exhibitor revenue ongoing events increased 9 attendee revenue increased 2 number attendees 2016 increased 4 54602 average revenue per attendee declined slightly average revenue per exhibitor increased 9 gross contribution margin decreased one point yearoveryear talent assessment 1 dollars thousands see note 2 acquisitions divestiture note 16 subsequent events notes consolidated financial statements information concerning pending disposal significant component reportable segment liquidity capital resources finance operations cash generated operating activities borrowings note 5 debt notes consolidated financial statements provides additional information regarding companys 2016 credit agreement outstanding debt obligations december 31 2017 5389 million cash equivalents 5580 million available borrowing capacity revolving credit facility portion 2016 credit agreement believe company adequate liquidity meet currently anticipated needs include payment transition tax liability related tax cuts jobs act 2017 note 10 income taxes notes consolidated financial statements provides information related tax cuts jobs act 2017 historically generated significant cash flows operating activities operating cash flow continuously maintained enhanced leverage characteristics subscriptionbased business model research segment largest business segment revenues research segment increased 33 2017 compared 2016 constituted 75 total revenues 2017 2016 majority research customer contracts paid advance combined strong customer retention rate high incremental margins resulted continuously strong operating cash flow cash flow generation also benefited continuing efforts improve operating efficiencies businesses well focus optimal management working capital increase sales volume december 31 2017 approximately 1940 million accumulated undistributed earnings nonus subsidiaries cash equivalents held numerous locations throughout world december 31 2017 97 cash equivalents held overseas substantial portion representing accumulated undistributed earnings nonus subsidiaries company intends continue reinvest substantially accumulated undistributed foreign earnings except instances repatriation would result minimal additional tax result recently enacted us tax cuts jobs act 2017 envision income tax would payable earnings repatriated would minimal following table summarizes explains significant changes cash equivalents threeyears ended december 31 2017 thousands 1 december 31 2017 company 5389 million cash equivalents additional 100 million cash classified heldforsale consolidated balance sheet ending cash equivalents balance 5489 million 2017 versus 2016 operating cash provided operating activities 2545 million 2017 compared 3656 million 2016 decline due decline net income 33 million 2017 period compared 1936 million 2016 period ii unfavorable changes working capital 2017 compared 2016 iii substantially higher cash payments bonuses commissions interest borrowings acquisition integration costs 2017 period compared 2016 investing cash used investing activities 27 billion 2017 compared 840 million cash used 2016 cash used 2017 substantially higher primarily due acquisitions ceb l2 april 2017 march 2017 respectively note 2 acquisitions divestiture notes consolidated financial statements provides additional information regarding companys acquisitions also made additional investment capital expenditures 2017 1108 million invested 2017 compared 499 million 2016 financing cash provided financing activities 25 billion 2017 compared cash used 1747 million 2016 2017 period company borrowed total approximately 30 billion paid 4044 million principal repayments including 3000 million senior unsecured 364day bridge credit facility ii 512 million deferred financing fees borrowings iii 413 million share repurchases 2016 period company used 590 million cash share repurchases 1250 million debt 2016 versus 2015 operating cash flow increased 201 million 6 2016 compared 2015 2016 increase primarily due higher net income adoption asu 201609 partially offsetting increases higher cash payments acquisition integration costs bonus commissions interest borrowings investing used 840 million cash investing activities 2016 compared 2424 million cash used 2015 cash used 2015 substantially higher due additional expenditures acquisitions financing cash used 1747 million 2016 consisted 590 million paid share repurchases 1250 million payments fees debt partially offset 93 million cash realized employee sharerelated activities 2015 period company used 677 million cash financing activities 5090 million cash used share repurchases net borrowings debt employee sharerelated activities provided cash 4413 million obligations commitments debt december 31 2017 company 33 billion principal amount debt outstanding note 5 debt notes consolidated financial statements provides additional information regarding companys debt obligations offbalance sheet arrangements december 31 2017 entered material offbalance sheet arrangements transactions unconsolidated entities persons contractual cash commitments company certain commitments contractually require future cash payments table summarizes companys contractual cash commitments december 31 2017 thousands 1 principal repayments companys debt obligations classified table based contractual repayment dates however due less 1 year category includes 2550 million revolver principal payment company made january 2018 contractually due 2022 due 45 years interest payments due based effective interest rates december 31 2017 note 5 debt notes consolidated financial statements provides information regarding companys debt obligations 2 company leases various facilities furniture computer equipment automobiles equipment noncancelable operating lease agreements expiring 2018 2032 see note 1 business significant accounting policies notes consolidated financial statements additional information companys leases total commitment excludes approximately 2840 million estimated income subleasing certain facilities 3 company supplemental deferred compensation arrangements certain employees amounts payable known payment dates classified table based scheduled payment dates amounts payable whose payment dates unknown included due 5 years category since company cannot determine amounts paid see note 13 employee benefits notes consolidated financial statements additional information regarding arrangement 4 amount due represents companys provisional estimate onetime transition tax liability tax cut jobs act 2017 company currently expects pay transition tax approximately eight years 5 category includes contractual commitments software building maintenance telecom services ii projected cash contributions companys defined benefit pension plans see note 13 employee benefits notes consolidated financial statements additional information regarding companys defined benefit pension plans addition contractual cash commitments included table company payables liabilities may legally enforceable considered contractual commitments information regarding companys payables liabilities included note 4 accounts payable accrued liabilities notes consolidated financial statements quarterly financial data following tables present quarterly operating results twoyear period ended december 31 1 december 2017 company recorded 596 million onetime tax benefit related tax cuts jobs act 2017 tax benefit increased net income basic diluted income per share fourth quarter 2017 approximately 066 per share 065 per share respectively see note 10 income taxes notes consolidated financial statements additional information regarding impact tax cuts jobs act 2017 2 aggregate four quarters’ basic diluted earnings per common share may equal reported full calendar year amounts due effects share repurchases dilutive equity compensation rounding recently issued accounting standards fasb issued accounting standards yet become effective may impact company’s consolidated financial statements related disclosures future periods note 1 business significant accounting policies notes consolidated financial statements herein provides information regarding accounting standards item 7aitem 7 management’s discussion analysis financial condition results operations purpose following management’s discussion analysis “mda” facilitate understanding significant factors influencing operating results financial condition cash flows gartner inc additionally mda conveys expectations potential impact known trends events uncertainties may impact future results read discussion conjunction consolidated financial statements related notes included annual report form 10k historical results percentage relationships necessarily indicative operating results future periods references gartner company” “we” “our” “us” mda gartner inc consolidated subsidiaries business divestitures 2018 company divested three noncore businesses comprised segment acquired part acquisition ceb inc april 2017 result divestitures movement small residual product segment research business company longer recording additional operating activity segment effective september 1 2018 additional information regarding divestitures included note 2 acquisitions divestitures notes consolidated financial statements included annual report form 10k forwardlooking statements addition historical information annual report form 10k contains certain forwardlooking statements within meaning section 27a securities act 1933 amended section 21e securities exchange act 1934 amended forwardlooking statements historical fact including statements regarding expectations beliefs hopes intentions projections strategies regarding future cases forwardlooking statements identified use words “may” “will” “expect” “should” “could” “believe” “plan” “anticipate” “estimate” “predict” “potential” “continue” words similar meaning operate competitive rapidly changing environment involves numerous risks uncertainties beyond control additionally quarterly annual revenues operating income cash flows fluctuate result many factors including timing symposiumitxpo series normally occurs fourth quarter well conferences meetings amount new business generated including acquisitions mix domestic international business domestic international economic conditions changes market demand products services changes foreign currency rates timing development introduction marketing new products services competition industry payment performance compensation factors potential fluctuations operating income could cause periodtoperiod comparisons operating results meaningful could provide unreliable indication future operating results description risk factors associated business included “risk factors” item 1a annual report form 10k incorporated herein reference forwardlooking statements subject risks estimates uncertainties could cause actual results differ materially discussed implied forwardlooking statements factors might cause difference include limited discussed “risk factors” item 1a annual report form 10k readers place undue reliance forwardlooking statements reflect management’s opinion date made except required law disclaim obligation review update forwardlooking statements reflect events circumstances occur business overview gartner inc nyse world’s leading research advisory company member sp 500 equip business leaders indispensable insights advice tools achieve goals build successful organizations tomorrow believe unmatched combination expertled practitionersourced datadriven research steers clients toward right decisions issues matter we’re trusted advisor objective resource 15000 organizations 100 countries across major functions every industry enterprise size gartner headquartered stamford connecticut december 31 2018 15000 associates gartner currently delivers products services globally three business segments • research provides trusted objective insights advice missioncritical priorities leaders across functional areas enterprise research reports briefings proprietary tools access analysts advisors peer networking services membership programs enable clients make better decisions gartners traditional strengths marketing supply chain research enhanced 2017 gartners acquisition ceb inc added cebs best practice talent management research insights across range business functions include human resources finance sales legal • conferences formerly called events provides business professionals across organization opportunity learn share network flagship cio conference gartner symposium industryleading conferences focused specific business roles topics memberdriven sessions offerings enable attendees experience best gartner insight advice live • consulting provides customized solutions unique client needs onsite daytoday support well proprietary tools measuring improving performance focus cost performance efficiency quality business measurements believe following business measurements important performance indicators business segments business segment business measurements research total contract value represents value attributable subscriptionrelated contracts calculated annualized value contracts effect specific point time without regard duration contract total contract value primarily includes research deliverables revenue recognized ratable basis well deliverables primarily conferences tickets revenue recognized deliverable utilized total contract value consists global technology sales contract value includes sales users providers technology global business sales contract value includes sales functional leaders client retention rate represents measure client satisfaction renewed business relationships specific point time client retention calculated percentage basis dividing current clients also clients year ago clients year ago client retention calculated enterprise level represents single company customer wallet retention rate represents measure amount contract value retained clients twelvemonth period wallet retention calculated percentage basis dividing contract value clients one year ago total contract value year ago excluding impact foreign currency exchange wallet retention exceeds client retention indication retention higherspending clients increased spending retained clients wallet retention calculated enterprise level represents single company customer conferences number destination conferences represents total number hosted destination conferences completed period single day local meetings excluded number destination conferences attendees represents total number people attend destination conferences single day local meetings excluded consulting backlog represents future revenue derived inprocess consulting measurement engagements utilization rate represents measure productivity consultants utilization rates calculated billable headcount percentage basis dividing total hours billed total hours available bill billing rate represents earned billable revenue divided total billable hours average annualized revenue per billable headcount represents measure revenue generating ability average billable consultant calculated periodically multiplying average billing rate per hour times utilization percentage times billable hours available one year executive summary operations financial position executed consistent growth strategy since 2005 drive revenue earnings growth fundamentals strategy include focus creating extraordinary research insight delivering innovative highly differentiated product offerings building strong sales capability providing world class client service focus client engagement retention continuously improving operational effectiveness continue focus maximizing shareholder value 2018 repurchased 21 million shares outstanding common stock reduced companys outstanding debt 10 billion divested three noncore businesses comprised companys segment acquired part acquisition ceb inc ceb 2017 total revenues 40 billion 2018 increase 20 compared 2017 reported basis 19 excluding foreign currency impact net income increased 1225 million 2018 33 million 2017 result diluted earnings per share 133 2018 compared 004 2017 research revenues increased 31 billion 2018 26 compared 2017 reported basis 25 excluding foreign currency impact research gross contribution margin improved two points 2018 69 total contract value 32 billion december 31 2018 increase 11 compared december 31 2017 foreign currency neutral basis conferences revenues increased 4105 million 2018 21 compared 2017 reported basis 22 excluding foreign currency impact conferences gross contribution margin 50 48 2018 2017 respectively held 70 69 destination conferences 2018 2017 respectively consulting revenues increased 3537 million 2018 8 compared 2017 reported basis 7 excluding foreign currency impact consulting gross contribution margin 29 2018 2017 backlog 1107 million december 31 2018 cash provided operating activities 4712 million 2545 million 2018 2017 respectively december 31 2018 1564 million cash equivalents 10 billion available borrowing capacity revolving credit facility critical accounting policies estimates preparation consolidated financial statements requires application appropriate accounting policies use estimates significant accounting policies described note 1 business significant accounting policies notes consolidated financial statements included annual report form 10k management considers policies discussed critical understanding financial statements application requires complex subjective management judgments estimates specific risks critical accounting policies also described preparation consolidated financial statements requires us make estimates assumptions future events develop estimates using current historical experience well factors including general economic environment actions may take future adjust estimates facts circumstances dictate however estimates may involve significant uncertainties judgments cannot determined precision addition estimates based best judgment point time may ultimately differ materially actual results ongoing changes estimates could material would reflected company’s consolidated financial statements future periods critical accounting policies pertaining years presented consolidated financial statements included annual report form 10k described revenue recognition january 1 2018 company adopted financial accounting standards board fasb accounting standards update 201409 revenue contracts customers asu 201409 asu 201409 related amendments required changes revenue recognition policies well enhanced disclosures among things asu 201409 requires fivestep evaluative process consists 1 identifying contract customer 2 identifying performance obligations contract 3 determining transaction price contract 4 allocating transaction price performance obligations contract 5 recognizing revenue performance obligations satisfied company adopted asu 201409 january 1 2018 using modified retrospective method adoption method adoption cumulative effect applying new standard recorded date initial application restatement comparative prior periods presented adoption asu 201409 material impact company’s consolidated financial statements however adoption new standard required reclassifications certain amounts presented company’s consolidated balance sheet prior january 1 2018 company recognized revenue accordance thenexisting generally accepted accounting principles united states america sec staff accounting bulletin 104 revenue recognition “prior gaap” asu 201409 prior gaap revenue recognized required criteria met note 1 business significant accounting policies notes consolidated financial statements provides additional information regarding adoption asu 201409 impact companys consolidated financial statements related disclosures revenue significant source accounted follows • research revenues mainly derived subscription contracts research products related revenues deferred recognized ratably applicable contract term fees derived assisting organizations selecting right business software needs recognized leads provided vendors • conferences revenues deferred recognized upon completion related conference meeting • consulting revenues principally generated fixed fee time material engagements revenues fixed fee contracts recognized work satisfy performance obligations revenues time materials engagements recognized work delivered andor services provided revenues related contract optimization contracts contingent nature recognized upon satisfaction conditions related payment majority research contracts billable upon signing absent special terms granted limited basis time research contracts generally noncancelable nonrefundable except government contracts may cancellation fiscal funding clauses policy record amount subscription contract billable fee receivable time contract signed corresponding amount deferred revenue contract represents legally enforceable claim uncollectible fees receivable december 31 2017 company maintained allowance losses comprised bad debt allowance revenue reserve connection adoption asu 201409 january 1 2018 management concluded revenue reserve refund liability rather contrareceivable due nature account activity result company reclassified revenue reserve 62 million january 1 2018 allowance losses accounts payable accrued liabilities consistently present revenue reserve manner future consolidated balance sheets note 1 business significant accounting policies notes consolidated financial statements provides additional information regarding adoption asu 201409 impact companys allowance losses increases decreases allowance losses charged earnings either expense ie bad debt allowance revenues ie revenue reserve determination bad debt allowance based historical loss experience assessment current economic conditions aging outstanding receivables financial health specific clients probable losses evaluation inherently judgmental requires estimates companys bad debt allowance periodically reevaluated adjusted information ultimate collectability fees receivable becomes available circumstances could cause bad debt allowance increase include changes clients’ liquidity credit quality factors negatively impacting clients’ ability pay obligations come due effectiveness collection efforts following table presents total fees receivable related allowance losses thousands 1 total fees receivable december 31 2017 included 267 million contract assets result companys adoption asu 201409 january 1 2018 contract assets included prepaid expenses current assets companys consolidated balance sheet december 31 2018 2 allowance losses december 31 2017 included 62 million attributable companys revenue reserve result companys adoption asu 201409 january 1 2018 revenue reserve balance included accounts payable accrued liabilities companys consolidated balance sheet december 31 2018 goodwill intangible assets acquire business determine fair value assets acquired liabilities assumed date acquisition may include significant amount intangible assets customer relationships software content well resulting goodwill determining fair values acquired intangible assets consider among factors analyses historical financial performance estimate future performance acquired business fair values acquired intangible assets primarily calculated using income approach relies discounted cash flows method starts forecast expected future net cash flows asset adjusts forecast present value applying appropriate discount rate reflects risk factors associated cash flow streams consider approach appropriate valuation technique inherent value acquired intangible asset ability generate future income typical acquisition engage thirdparty valuation expert assist us fair value analyses acquired intangible assets determining fair values acquired intangible assets requires us exercise significant judgment select reasonable estimates assumptions based evaluating number factors including limited marketplace participants consumer awareness brand history additionally significant judgments inherent discounted cash flows estimating amount timing projected future cash flows selection appropriate discount rates hypothetical royalty rates contributory asset capital charges specifically selected discount rates intended reflect risk inherent projected future cash flows generated underlying acquired intangible assets determining acquired intangible assets useful life also requires significant judgment based evaluating number factors including limited expected use asset historical client retention rates consumer awareness trade name history well contractual provisions could limit extend assets useful life company evaluates recorded goodwill accordance fasb accounting standards codification asc topic 350 requires goodwill assessed impairment least annually whenever events changes circumstances indicate carrying value goodwill may recoverable addition impairment evaluation amortizable intangible assets may also performed events circumstances indicate potential impairment among factors could trigger impairment review current operating results align annual plan historical performance changes strategic plan use assets restructuring charges changes business segments competitive pressures changes general economy markets operate significant decline stock price market capitalization relative net book value fasb asc topic 350 requires annual assessment recoverability recorded goodwill either quantitative qualitative nature combination two approaches methods utilize estimates turn require judgments assumptions regarding future trends events result precision reliability resulting estimates subject uncertainty goodwill impairment evaluation determines fair value reporting unit less related carrying amount may recognize impairment charge among factors consider qualitative assessment general economic conditions competitive environment actual projected reporting unit financial performance forwardlooking business measurements external market assessments quantitative analysis requires management consider factors relevant qualitative assessment well utilization detailed financial projections include rate revenue growth profitability cash flows well assumptions regarding discount rates companys weighted average cost capital data order determine fair value reporting units conducted quantitative assessment fair value companys reporting units quarter ended september 30 2018 assessment determined fair values companys reporting units continue exceed respective carrying values result goodwill impairment indicated note 1 business significant accounting policies notes consolidated financial statements provides additional information regarding goodwill amortizable intangible assets accounting income taxes company uses asset liability method accounting income taxes estimate income taxes jurisdictions operate process involves estimating current tax expense benefit together assessing temporary differences resulting differing treatment items tax accounting purposes differences result deferred tax assets liabilities included consolidated balance sheets assessing realizability deferred tax assets consider likely deferred tax assets realized making assessment consider availability loss carryforwards projected reversals deferred tax liabilities projected future taxable income ongoing prudent feasible tax planning strategies company recognizes tax benefit uncertain tax position likely tax position sustained based technical merits position accounting stockbased compensation company accounts stockbased compensation awards accordance fasb asc topics 505 718 sec staff accounting bulletins 107 110 company recognizes stockbased compensation expense based fair value award date grant related service period note 8 stockbased compensation notes consolidated financial statements provides additional information regarding stockbased compensation determining appropriate fair value model calculating fair value stockbased compensation awards requires use certain subjective assumptions including expected life stockbased compensation award company’s common stock price volatility addition determining appropriate periodic stockbased compensation expense requires management estimate likelihood achievement certain performance targets assumptions used calculating fair values stockbased compensation awards related periodic expense represent management’s best estimates involve inherent uncertainties application judgment result circumstances change company deems necessary future modify assumptions made use different assumptions quantity nature company’s stockbased compensation awards changes amount expense may need adjusted future stockbased compensation expense could materially different recorded current period restructuring accruals may record accruals severance costs associated excess facilities leased contract terminations asset impairments costs result ongoing actions undertake streamline organization reposition certain businesses reduce costs estimates costs incurred complete actions future lease payments sublease income fair value assets severance related benefits based assumptions time actions initiated accruals may need adjusted extent actual costs differ estimates addition actions may revised due changes business conditions foresee time plans approved also record accruals year various employee cash incentive programs amounts accrued end reporting period based estimates may require adjustment ultimate amount paid incentives sometimes known certainty end fiscal year accounting leases company adopted fasb accounting standards update 201602 leases amended asu 201602 january 1 2019 prior thereto company recognized lease expense accordance fasb asc topic 840 leases note 1 business significant accounting policies notes consolidated financial statements provides additional information regarding leases adoption new leasing standard results operations consolidated results 2018 versus 2017 table presents analysis selected line items yearoveryear changes consolidated statements operations years indicated thousands operating results ceb included beginning april 5 2017 date acquisition total revenues year ended december 31 2018 increased 6640 million 40 billion increase 20 compared year ended december 31 2017 reported basis 19 excluding foreign currency impact portion total revenue increase 2018 compared 2017 due ceb acquisition table presents total revenues geographic region years indicated thousands table presents revenues segment years indicated thousands 1 2018 company divested three noncore businesses comprised segment refer section mda entitled “segment results” discussion revenues results segment cost services product development 15 billion 2018 increase 1486 million compared 2017 11 reported basis excluding foreign currency impact increase primarily due higher payroll related benefits costs resulting increased headcount well incremental payroll related benefits costs resulting ceb acquisition cost services product development percent revenues 37 40 2018 2017 respectively improvement 2018 primarily due negative impact revenue deferred revenue fair value accounting adjustment substantially less 2018 compared 2017 selling general administrative “sga” expense 19 billion 2018 increase 2851 million compared 2017 18 reported basis 17 excluding foreign currency impact increase primarily due higher commissions increased sales bookings ii incremental costs ceb acquisition iii higher facilities corporate costs iv payroll related benefits costs driven mostly increased headcount items partially offset reduction sga expense resulting certain businesses divested 2018 overall headcount growth includes increases quota bearing sales associates global technology sales global business sales 3104 790 respectively december 31 2018 combined basis total number quotabearing sales associates increased 16 compared december 31 2017 sga expense percent revenues 47 48 2018 2017 respectively depreciation increased 47 million 2018 compared 2017 increase due property equipment leasehold improvements acquired ceb additional gartner investments amortization intangibles increased 107 million 2018 compared 2017 increase due additional amortization recorded connection 2017 acquisitions acquisition integration charges declined 2018 compared 2017 company two acquisitions 2017 none 2018 acquisition integration charges consist additional costs expenses resulting acquisitions include among items professional fees severance stockbased compensation charges accruals exit costs certain office space arlington virginia related acquisition ceb company intend occupy 2018 exit costs represented single largest component acquisition integration charges operating income loss operating income 2597 million 2018 compared operating loss 63 million 2017 improvement profitability 2018 reflects several factors including higher research conferences segment contributions ii reduced acquisition integration charges items partially offset higher cost services product development sga expense amortization intangibles interest expense net declined slightly 2018 compared 2017 weightedaverage debt outstanding 2018 approximately 25 billion compared 28 billion 2017 offsetting favorable impact lower weightedaverage debt outstanding 2018 higher weightedaverage annual effective interest rate 2018 compared 2017 gain divested operations 454 million 2018 attributable sales certain business units miscellaneous assets additional information included note 2 acquisitions divestitures notes consolidated financial statements additional information regarding segments included note 14 segment information income net 2018 2017 primarily reflects net impact foreign currency gains losses hedging activities well sales certain state tax credits recognition tax incentives provision benefit income taxes 2018 expense 587 million pretax income 1811 million compared benefit 1311 million pretax loss 1278 million 2017 effective income tax rate 324 2018 compared 1026 2017 periods included favorable adjustments impact us tax cuts jobs act 2017 adjustment 2017 significant 2018 larger favorable impact 2017 effective tax rate 2017 tax rate also favorably impacted recognition unrealized capital losses divested business see note 10 income taxes notes consolidated financial statements included annual report form 10k information related company’s effective tax rates net income 1225 million 33 million 2018 2017 respectively additionally diluted income per share increased 129 2018 compared 2017 changes reflect improvement 2018 operating profitability gain divested operations partially offset increase income tax expense 2017 income taxes included favorable impacts us tax cuts jobs act 2017 versus 2016 table presents analysis selected line items yearoveryear changes consolidated statements operations years indicated thousands operating results ceb included beginning april 5 2017 date acquisition total revenues year ended december 31 2017 increased 8670 million 33 billion increase 35 compared year ended december 31 2016 reported basis excluding foreign currency impact ceb contributed approximately 5229 million revenue increase table presents total revenues geographic region years indicated thousands table presents revenues segment years indicated thousands refer section mda entitled “segment results” discussion revenues results segment cost services product development 13 billion 2017 increase 3746 million compared 2016 40 reported basis excluding foreign currency impact approximately 2380 million increase attributable ceb additional increase 1366 million cost services product development primarily due higher payroll related benefits costs resulting increased headcount increased 20 exclusive incremental ceb personnel cost services product development percentage revenues 40 39 2017 2016 respectively selling general administrative “sga” expense 16 billion 2017 increase 5098 million compared 2016 47 reported basis excluding foreign currency impact approximately 2838 million increase attributable ceb addition incremental cebrelated costs sga costs increased 2260 million 2017 primarily due 1074 million higher payroll related benefits costs reflecting 17 overall headcount increase 338 million higher commissions due increased sales bookings 848 million higher corporate costs foreign exchange impact overall headcount growth includes 15 increase nonceb quotabearing sales associates sga expense percent revenues 48 45 2017 2016 respectively depreciation increased 267 million 2017 compared 2016 due property equipment leasehold improvements acquired ceb additional gartner investments amortization intangibles increased 1515 million 2017 compared 2016 due additional amortization intangibles recorded connection 2017 acquisitions acquisition integration charges increased 1159 million 2017 compared 2016 acquisition integration charges reflect additional costs expenses resulting acquisitions include among items professional fees severance stockbased compensation charges accruals exit costs 2017 certain office space arlington virginia related acquisition ceb company intend occupy acquisition integration charges increased 2017 companys acquisitions year operating loss income operating loss 63 million 2017 compared operating income 3051 million 2016 decline reflects several factors lower segment contribution margin research business resulting ceb deferred revenue fair value adjustment also higher sga acquisitionrelated costs including depreciation amortization intangibles acquisition integration charges interest expense net increased 998 million 2017 compared 2016 increase primarily due higher borrowings 2017 income net 34 million 2017 primarily reflecting net impact foreign currency gains losses hedging activities well sale certain state tax credits recognition tax incentives income net 84 million 2016 included gain 25 million extinguishment portion economic development loan state connecticut sale certain state tax credits recognition tax incentives net impact gains losses foreign currency hedging activities benefit provision income taxes 2017 benefit 1311 million pretax loss 1278 million compared expense 948 million pretax income 2884 million 2016 effective income tax rate 1026 2017 compared 329 2016 change effective income tax rate primarily attributable favorable impact us tax reform recognition 2017 unrealized capital losses thenpending divestiture ceb talent assessment business increases tax benefits associated equity compensation net income 33 million 1936 million 2017 2016 respectively yearoveryear change primarily reflects declines operating profitability higher interest expense partially offset income tax benefits 2017 including impact tax cuts jobs act 2017 result substantially lower net income 7 increase number weighted average shares outstanding diluted earnings per share declined 004 2017 231 2016 segment results evaluate reportable segment performance allocate resources based gross contribution margin gross contribution defined operating income loss excluding certain cost services product development charges sga expenses depreciation acquisition integration charges amortization intangibles gross contribution margin defined gross contribution percent revenues business divestitures 2018 company divested three noncore businesses comprised segment acquired part acquisition ceb inc april 2017 result divestitures movement small residual product segment research business company longer recording additional operating activity segment effective september 1 2018 additional information regarding divestitures included note 2 acquisitions divestitures notes consolidated financial statements included annual report form 10k companys current reportable segments follows • research provides trusted objective insights advice missioncritical priorities leaders across functional areas enterprise research reports briefings proprietary tools access analysts advisors peer networking services membership programs enable clients make better decisions gartners traditional strengths marketing supply chain research enhanced 2017 gartners acquisition ceb inc added cebs best practice talent management research insights across range business functions include human resources finance sales legal • conferences formerly called events provides business professionals across organization opportunity learn share network flagship cio conference gartner symposium industryleading conferences focused specific business roles topics memberdriven sessions offerings enable attendees experience best gartner insight advice live • consulting provides customized solutions unique client needs onsite daytoday support well proprietary tools measuring improving performance focus cost performance efficiency quality sections present results companys three currently reportable business segments segment research 1 dollars thousands 2 global technology sales gts includes sales users providers technology global business sales gbs includes sales functional leaders 3 contract values foreign exchange neutral basis exclude certain amounts related divested businesses additional information regarding divestitures included note 2 acquisitions divestitures notes consolidated financial statements included annual report form 10k contract values december 31 2016 include preacquisition ceb amounts calculated using gartners methodology well 2018 foreign exchange rates 2018 versus 2017 research revenues increased 6345 million 2018 compared 2017 26 reported basis 25 excluding foreign currency impact higher revenues 2018 primarily driven doubledigit increase subscription revenues 2018 portion due impact ceb acquisition 2018 included full year revenue compared nine months 2017 ii negative impact revenue 2017 deferred revenue fair value accounting adjustment resulting ceb acquisition significantly lesser impact 2018 gross contribution margin improved two points 2018 primarily due negative impact margin 2017 deferred revenue fair value accounting adjustment significantly lesser impact 2018 ii improvement margins premium services 2018 total contract value increased 32 billion december 31 2018 11 total contract value december 31 2018 increased doubledigits across almost company’s client sizes well threequarters industry segments compared december 31 2017 gts gbs contract values increased 14 1 respectively december 31 2018 compared december 31 2017 14 increase gts contract value 2018 reflects additional sales headcount productivity improvements slower 1 growth gbs contract value 2018 reflects companys strategic decision discontinue new sales largest legacy enterprise products favor new seatbased gxl products ie products business leaders across enterprise gts client retention 83 december 31 2018 2017 wallet retention 105 dates gbs client retention 82 81 december 31 2018 2017 respectively wallet retention 95 100 respectively number gts client enterprises increased 6 december 31 2018 compared december 31 2017 corresponding number gbs client enterprises decreased 4 yearoveryear 2017 versus 2016 research revenues increased 6143 million 2017 compared 2016 33 reported basis excluding foreign currency impact reported basis ceb contributed 3096 million 2017 increase additional increase 3047 million research revenues represented 16 increase nonceb research revenues reported basis excluding foreign currency impact approximately one point increase due l2 inc acquired first quarter 2017 gross contribution margin declined two points 2017 primarily due impact deferred revenue fair value accounting adjustment resulting ceb acquisition excluding foreign currency impact gts gbs contract values increased 13 6 respectively december 31 2017 compared december 31 2016 total contract value increased 28 billion december 31 2017 12 total contract value december 31 2017 increased doubledigits across company’s sales regions client sizes virtually every industry segment compared december 31 2016 gts client retention 83 82 december 31 2017 2016 respectively wallet retention 105 103 respectively gbs client retention 81 76 december 31 2017 2016 respectively wallet retention 100 95 respectively number gts client enterprises increased 7 december 31 2017 compared december 31 2016 corresponding number gbs client enterprises flat yearoveryear conferences segment previously called events 1 dollars thousands 2 single day local meetings excluded 2018 versus 2017 conferences revenues increased 726 million 2018 compared 2017 21 reported basis 22 excluding foreign currency impact portion revenue increase 2018 due ceb acquisition 2018 included full year revenue compared nine months 2017 revenues attendees exhibitors destination conferences well revenues single day local meetings increased doubledigits 2018 held 70 destination conferences 2018 16 increase number attendees 8 increase exhibitors compared 2017 average revenue per attendee exhibitor increased 5 7 respectively gross contribution margin improved two points 2018 compared 2017 due greater profitability ongoing conferences primarily driven increased attendee exhibitor participation improvements average revenue per attendee exhibitor well continuing efforts efficiently manage conferencerelated expenses 2017 versus 2016 conferences revenues increased 693 million 2017 compared 2016 26 reported basis 25 excluding foreign currency impact reported basis ceb contributed 386 million 2017 increase including four destination conferences 3578 attendees additional increase 307 million segment revenues represented 11 increase nonceb conferences revenues reported basis 10 excluding foreign currency impact revenues attendees exhibitors increasing doubledigits overall held 69 destination conferences 2017 23 increase number attendees 6 increase exhibitors compared 2016 average revenue per exhibitor increased 3 average revenue per attendee declined 4 gross contribution margin declined three points 2017 compared 2016 primarily due additional investment headcount higher program expenses lesser extent dilutive effect ceb destination conferences consulting 1 dollars thousands 2018 versus 2017 consulting revenues increased 8 2018 compared 2017 reported basis 7 excluding foreign currency impact revenue improvements laborbased core consulting contract optimization 9 2 respectively reported basis gross contribution margin 29 2018 2017 backlog increased 155 million 16 december 31 2017 december 31 2018 1107 million backlog december 31 2018 represented approximately four months backlog line companys operational target 2017 versus 2016 consulting revenues increased 3 2017 compared 2016 reported basis excluding foreign currency impact revenue improvements laborbased core consulting contract optimization gross contribution margin 29 28 2017 2016 respectively margin improvement 2017 primarily due additional contract optimization revenue higher contribution margin laborbased core consulting partially offset lower consultant utilization investment additional managing partners backlog increased 66 million 7 december 31 2016 december 31 2017 952 million backlog december 31 2017 represented approximately four months backlog line companys operational target 1 dollars thousands 2018 company divested three noncore businesses comprised segment acquired part acquisition ceb inc april 2017 revenue gross contribution declined 2018 compared 2017 due divestitures result divestitures movement small residual product segment research business company longer recording additional operating activity segment effective september 1 2018 additional information regarding divestitures included note 2 acquisitions divestitures notes consolidated financial statements included annual report form 10k liquidity capital resources finance operations cash generated operating activities borrowings note 5 debt notes consolidated financial statements included annual report form 10k provides additional information regarding companys outstanding debt obligations december 31 2018 1564 million cash equivalents 10 billion available borrowing capacity revolving credit facility 2016 credit agreement believe company adequate liquidity meet currently anticipated needs historically generated significant cash flows operating activities operating cash flow continuously maintained leverage characteristics subscriptionbased business model research segment largest business segment historically constituted majority total revenues majority research customer contracts paid advance combined strong customer retention rate high incremental margins resulted continuously strong operating cash flow cash flow generation also benefited ongoing efforts improve operating efficiencies businesses well focus optimal management working capital increase sales cash equivalents held numerous locations throughout world 79 held overseas december 31 2018 company intends reinvest substantially accumulated undistributed foreign earnings except instances repatriation would result minimal additional tax result us tax cuts jobs act 2017 believe income tax impact earnings repatriated would minimal following table summarizes changes companys cash balances years indicated thousands 1 december 31 2018 ending cash balance 1587 million consisted 1564 million cash equivalents 23 million restricted cash 2018 versus 2017 operating cash provided operating activities 4712 million 2018 compared 2545 million 2017 increase 2166 million yearoveryear increase driven net income 1225 million 2018 compared net income 33 million 2017 well substantially higher receivable collections 2018 partially offsetting increases 2018 higher cash amounts paid bonuses taxes interest borrowings well decreases working capital accounts investing cash provided investing activities 3841 million 2018 5109 million net cash realized business divestiture acquisition activities partially offset approximately 1268 million capital expenditures 2017 cash used investing activities 28 billion primarily due business acquisitions financing cash used financing activities approximately 13 billion 2018 compared cash provided 25 billion 2017 2018 company used 10 billion cash reduce outstanding debt used 2608 million cash share repurchases 2017 company borrowed approximately 30 billion paid 4044 million debt principal repayments 512 million deferred financing fees debt 413 million share repurchases 2017 versus 2016 operating cash provided operating activities 2545 million 2017 compared 3656 million 2016 decline due decline net income 33 million 2017 compared 1936 million 2016 unfavorable changes working capital 2017 compared 2016 substantially higher cash payments bonuses commissions interest borrowings acquisition integration costs 2017 compared 2016 investing cash used investing activities 28 billion 2017 compared 981 million cash used 2016 cash used 2017 substantially higher primarily due business acquisitions also made additional investments capital expenditures 2017 1108 million invested 2017 compared 499 million 2016 financing cash provided financing activities 25 billion 2017 compared cash used 1747 million 2016 2017 company borrowed total approximately 30 billion paid 4044 million debt principal repayments 512 million deferred financing fees debt 413 million share repurchases 2016 company used 590 million cash share repurchases 1250 million debt repayments obligations commitments debt december 31 2018 company 23 billion principal amount debt outstanding note 5 debt notes consolidated financial statements included annual report form 10k provides additional information regarding companys debt obligations offbalance sheet arrangements december 31 2018 entered material offbalance sheet arrangements transactions unconsolidated entities persons contractual cash commitments company certain commitments contractually require future cash payments table summarizes companys contractual cash commitments december 31 2018 thousands 1 principal repayments companys debt obligations classified table based contractual repayment dates interest payments due based effective interest rates december 31 2018 note 5 debt notes consolidated financial statements provides information regarding companys debt obligations 2 company leases various facilities furniture computer equipment automobiles equipment noncancelable operating lease agreements expiring 2019 2032 total commitment excludes approximately 3720 million estimated income subleasing certain facilities see note 1 business significant accounting policies notes consolidated financial statements additional information companys leases 3 company supplemental deferred compensation arrangements certain employees amounts payable known payment dates classified table based scheduled payment dates amounts payable whose payment dates unknown included due 5 years category since company cannot determine amounts paid see note 13 employee benefits notes consolidated financial statements additional information regarding companys supplemental deferred compensation arrangements 4 amount due represents companys cash payable transition tax liability us tax cut jobs act 2017 reduced certain unrelated credits attributes company currently expects pay transition tax approximately eight years 5 includes contractual commitments software building maintenance telecom services ii amounts due share repurchase transactions occurred late december 2018 settled cash january 2019 iii projected cash contributions companys defined benefit pension plans see note 13 employee benefits notes consolidated financial statements additional information regarding companys defined benefit pension plans addition contractual cash commitments included table company payables liabilities may legally enforceable considered contractual commitments information regarding companys payables liabilities included note 4 accounts payable accrued liabilities notes consolidated financial statements quarterly financial data following tables present quarterly operating results twoyear period ended december 31 2018 1 aggregate four quarters’ basic diluted earnings per common share may equal reported full calendar year amounts due effects share repurchases dilutive equity compensation rounding 2 december 2017 company recorded 596 million tax benefit related us tax cuts jobs act 2017 tax benefit increased net income basic diluted income per share fourth quarter 2017 approximately 066 per share 065 per share respectively see note 10 income taxes notes consolidated financial statements additional information regarding impact us tax cuts jobs act 2017 recently issued accounting standards fasb issued accounting standards yet become effective may impact company’s consolidated financial statements related disclosures future periods note 1 business significant accounting policies notes consolidated financial statements herein provides information regarding accounting standards item 7aitem 7 management’s discussion analysis financial condition results operations purpose management’s discussion analysis “mda” facilitate understanding significant factors influencing operating results financial condition cash flows gartner inc additionally mda conveys expectations potential impact known trends events uncertainties may impact future results read discussion conjunction consolidated financial statements related notes included annual report form 10k historical results percentage relationships necessarily indicative operating results future periods references “gartner” company” “we” “our” “us” mda gartner inc consolidated subsidiaries mda provides analysis consolidated financial results segment results cash flows 2019 2018 headings results operations segment results liquidity capital resources similar detailed discussion comparing 2018 2017 refer headings item 7 management’s discussion analysis financial condition results operations annual report form 10k year ended december 31 2018 acquisition topo research llc october 1 2019 company acquired 100 outstanding membership interests topo research llc topo privatelyheld company based redwood city california 250 million topo subscriptionbased research advisory business helps sales leaders world’s fastestgrowing companies achieve growth objectives business divestitures 2018 company divested noncore businesses comprised segment moved small residual product segment research business result operating activity recorded segment 2019 segment 1056 million revenue 2018 gross contribution 651 million note 2 acquisitions divestitures notes consolidated financial statements provides additional information regarding topo acquisition companys 2018 divestitures forwardlooking statements addition historical information annual report form 10k contains certain forwardlooking statements within meaning section 27a securities act 1933 amended section 21e securities exchange act 1934 amended forwardlooking statements historical fact including statements regarding expectations beliefs hopes intentions projections strategies regarding future cases forwardlooking statements identified use words “may” “will” “expect” “should” “could” “believe” “plan” “anticipate” “estimate” “predict” “potential” “continue” words similar meaning operate competitive rapidly changing environment involves numerous risks uncertainties beyond control although believe expectations reflected forwardlooking statements reasonable actual results could differ materially projected assumed forwardlooking statements future quarterly annual revenues operating income results operations cash flows well forwardlooking statement subject change inherent risks uncertainties disclosed incorporated reference filings securities exchange commission important factors could cause actual results performance achievements industry results differ materially estimates projections contained forwardlooking statements include among others following timing gartner symposiumxpo series normally occurs fourth quarter well conferences meetings amount new business generated including acquisitions mix domestic international business domestic international economic conditions uk’s exit european union impact results impact changes tax policy heightened scrutiny various taxing authorities globally changes market demand products services changes foreign currency rates timing development introduction marketing new products services competition industry payment performance compensation uncertainty expected discontinuance libor transition interest rate benchmark factors potential fluctuations operating income could cause periodtoperiod comparisons operating results meaningful could provide unreliable indication future operating results description risk factors associated business included “risk factors” item 1a annual report form 10k incorporated herein reference forwardlooking statements subject risks estimates uncertainties could cause actual results differ materially discussed implied forwardlooking statements factors might cause difference include limited listed described “risk factors” item 1a annual report form 10k readers place undue reliance forwardlooking statements reflect management’s opinion date made forwardlooking statements annual report form 10k speak date hereof forwardlooking statements documents attached incorporated reference speak date documents except required law disclaim obligation review update forwardlooking statements reflect events circumstances occur business overview gartner inc nyse world’s leading research advisory company member sp 500 equip business leaders indispensable insights advice tools achieve missioncritical priorities today build successful organizations tomorrow believe unmatched combination expertled practitionersourced datadriven research steers clients toward right decisions issues matter trusted advisor objective resource 15000 enterprises 100 countries across major functions every industry enterprise size gartner delivers products services globally three business segments research conferences consulting described • research provides trusted objective insights advice missioncritical priorities leaders across functional areas enterprise reports briefings proprietary tools access research experts peer networking services membership programs enable clients drive organizational performance • conferences provides business professionals across organization opportunity learn share network gartner symposiumxpo series industryleading conferences focused specific business roles topics peerdriven sessions offerings enable attendees experience best gartner insight advice live • consulting combines power gartner marketleading research custom analysis ontheground support help chief information officers senior executives driving technologyrelated strategic initiatives move confidently insight action business measurements believe following business measurements important performance indicators business segments business segment business measurement research total contract value represents value attributable subscriptionrelated contracts calculated annualized value contracts effect specific point time without regard duration contract total contract value primarily includes research deliverables revenue recognized ratable basis well deliverables primarily conferences tickets revenue recognized deliverable utilized comparing contract value yearoveryear measures shortterm growth business also signals longterm health research subscription business since measures revenue highly likely recur multiyear period total contract value consists global technology sales contract value includes sales users providers technology global business sales contract value includes sales functional leaders client retention rate represents measure client satisfaction renewed business relationships specific point time client retention calculated percentage basis dividing current clients also clients year ago clients year ago client retention calculated enterprise level represents single company customer wallet retention rate represents measure amount contract value retained clients twelvemonth period wallet retention calculated percentage basis dividing contract value current clients also clients year ago total contract value year ago excluding impact foreign currency exchange wallet retention exceeds client retention indication retention higherspending clients increased spending retained clients wallet retention calculated enterprise level represents single company customer conferences number destination conferences represents total number hosted destination conferences completed period single day local meetings excluded number destination conferences attendees represents total number people attend destination conferences single day local meetings excluded consulting backlog represents future revenue derived inprocess consulting measurement engagements utilization rate represents measure productivity consultants utilization rates calculated billable headcount percentage basis dividing total hours billed total hours available bill billing rate represents earned billable revenue divided total billable hours average annualized revenue per billable headcount represents measure revenue generating ability average billable consultant calculated periodically multiplying average billing rate per hour times utilization percentage times billable hours available one year executive summary operations financial position executed consistent growth strategy since 2005 drive revenue earnings growth fundamentals strategy include focus creating extraordinary research insight delivering innovative highly differentiated product offerings building strong sales capability providing world class client service focus client engagement retention continuously improving operational effectiveness total revenues 42 billion 2019 increase 7 compared 2018 reported basis 9 excluding foreign currency impact 1056 million segment revenue reported basis 2018 recur 2019 net income increased 2333 million 2019 1225 million 2018 result diluted earnings per share 256 2019 compared 133 2018 research revenues increased 34 billion 2019 increase 9 compared 2018 reported basis 10 excluding foreign currency impact research gross contribution margin 70 69 2019 2018 respectively total contract value 34 billion december 31 2019 increase 12 compared december 31 2018 foreign currency neutral basis conferences revenues increased 4769 million 2019 increase 16 compared 2018 reported basis 18 excluding foreign currency impact conferences gross contribution margin 51 50 2019 2018 respectively held 72 70 destination conferences 2019 2018 respectively consulting revenues increased 3939 million 2019 increase 11 compared 2018 reported basis 14 excluding foreign currency impact consulting gross contribution margin 30 29 2019 2018 respectively backlog 1157 million december 31 2019 cash provided operating activities 5654 million 4712 million 2019 2018 respectively december 31 2019 2808 million cash equivalents 10 billion available borrowing capacity revolving credit facility 2019 repurchased 14 million shares companys common stock aggregate purchase price approximately 1940 million critical accounting policies estimates preparation consolidated financial statements requires application appropriate accounting policies use estimates significant accounting policies described note 1 business significant accounting policies notes consolidated financial statements management considers policies discussed critical understanding consolidated financial statements application requires complex subjective management judgments estimates specific risks critical accounting policies also described preparation consolidated financial statements requires us make estimates assumptions future events develop estimates using current historical experience well factors including general economic environment actions may take future adjust estimates facts circumstances dictate however estimates may involve significant uncertainties judgments cannot determined precision addition estimates based best judgment point time may ultimately differ materially actual results ongoing changes estimates could material would reflected company’s consolidated financial statements future periods critical accounting policies described accounting leases january 1 2019 company adopted financial accounting standards board “fasb” accounting standards update 201602 leases amended asu 201602 “new lease standard” substantively modifies accounting disclosure requirements lease arrangements prior issuance asu 201602 generally accepted accounting principles united states america fasb accounting standards codification asc topic 840 leases provided lease arrangements meeting certain criteria recorded entitys balance sheet asu 201602 significantly changes accounting leases rightofuse model used whereby lessee must record rightofuse asset related lease liability balance sheet leases asu 201602 leases classified either operating finance arrangements classification affecting pattern expense recognition entitys income statement asu 201602 also requires significantly expanded disclosures meet objective enabling users financial statements assess amount timing uncertainty cash flows related leases company adopted asu 201602 using modified retrospective approach elected use optional transition method available asu 201602 record required cumulative effect adjustments opening balance sheet period adoption rather earliest comparative period presented companys historical consolidated financial statements restated certain permitted practical expedients used company upon adoption new lease standard including combining lease nonlease components single lease component purposes recognition measurement requirements asu 201602 ii reassessing lease arrangement determine classification changed asu 201602 iii reassessing initial direct costs leases existence date adoption asu 201602 january 1 2019 material impact consolidated balance sheet rightofuse model significantly increased assets liabilities lease arrangements operating leases previously recorded company’s consolidated balance sheets adoption new lease standard resulted recognition operating lease liabilities aggregating 8513 million based present value company’s remaining minimum lease payments corresponding rightofuse assets totaled 6519 million additionally company’s adoption asu 201602 resulted net increase 6387 million company’s total assets total liabilities however effect company’s total stockholders’ equity company’s consolidated statements operations cash provided operating activities consolidated statements cash flows 2019 materially impacted adoption new lease standard note 1 business significant accounting policies note 7 leases notes consolidated financial statements provide additional information regarding companys leases adoption asu 201602 revenue recognition 2019 2018 revenue recognized accordance requirements accounting standards update 201409 revenue contracts customers amended asu 201409 prior january 1 2018 company recognized revenue accordance thenexisting generally accepted accounting principles united states america sec staff accounting bulletin 104 revenue recognition collectively “prior gaap” asu 201409 prior gaap revenue recognized required criteria revenue recognition met although certain changes company’s revenue recognition policies procedures adoption asu 201409 january 1 2018 material differences pattern timing revenue recognition asu 201409 prior gaap revenue significant source accounted follows • research revenues mainly derived subscription contracts research products related revenues deferred recognized ratably applicable contract term fees derived assisting organizations selecting right business software needs recognized leads provided vendors • conferences revenues deferred recognized upon completion related conference meeting • consulting revenues principally generated fixed fee time materials engagements revenues fixed fee contracts recognized work satisfy performance obligations revenues time materials engagements recognized work delivered andor services provided revenues related contract optimization engagements contingent nature recognized upon satisfaction conditions related payment majority research contracts billable upon signing absent special terms granted limited basis time research contracts generally noncancelable nonrefundable except government contracts may cancellation fiscal funding clauses policy record amount subscription contract billable fee receivable time contract signed corresponding amount deferred revenue contract represents legally enforceable claim note 1 business significant accounting policies note 9 revenue related matters notes consolidated financial statements provide additional information regarding revenues adoption asu 201409 january 1 2018 uncollectible fees receivable company maintains allowance losses uncollectible receivables classified consolidated balance sheets offset gross amount fees receivable increases decreases allowance recognized earnings determination amount allowance based historical loss experience assessment current economic conditions aging outstanding receivables financial health specific clients probable losses evaluation inherently judgmental requires use estimates allowance periodically reevaluated adjusted information ultimate collectability fees receivable becomes available circumstances could cause allowance increase include changes clients’ liquidity credit quality factors negatively impacting clients’ ability pay obligations come due effectiveness collection efforts table presents gross fees receivable related allowance losses dates indicated thousands goodwill intangible assets acquire business determine fair value assets acquired liabilities assumed date acquisition may include significant amount intangible assets customer relationships software content well goodwill determining fair values acquired intangible assets consider among factors analyses historical financial performance estimate future performance acquired business fair values acquired intangible assets primarily calculated using income approach relies discounted cash flows method starts forecast expected future net cash flows asset adjusts forecast present value applying discount rate reflects risk factors associated cash flow streams consider approach appropriate valuation technique inherent value acquired intangible asset ability generate future income typical acquisition engage thirdparty valuation expert assist us fair value analyses acquired intangible assets determining fair values acquired intangible assets requires us exercise significant judgment select reasonable estimates assumptions based evaluating number factors including limited marketplace participants consumer awareness brand history additionally significant judgments inherent discounted cash flows estimating amount timing projected future cash flows selection discount rates hypothetical royalty rates contributory asset capital charges specifically selected discount rates intended reflect risk inherent projected future cash flows generated underlying acquired intangible assets determining acquired intangible assets useful life also requires significant judgment based evaluating number factors including limited expected use asset historical client retention rates consumer awareness trade name history well contractual provisions could limit extend assets useful life companys goodwill evaluated accordance fasb asc topic 350 requires goodwill assessed impairment least annually whenever events changes circumstances indicate carrying value goodwill may recoverable addition impairment evaluation amortizable intangible assets may also performed events circumstances indicate potential impairment among factors could trigger impairment review current operating results align annual plan historical performance changes strategic plans use assets restructuring charges changes business segments competitive pressures changes general economy markets operate significant decline stock price market capitalization relative net book value performing annual assessment recoverability goodwill initially perform qualitative analysis evaluating whether events circumstances occurred exist provide evidence likely fair value reporting units less related carrying amount believe likely fair value reporting units less related carrying amount quantitative impairment test performed however results qualitative assessment indicate likely fair value reporting unit less respective carrying amount perform twostep quantitative impairment test evaluating recoverability goodwill requires judgments assumptions regarding future trends events result precision reliability estimates subject uncertainty among factors consider qualitative assessment general economic conditions competitive environment actual projected reporting unit financial performance forwardlooking business measurements external market assessments determine fair values reporting units quantitative analysis typically utilize detailed financial projections include significant variables projected rates revenue growth profitability cash flows well assumptions regarding discount rates companys weighted average cost capital data recent annual impairment test goodwill qualitative analysis conducted quarter ended september 30 2019 indicated impairment subsequent completing 2019 annual impairment test events changes circumstances noted required interim goodwill impairment test note 1 business significant accounting policies note 3 goodwill intangible assets notes consolidated financial statements provide additional information regarding companys goodwill amortizable intangible assets accounting income taxes company uses asset liability method accounting income taxes estimate income taxes jurisdictions company operates process involves estimating current tax expense benefit together assessing temporary differences resulting differing treatment items tax accounting purposes differences result deferred tax assets liabilities included consolidated balance sheets assessing realizability deferred tax assets consider likely deferred tax assets realized making assessment consider availability loss carryforwards projected reversals deferred tax liabilities projected future taxable income ongoing prudent feasible tax planning strategies company recognizes tax benefit uncertain tax position likely tax position sustained based technical merits position recognized tax positions measured largest amount benefit greater 50 likelihood realized company uses estimates determining amount unrecognized tax benefits associated uncertain tax positions significant judgment required evaluating tax law measuring benefits likely realized uncertain tax positions periodically reevaluated adjusted information ultimate realization becomes available accounting stockbased compensation company accounts stockbased compensation awards accordance fasb asc topics 505 718 sec staff accounting bulletins 107 110 company recognizes stockbased compensation expense based fair value award date grant related service period note 10 stockbased compensation notes consolidated financial statements provides additional information regarding stockbased compensation determining appropriate fair value model calculating fair value stockbased compensation awards requires use certain subjective assumptions including expected life stockbased compensation award company’s common stock price volatility addition determining appropriate periodic stockbased compensation expense requires management estimate likelihood achievement certain performance targets assumptions used calculating fair values stockbased compensation awards related periodic expense represent management’s best estimates involve inherent uncertainties application judgment result circumstances change company deems necessary future modify assumptions made use different assumptions quantity nature company’s stockbased compensation awards changes amount expense may need adjusted future stockbased compensation expense could materially different recorded current period restructuring accruals may record accruals severance costs contract terminations asset impairments costs result ongoing actions undertake streamline organization reposition certain businesses reduce future operating costs estimates costs incurred complete actions future payments contractual arrangements fair value assets severance related benefits based assumptions time actions initiated accruals may need adjusted extent actual costs differ estimates addition actions may revised due changes business conditions foresee time plans approved also record accruals year various employee cash incentive programs amounts accrued end reporting period based estimates may require adjustment ultimate amount paid incentives sometimes known certainty end fiscal year results operations consolidated results table presents analysis selected line items yearoveryear changes consolidated statements operations years indicated thousands total revenues 2019 42 billion increase 2699 million 7 compared 2018 reported basis 9 excluding foreign currency impact tables present revenues geographic region based sale fulfilled ii revenues segment years indicated thousands 1 2018 company divested noncore businesses comprised segment moved small residual product segment research business result revenue recorded segment 2019 revenue companys divested operations approximately 973 million 2018 note 9 revenue related matters notes consolidated financial statements provides additional information regarding companys revenue geography segment refer section mda entitled “segment results” discussion revenues results segment cost services product development 16 billion 2019 increase 818 million compared 2018 6 reported basis 7 excluding foreign currency impact increase cost services product development primarily due higher payroll related benefits costs resulting increased headcount partially offset reduction expense certain businesses divested 2018 cost services product development percent revenues 37 2019 2018 selling general administrative “sga” expense 21 billion 2019 increase 2193 million compared 2018 12 reported basis 14 excluding foreign currency impact increase sga expense primarily due higher commissions increased sales bookings ii payroll related benefits costs driven mostly increased headcount iii higher facilities corporate costs items partially offset reduction sga expense certain businesses divested 2018 reduction travel entertainment expenses 2019 overall headcount growth included quotabearing sales associate increases global technology sales global business sales 3267 869 respectively december 31 2019 combined basis total number quotabearing sales associates increased 6 compared december 31 2018 sga expense percent revenues 50 47 2019 2018 respectively sga expense increased faster pace revenue 2019 grew sales capacity enabling infrastructure year promote future revenue growth depreciation increased 20 2019 compared 2018 increase due additional investments including new leasehold improvements additional office space went service capitalized software amortization intangibles decreased 31 2019 compared 2018 due certain businesses divested 2018 including related intangible assets well certain intangible assets became fully amortized 2018 2019 acquisition integration charges declined 977 million 2019 compared 2018 decrease result company completed two acquisitions 2017 acquisitions 2018 one minor acquisition late 2019 operating income 3701 million 2597 million 2019 2018 respectively increase operating income reflects several factors including reduced amortization intangibles acquisition integration charges ii higher segment contributions primarily research conferences segments lesser extent consulting partially offset higher sga expense depreciation interest expense net declined 244 million 2019 compared 2018 decrease primarily due lower average outstanding borrowings 2019 nominally lower weighted average annual effective interest rates companys total outstanding debt gain divested operations 454 million 2018 due sales certain business units miscellaneous assets loss divested operations 21 million 2019 primarily due adjustments certain working capital balances related companys 2018 divestitures note 2 acquisitions divestitures notes consolidated financial statements provides additional information regarding companys 2018 divestitures income net years presented herein included net impact foreign currency gains losses hedging activities well sales certain state tax credits recognition tax incentives 2019 income net also included pretax gain 91 million companys sale minority equity investment provision income taxes 424 million 587 million 2019 2018 respectively effective income tax rate 154 2019 324 2018 2019 effective tax rate includes significant benefit intercompany sale certain intellectual property benefit occurred 2018 note 12 income taxes notes consolidated financial statements provides additional information regarding companys income taxes net income 2333 million 1225 million 2019 2018 respectively additionally diluted net income per share increased 123 2019 compared 2018 yearoveryear changes reflect increases 2019 operating income ii lower interest expense iii lower effective income tax rate 2019 compared 2018 partially offsetting items loss divested operations 2019 compared corresponding gain 2018 segment results evaluate reportable segment performance allocate resources based gross contribution margin gross contribution defined operating income loss excluding certain cost services product development expenses sga expenses depreciation amortization intangibles acquisition integration charges gross contribution margin defined gross contribution percent revenues 2018 business divestitures 2018 company divested noncore businesses comprised segment moved small residual product segment research business result operating activity recorded segment 2019 segment 1056 million revenue 2018 gross contribution 651 million note 2 acquisitions divestitures notes consolidated financial statements provides additional information regarding companys 2018 divestitures reportable segments company’s reportable segments follows • research provides trusted objective insights advice missioncritical priorities leaders across functional areas enterprise reports briefings proprietary tools access research experts peer networking services membership programs enable clients drive organizational performance • conferences provides business professionals across organization opportunity learn share network gartner symposiumxpo series industryleading conferences focused specific business roles topics peerdriven sessions offerings enable attendees experience best gartner insight advice live • consulting combines power gartner marketleading research custom analysis ontheground support help chief information officers senior executives driving technologyrelated strategic initiatives move confidently insight action sections present results companys three reportable business segments research 1 dollars thousands 2 global technology sales includes sales users providers technology global business sales includes sales functional leaders 3 contract values foreign exchange neutral basis contract values december 31 2018 calculated using foreign currency rates 2019 research revenues increased 2688 million 2019 compared 2018 9 reported basis 10 excluding foreign currency impact gross contribution margin 70 2019 compared 69 2018 increase revenues 2019 primarily due factors driving trend research contract value discussed improvement margin primarily due strong fourth quarter results 2019 wherein program costs travel entertainment expenses grew slower pace corresponding quarterly revenue total contract value increased 34 billion december 31 2019 12 compared december 31 2018 foreign exchange neutral basis total contract value december 31 2019 increased doubledigits across half company’s client sizes half industry segments compared december 31 2018 global technology sales gts contract value increased 12 december 31 2019 compared december 31 2018 increase gts contract value primarily due additional sales headcount productivity improvements global business sales gbs contract value increased 9 yearoveryear 8 foreign exchange neutral basis excluding effects companys 2019 acquisition topo research llc primarily driven combined effect improved retention new business large portion new business coming newly launched products gts client retention 82 83 december 31 2019 2018 respectively wallet retention 104 105 respectively gbs client retention 82 december 31 2019 2018 wallet retention 101 95 respectively increase gbs wallet retention largely due increased spending retained clients number gts client enterprises increased 1 december 31 2019 compared december 31 2018 gbs client enterprises declined 6 conferences 1 dollars thousands 2 single day local meetings excluded conferences revenues increased 664 million 2019 compared 2018 16 reported basis 18 excluding foreign currency impact revenues attendees exhibitors destination conferences well revenues single day local meetings increased doubledigits 2019 compared 2018 held 72 destination conferences 2019 10 increase number attendees 15 increase exhibitors compared 2018 average revenue per attendee exhibitor increased 3 segment gross contribution margin 51 50 2019 2018 respectively higher gross contribution margin 2019 primarily due improvements average revenue per attendee exhibitor improved margins single day local meetings continuing efforts efficiently manage conferencerelated expenses partially offsetting items higher costs associated increased headcount consulting 1 dollars thousands 2 backlog foreign exchange neutral basis backlog december 31 2018 calculated using foreign currency rates 2019 consulting revenues increased 11 2019 compared 2018 reported basis 14 excluding foreign currency impact revenue improvements laborbased core consulting contract optimization 7 31 respectively reported basis contract optimization revenue may vary significantly 2019 revenues may indicative future results segment gross contribution margin 30 29 2019 2018 respectively higher gross contribution margin 2019 primarily due increase contract optimization revenue higher contribution margin laborbased core consulting billing rate increases improvements laborbased consulting margins benefits derived certain costreduction initiatives partially offset increased personnel costs commissions backlog increased 73 million 7 december 31 2018 december 31 2019 1157 million backlog december 31 2019 represented approximately four months backlog line companys operational target liquidity capital resources finance operations cash generated operating activities borrowings note 6 debt notes consolidated financial statements provides additional information regarding companys outstanding debt obligations december 31 2019 2808 million cash equivalents approximately 10 billion available borrowing capacity revolving credit facility 2016 credit agreement believe company adequate liquidity meet currently anticipated needs historically generated significant cash flows operating activities operating cash flow continuously maintained leverage characteristics subscriptionbased business model research segment largest business segment historically constituted significant portion total revenues majority research customer contracts paid advance combined strong customer retention rate high incremental margins resulted continuously strong operating cash flow cash flow generation also benefited ongoing efforts improve operating efficiencies businesses well focus optimal management working capital increase sales cash equivalents held numerous locations throughout world 92 held overseas december 31 2019 company intends reinvest substantially accumulated undistributed foreign earnings except instances repatriation would result minimal additional tax result us tax cuts jobs act 2017 believe income tax impact earnings repatriated would minimal table summarizes changes companys cash balances years indicated thousands operating cash provided operating activities 5654 million 4712 million 2019 2018 respectively yearoveryear increase primarily due greater profitability 2019 including lower cash payments acquisitionrelated costs interest borrowings ii improved collections fees receivable 2019 partially offsetting items higher payments income taxes net refunds received 2019 investing cash used investing activities 1609 million 2019 compared cash provided investing activities 3841 million 2018 cash used 2019 primarily capital expenditures acquisition topo research llc partially offset 141 million cash proceeds sale minority equity investment 2018 5268 million net cash realized business unit divestitures miscellaneous asset sales partially offset payments 1269 million capital expenditures 159 million deferred consideration pre2018 acquisition financing cash used financing activities 2860 million 2019 compared cash used 13 billion 2018 2019 company borrowed 50 million financial program offered state connecticut repaid 1096 million borrowings also used 1990 million cash 2019 share repurchases 2018 company paid 10 billion debt principal repayments 2608 million share repurchases obligations commitments debt december 31 2019 company 22 billion principal amount debt outstanding note 6 debt notes consolidated financial statements provides additional information regarding companys outstanding debt obligations offbalance sheet arrangements december 31 2019 company entered material offbalance sheet arrangements transactions unconsolidated entities persons contractual cash commitments table summarizes companys future contractual cash commitments december 31 2019 thousands 1 principal repayments companys debt obligations classified table based contractual repayment dates interest payments based effective interest rates december 31 2019 including effects company’s interest rate swap contracts note 6 debt notes consolidated financial statements provides information regarding companys debt obligations interest rate swap contracts 2 company leases various facilities automobiles computer equipment assets noncancelable operating lease agreements expiring 2020 2038 total commitment excludes approximately 3606 million estimated future cash receipts companys subleasing arrangements note 1 business significant accounting policies note 7 leases notes consolidated financial statements provide additional information regarding companys leases 3 company supplemental deferred compensation arrangements certain employees amounts payable known payment dates classified table based scheduled payment dates amounts payable whose payment dates unknown included due 5 years category company cannot determine amounts paid note 15 employee benefits notes consolidated financial statements provides additional information regarding companys supplemental deferred compensation arrangements 4 includes contractual commitments secure sites conferences business b software telecom services ii amounts due share repurchase transactions occurred late december 2019 settled cash january 2020 iii projected cash contributions companys defined benefit pension plans note 15 employee benefits notes consolidated financial statements provides additional information regarding companys defined benefit pension plans addition contractual cash commitments included table company payables liabilities may legally enforceable considered contractual commitments information regarding companys payables liabilities included note 5 accounts payable accrued liabilities notes consolidated financial statements quarterly financial data tables present quarterly operating results twoyear period ended december 31 2019 1 april 2019 completed intercompany sale certain intellectual property result company recorded net tax benefit approximately 381 million tax benefit increased net income basic diluted net income per share second quarter 2019 approximately 042 per share note 12 income taxes notes consolidated financial statements provides additional information regarding tax impact intercompany sale certain intellectual property 2 aggregate four quarters’ basic diluted net income per share may equal reported full calendar year amounts due effects share repurchases dilutive equity compensation rounding recently issued accounting standards fasb issued accounting standards yet become effective december 31 2019 may impact company’s consolidated financial statements disclosures future periods note 1 business significant accounting policies notes consolidated financial statements provides information regarding accounting standards item 7aitem 7 management’s discussion analysis financial condition results operations purpose management’s discussion analysis “mda” facilitate understanding significant factors influencing operating results financial condition cash flows gartner inc additionally mda conveys expectations potential impact known trends events uncertainties may impact future results read discussion conjunction consolidated financial statements related notes included annual report form 10k historical results percentage relationships necessarily indicative operating results future periods references “gartner” “company” “we” “our” “us” mda gartner inc consolidated subsidiaries mda provides analysis consolidated financial results segment results cash flows 2020 2019 headings “results operations” “segment results” “liquidity capital resources” similar detailed discussion comparing 2019 2018 refer headings item 7 “management’s discussion analysis financial condition results operations” annual report form 10k year ended december 31 2019 forwardlooking statements addition historical information annual report form 10k contains certain forwardlooking statements within meaning section 27a securities act 1933 amended section 21e securities exchange act 1934 amended forwardlooking statements historical fact including statements regarding expectations beliefs hopes intentions projections strategies regarding future cases forwardlooking statements identified use words “may” “will” “expect” “should” “could” “believe” “plan” “anticipate” “estimate” “predict” “potential” “continue” words similar meaning operate competitive rapidly changing environment involves numerous known unknown risks uncertainties beyond control although believe expectations reflected forwardlooking statements reasonable actual results could differ materially projected assumed forwardlooking statements future quarterly annual revenues operating income results operations cash flows well forwardlooking statement subject change inherent risks uncertainties disclosed incorporated reference filings securities exchange commission important factors could cause actual results performance achievements industry results differ materially estimates projections contained forwardlooking statements include among others following uncertainty magnitude duration geographic reach impact global economy covid19 pandemic current uncertain future impact covid19 pandemic governments’ responses business growth reputation projections prospects financial condition operations cash flows liquidity adequacy effectiveness steps take respond crisis including cost reduction mitigation programs ability recover potential claims event cancellation insurance timing gartner symposiumxpo series normally occurs fourth quarter cancelled 2020 result covid19 pandemic well conferences meetings ability achieve effectively manage growth including ability integrate acquisitions consummate integrate future acquisitions ability pay debt obligations ability maintain expand products services ability expand retain customer base ability grow sustain revenue individual customers ability attract retain professional staff research analysts consultants well experienced sales personnel upon dependent ability achieve continued customer renewals achieve new contract value backlog deferred revenue growth light competitive pressures ability carry strategic initiatives manage associated costs ability successfully compete existing competitors potential new competitors ability enforce protect intellectual property rights additional risks associated international operations including foreign currency fluctuations uk’s exit european union impact results impact restructuring charges businesses operations cybersecurity incidents general economic conditions changes macroeconomic market conditions market volatility including developments volatility arising covid19 pandemic including interest rates effect credit markets access capital risks associated creditworthiness budget cuts shutdown governments agencies impact changes tax policy heightened scrutiny various taxing authorities globally uncertainty expected discontinuance libor transition interest rate benchmark changes laws regulations risks uncertainties potential fluctuations operating income could cause periodtoperiod comparisons operating results meaningful could provide unreliable indication future operating results description risk factors associated business included “risk factors” item 1a annual report form 10k incorporated herein reference forwardlooking statements subject risks estimates uncertainties could cause actual results differ materially discussed implied forwardlooking statements currently future could amplified covid19 pandemic factors might cause difference include limited listed described “risk factors” item 1a annual report form 10k readers place undue reliance forwardlooking statements reflect management’s opinion date made forwardlooking statements annual report form 10k speak date hereof forwardlooking statements documents attached incorporated reference speak date documents except required law disclaim obligation review update forwardlooking statements reflect events circumstances occur business overview gartner inc nyse world’s leading research advisory company member sp 500 equip business leaders indispensable insights advice tools achieve missioncritical priorities today build successful organizations tomorrow believe unmatched combination expertled practitionersourced datadriven research steers clients toward right decisions issues matter trusted advisor objective resource 14000 enterprises 100 countries across major functions every industry enterprise size gartner delivers products services globally three business segments research conferences consulting described •research provides trusted objective insights advice missioncritical priorities leaders across functional areas enterprise reports briefings proprietary tools access research experts peer networking services membership programs enable clients drive organizational performance •conferences provides business professionals across organization opportunity learn share network gartner symposiumxpo series industryleading conferences focused specific business roles topics peerdriven sessions offerings enable attendees experience best gartner insight advice •consulting combines power gartner marketleading research custom analysis ontheground support help chief information officers senior executives driving technologyrelated strategic initiatives move confidently insight action covid19 impact coronavirus disease “covid19” pandemic affected nearly every region world created significant uncertainties disruption global economy gartner closely monitoring pandemicrelated developments highest priority health safety associates clients vendors partners stakeholders working closely clients provide best class covid19 related research assist achieving mission critical priorities result covid19 pandemic temporarily closed gartner offices including corporate headquarters united states united kingdom india several impacted locations around world implemented significant travel restrictions although plans reopen offices fall 2021 reopening subject many factors outside control result cannot predict certain begin lift actions put place part business continuity plans including work home protocols travel restrictions seen negative impacts segments conferences impacted march 25 2020 announced cancellation inperson conferences august 2020 july 2 2020 announced cancellation inperson conferences remainder 2020 held 15 virtual conferences second half 2020 plan holding approximately 20 virtual conferences february 2021 august 2021 virtual conferences expected result significantly less revenue gross contribution believe aid client retention engagement safety associates clients remain top priority future inperson conferences held determine relevant impacts covid19 sufficiently receded jurisdictions conferences held december 31 2020 approximately 16 million recorded prepaid expenses current assets balance sheet related cancelled conferences expect recover majority potential termination costs future conferences either force majeure clauses vendor contracts arrangements vendors event cancellation insurance claims cancelled conferences event cancellation insurance enables us receive amount lost contribution margin per conference plus incurred expenses event cancellation insurance provides 170 million coverage 2020 right reinstate amount one time limits utilized insurer contested right reinstate limits include reinstated limits conferences cancelled due covid19 litigation insurer issues timing receiving proceeds insurance claims uncertain record insurance claims excess expenses incurred receipt insurance proceeds research segment continued experience slowdown contract value cv growth 45 fourth quarter 2020 compared 106 70 53 first second third quarters 2020 respectively cv growth slowed late first quarter global virus response led lower new business growth lower retention rates however revenue cv historically stable predictable result subscriptionbased business model experienced modest decrease research revenue growth 2020 compared 2019 slower cv growth 2020 however lead slower research revenue growth 2021 nonetheless believe emphasis producing business technology insight every major business function enterprise continue drive client engagement satisfaction research products consulting segment moderately impacted covid19 pandemic many engagements performed associates working remotely labor based consulting weakened late first quarter due pandemic weakness continued remainder 2020 due weaker demand likely continue 2021 connection cancellation majority 2020 conferences weaker demand consulting segment noted second quarter 2020 implemented workforce reductions incurred aggregate approximately 18 million costs relating workforce reductions year ended december 31 2020 16 million paid year ended december 31 2020 expect majority remaining charges paid first half 2021 response pandemic’s impacts business implemented cost avoidance initiatives first half 2020 including significant limitations hiring thirdparty spending reductions discretionary spending elimination nonessential travel reprioritization capital expenditures began restore certain investments business second half 2020 likely continue investments 2021 future periods business measurements believe following business measurements important performance indicators business segments business segmentbusiness measurement researchtotal contract value represents value attributable subscriptionrelated contracts calculated annualized value contracts effect specific point time without regard duration contract total contract value primarily includes research deliverables revenue recognized ratable basis well deliverables primarily conferences tickets revenue recognized deliverable utilized comparing contract value yearoveryear measures shortterm growth business also signals longterm health research subscription business since measures revenue highly likely recur multiyear period total contract value consists global technology sales contract value includes sales users providers technology global business sales contract value includes sales functional leaders client retention rate represents measure client satisfaction renewed business relationships specific point time client retention calculated percentage basis dividing current clients also clients year ago clients year ago client retention calculated enterprise level represents single company customer wallet retention rate represents measure amount contract value retained clients twelvemonth period wallet retention calculated percentage basis dividing contract value current clients also clients year ago total contract value year ago excluding impact foreign currency exchange wallet retention exceeds client retention indication retention higherspending clients increased spending retained clients wallet retention calculated enterprise level represents single company customer conferencesnumber destination conferences represents total number hosted virtual inperson conferences completed period single day local meetings excluded number destination conferences attendees represents total number people attend virtual inperson conferences single day local meetings excluded consultingconsulting backlog represents future revenue derived inprocess consulting measurement engagements utilization rate represents measure productivity consultants utilization rates calculated billable headcount percentage basis dividing total hours billed total hours available bill billing rate represents earned billable revenue divided total billable hours average annualized revenue per billable headcount represents measure revenue generating ability average billable consultant calculated periodically multiplying average billing rate per hour times utilization percentage times billable hours available one year executive summary operations financial position executed strategy since 2005 drive revenue earnings growth fundamentals strategy include focus creating extraordinary research insight delivering innovative highly differentiated product offerings building strong sales capability providing world class client service focus client engagement retention continuously improving operational effectiveness total revenues 41 billion 2020 decrease 3 compared 2019 reported basis excluding foreign currency impact net income increased 2667 million 2020 2333 million 2019 result diluted earnings per share 296 2020 compared 256 2019 research revenues increased 36 billion 2020 increase 7 compared 2019 reported basis excluding foreign currency impact research gross contribution margin 72 70 2020 2019 respectively total contract value 36 billion december 31 2020 increase 4 compared december 31 2019 foreign currency neutral basis conferences revenues decreased 1201 million 2020 decrease 75 compared 2019 reported basis excluding foreign currency impact conferences gross contribution margin 48 51 2020 2019 respectively held 5 inperson 15 virtual conferences 2020 72 inperson conferences 2019 consulting revenues decreased 3764 million 2020 decrease 4 compared 2019 reported basis 5 excluding foreign currency impact consulting gross contribution margin 31 30 2020 2019 respectively backlog 1003 million december 31 2020 cash provided operating activities 9033 million 5654 million 2020 2019 respectively december 31 2020 7126 million cash equivalents approximately 10 billion available borrowing capacity revolving credit facility 2020 repurchased 12 million shares company’s common stock aggregate purchase price approximately 1763 million critical accounting policies estimates preparation consolidated financial statements requires application appropriate accounting policies use estimates significant accounting policies described note 1 business significant accounting policies notes consolidated financial statements management considers policies discussed critical understanding consolidated financial statements application requires complex subjective management judgments estimates specific risks critical accounting policies also described preparation consolidated financial statements requires us make estimates assumptions future events develop estimates using current historical experience well factors including general economic environment actions may take future adjust estimates facts circumstances dictate however estimates may involve significant uncertainties judgments cannot determined precision addition estimates based best judgment point time may ultimately differ materially actual results ongoing changes estimates could material would reflected company’s consolidated financial statements future periods critical accounting policies described accounting leases january 1 2019 adopted financial accounting standards board “fasb” accounting standards codification “asc” topic 842 leases “asc 842” determine arrangement contains lease inception contract consider arrangement lease arrangement transfers right control use identified asset period time exchange consideration operating leases material financing leases lease rightofuse assets represent right use underlying asset lease term lease liabilities represent obligation make payments arising lease agreement assets liabilities recognized commencement lease based upon present value future minimum lease payments lease term lease term reflects noncancelable period lease together periods covered option extend terminate lease reasonably certain exercise option changes lease term assumption could impact rightofuse assets lease liabilities recognized balance sheet leases typically contain readily determinable implicit rate determine present value lease liability using incremental borrowing rate lease commencement date based lease term note 1 business significant accounting policies note 7 leases notes consolidated financial statements provide additional information regarding company’s leases adoption asc 842 revenue recognition january 1 2018 adopted asc topic 606 revenue contracts customers revenue significant source accounted follows •research revenues mainly derived subscription contracts research products related revenues deferred recognized ratably applicable contract term fees derived assisting organizations selecting right business software needs recognized leads provided vendors •conferences revenues deferred recognized upon completion related conference meeting •consulting revenues principally generated fixed fee time materials engagements revenues fixed fee contracts recognized work satisfy performance obligations revenues time materials engagements recognized work delivered andor services provided revenues related contract optimization engagements contingent nature recognized upon satisfaction conditions related payment majority research contracts billable upon signing absent special terms granted limited basis time research contracts generally noncancelable nonrefundable except government contracts may cancellation fiscal funding clauses policy record amount subscription contract billable fee receivable time contract signed corresponding amount deferred revenue contract represents legally enforceable claim note 1 business significant accounting policies note 9 revenue related matters notes consolidated financial statements provide additional information regarding revenues goodwill intangible assets acquire business determine fair value assets acquired liabilities assumed date acquisition may include significant amount intangible assets customer relationships software content well goodwill determining fair values acquired intangible assets consider among factors analyses historical financial performance estimate future performance acquired business fair values acquired intangible assets primarily calculated using income approach relies discounted cash flows method starts forecast expected future net cash flows asset adjusts forecast present value applying discount rate reflects risk factors associated cash flow streams consider approach appropriate valuation technique inherent value acquired intangible asset ability generate future income typical acquisition engage thirdparty valuation expert assist us fair value analyses acquired intangible assets determining fair values acquired intangible assets requires us exercise significant judgment select reasonable estimates assumptions based evaluating number factors including limited marketplace participants consumer awareness brand history additionally significant judgments inherent discounted cash flows estimating amount timing projected future cash flows selection discount rates hypothetical royalty rates contributory asset capital charges specifically selected discount rates intended reflect risk inherent projected future cash flows generated underlying acquired intangible assets determining acquired intangible asset’s useful life also requires significant judgment based evaluating number factors including limited expected use asset historical client retention rates consumer awareness trade name history well contractual provisions could limit extend assets useful life company’s goodwill evaluated accordance fasb asc topic 350 requires goodwill assessed impairment least annually whenever events changes circumstances indicate carrying value goodwill may recoverable addition impairment evaluation amortizable intangible assets may also performed events circumstances indicate potential impairment among factors could trigger impairment review current operating results align annual plan historical performance changes strategic plans use assets restructuring charges changes business segments competitive pressures changes general economy markets operate significant decline stock price market capitalization relative net book value performing annual assessment recoverability goodwill initially perform qualitative analysis evaluating whether events circumstances occurred exist provide evidence likely fair value reporting units less related carrying amount believe likely fair value reporting units less related carrying amount quantitative impairment test performed however results qualitative assessment indicate likely fair value reporting unit less respective carrying amount perform twostep quantitative impairment test evaluating recoverability goodwill requires judgments assumptions regarding future trends events result precision reliability estimates subject uncertainty among factors consider qualitative assessment general economic conditions competitive environment actual projected reporting unit financial performance forwardlooking business measurements external market assessments determine fair values reporting units quantitative analysis typically utilize detailed financial projections include significant variables projected rates revenue growth profitability cash flows well assumptions regarding discount rates company’s weighted average cost capital data recent annual impairment test goodwill qualitative analysis conducted quarter ended september 30 2020 indicated impairment subsequent completing 2020 annual impairment test events changes circumstances noted required interim goodwill impairment test note 1 business significant accounting policies note 3 goodwill intangible assets notes consolidated financial statements provide additional information regarding company’s goodwill amortizable intangible assets accounting income taxes company uses asset liability method accounting income taxes estimate income taxes jurisdictions company operates process involves estimating current tax expense benefit together assessing temporary differences resulting differing treatment items tax accounting purposes differences result deferred tax assets liabilities included consolidated balance sheets assessing realizability deferred tax assets consider likely deferred tax assets realized making assessment consider availability loss carryforwards projected reversals deferred tax liabilities projected future taxable income ongoing prudent feasible tax planning strategies company recognizes tax benefit uncertain tax position likely tax position sustained based technical merits position recognized tax positions measured largest amount benefit greater 50 likelihood realized company uses estimates determining amount unrecognized tax benefits associated uncertain tax positions significant judgment required evaluating tax law measuring benefits likely realized uncertain tax positions periodically reevaluated adjusted information ultimate realization becomes available accounting stockbased compensation company accounts stockbased compensation awards accordance fasb asc topics 505 718 sec staff accounting bulletins 107 110 company recognizes stockbased compensation expense based fair value award date grant related service period note 10 stockbased compensation notes consolidated financial statements provides additional information regarding stockbased compensation determining appropriate fair value model calculating fair value stockbased compensation awards requires use certain subjective assumptions including expected life stockbased compensation award company’s common stock price volatility addition determining appropriate periodic stockbased compensation expense requires management estimate likelihood achievement certain performance targets assumptions used calculating fair values stockbased compensation awards related periodic expense represent management’s best estimates involve inherent uncertainties application judgment result circumstances change company deems necessary future modify assumptions made use different assumptions quantity nature company’s stockbased compensation awards changes amount expense may need adjusted future stockbased compensation expense could materially different recorded current period change terms conditions stockbased compensation awards accounted modification award incremental compensation cost measured excess fair value modified award fair value original award immediately terms modified measured based fair value awards modification date vested awards recognize incremental compensation cost period modification occurs unvested awards recognize incremental compensation expense modification date ratably requisite remaining service period appropriate fair value modified award lower fair value original award immediately modification minimum compensation cost recognize cost original award results operations consolidated results table presents analysis selected line items yearoveryear changes consolidated statements operations years indicated thousands nm meaningful total revenues 2020 41 billion decrease 1459 million 3 compared 2019 reported basis excluding foreign currency impact tables present revenues geographic region based sale fulfilled ii revenues segment years indicated thousands refer section mda entitled “segment results” discussion revenues results segment cost services product development 13 billion 2020 decrease 2055 million compared 2019 13 reported basis excluding foreign currency impact decrease cost services product development primarily due decreased costs related cancellations conferences fiscal year 2020 response covid19 pandemic lower travel entertainment costs year well implementation various cost avoidance initiatives partially offset higher payroll benefits costs cost services product development percent revenues 33 37 2020 2019 respectively selling general administrative “sga” expense 20 billion 2020 decrease 645 million compared 2019 3 reported basis excluding foreign currency impact decrease sga expense primarily due reduced internal meetings travel entertainment costs corporate expenses partially offset higher payroll related expenses decrease number quotabearing sales associates global technology sales global business sales 3089 846 respectively december 31 2020 combined basis total number quotabearing sales associates decreased 5 compared december 31 2019 sga expense percent revenues 50 2020 2019 depreciation increased 14 2020 compared 2019 increase due additional investments including new leasehold improvements additional office space went service capitalized software amortization intangibles decreased 4 2020 compared 2019 due certain intangible assets became fully amortized 2020 2019 acquisition integration charges declined 32 million 2020 compared 2019 decrease result company completed one minor acquisition late 2019 acquisitions 2020 operating income 4902 million 3701 million 2020 2019 respectively increase operating income due reduced cost services product development sga expense partially offset lower revenue primarily conferences segment interest expense net increased 137 million 2020 compared 2019 increase primarily due higher weighted average annual effective rates related replacement expired interest rate swaps interest rate swaps containing higher effective interest rates late 2019 additionally wrote 18 million deferred financing fees related prepayment 7879 million term loan facility 2016 credit agreement year ended december 31 2020 loss divested operations 21 million 2019 primarily due adjustments certain working capital balances related company’s 2018 divestitures note 2 acquisitions divestitures notes consolidated financial statements provides additional information regarding company’s 2018 divestitures loss extinguishment debt year ended december 31 2020 related early redemption premium writeoff deferred financing fees redemption 2025 notes september 28 2020 expense income net years presented herein included net impact foreign currency gains losses hedging activities well sales certain state tax credits recognition tax incentives expense income net year ended december 31 2020 also included release 103 million accumulated comprehensive loss net related forecasted interest payments longer probable interest rate swap contracts due prepayment 7879 million company’s term loan facility repayment amounts outstanding revolving credit facility 2016 credit agreement 2020 expense income net also included 22 million gain dedesignated interest rate swaps 2019 expense income net also included pretax gain 91 million company’s sale minority equity investment provision income taxes 594 million 424 million 2020 2019 respectively effective income tax rate 182 2020 154 2019 company completed intercompany sales certain intellectual property 2020 2019 result company recorded net tax benefits approximately 283 million 381 million 2020 2019 respectively benefits represent value future tax deductions amortization assets acquiring jurisdiction july 2020 company completed intercompany contribution significant amount intellectual property company’s intellectual property footprint continues evolve may result tax rate volatility future note 12 income taxes notes consolidated financial statements provides additional information regarding company’s income taxes net income 2667 million 2333 million 2020 2019 respectively additionally diluted net income per share increased 040 2020 compared 2019 yearoveryear changes reflect increase 2020 operating income partially offset loss extinguishment debt ii higher interest expense net expense income net iii higher effective income tax rate 2020 compared 2019 segment results evaluate reportable segment performance allocate resources based gross contribution margin gross contribution defined operating income loss excluding certain cost services product development expenses sga expenses depreciation amortization intangibles acquisition integration charges gross contribution margin defined gross contribution percent revenues reportable segments company’s reportable segments follows •research provides trusted objective insights advice missioncritical priorities leaders across functional areas enterprise reports briefings proprietary tools access research experts peer networking services membership programs enable clients drive organizational performance •conferences provides business professionals across organization opportunity learn share network gartner symposiumxpo series industryleading conferences focused specific business roles topics peerdriven sessions offerings enable attendees experience best gartner insight advice •consulting combines power gartner marketleading research custom analysis ontheground support help chief information officers senior executives driving technologyrelated strategic initiatives move confidently insight action sections present results company’s three reportable business segments research 1dollars thousands 2global technology sales includes sales users providers technology global business sales includes sales functional leaders 3contract values foreign exchange neutral basis contract values december 31 2019 calculated using foreign currency rates 2020 research revenues increased 2283 million 2020 compared 2019 7 reported basis excluding foreign currency impact gross contribution margin 72 2020 compared 70 2019 increase revenues 2020 primarily due factors driving trend research contract value discussed improvement margin primarily due growth revenue decline travel entertainment expenses due covid19 travel restrictions total contract value increased 36 billion december 31 2020 4 compared december 31 2019 foreign currency neutral basis global technology sales “gts” contract value increased 4 december 31 2020 compared december 31 2019 increase gts contract value due new business new existing clients industry gts contract value growth led technology retail services global business sales “gbs” contract value increased 7 yearoveryear also primarily driven new business new existing clients gbs contract value growth led healthcare technology industries sales finance human resources practices recorded doubledigit contract value growth year gts client retention 83 82 december 31 2020 2019 respectively wallet retention 98 104 respectively gbs client retention 83 82 december 31 2020 2019 respectively wallet retention 101 december 31 2020 2019 number gts client enterprises flat december 31 2020 compared december 31 2019 gbs client enterprises declined 9 conferences 1dollars thousands 2includes virtual inperson conferences single day local meetings excluded response covid19 pandemic cancelled inperson conferences march 2020 least august 2021 pivoted producing virtual conferences focus maximizing value deliver clients 2020 successfully held 5 inperson conferences prior covid19 pandemic 15 virtual conferences second half year began holding virtual evanta conferences second quarter 2020 conferences revenues decreased 3567 million 2020 compared 2019 75 reported basis excluding foreign currency impact segment gross contribution margin 48 51 2020 2019 respectively lower gross contribution margin 2020 primarily due impact covid19 noted consulting 1dollars thousands 2backlog foreign currency neutral basis backlog december 31 2019 calculated using foreign currency rates 2020 consulting revenues decreased 4 2020 compared 2019 reported basis 5 excluding foreign currency impact decrease revenues reported basis due 6 decrease laborbased consulting partially offset 3 increase contract optimization contract optimization revenue may vary significantly 2020 revenues may indicative future results segment gross contribution margin 31 30 2020 2019 respectively increase gross contribution margin 2020 primarily due benefits derived certain costreduction initiatives including decline travel entertainment expenses due covid19 travel restrictions backlog decreased 154 million 13 december 31 2019 december 31 2020 1003 million backlog december 31 2020 represented approximately four months backlog line operational target liquidity capital resources finance operations cash generated operating activities borrowings note 6 debt notes consolidated financial statements provides additional information regarding company’s outstanding debt obligations december 31 2020 7126 million cash equivalents approximately 10 billion available borrowing capacity revolving credit facility 2020 credit agreement believe company adequate liquidity meet currently anticipated needs least next twelve months cautionary measure elected suspend share repurchase activity march 2020 resumed share repurchase activity december 2020 historically generated significant cash flows operating activities operating cash flow continuously maintained leverage characteristics subscriptionbased business model research segment largest business segment historically constituted significant portion total revenues majority research customer contracts paid advance combined strong customer retention rate high incremental margins resulted continuously strong operating cash flow cash flow generation also benefited ongoing efforts improve operating efficiencies businesses well focus optimal management working capital increase sales cash equivalents held numerous locations throughout world 56 held overseas december 31 2020 company intends reinvest substantially accumulated undistributed foreign earnings except instances repatriation would result minimal additional tax result us tax cuts jobs act 2017 believe income tax impact earnings repatriated would minimal table summarizes changes company’s cash balances years indicated thousands operating cash provided operating activities 9033 million 5654 million 2020 2019 respectively yearoveryear increase primarily due higher pretax income 2020 ii improved collections iii increase accounts payable accrued liabilities due increased accrued payroll fringe benefits customer deposits iv reduced income tax payments offset higher interest payments due timing investing cash used investing activities 839 million 1609 million 2020 2019 respectively decrease 2019 2020 result reduced capital spending response covid19 pandemic financing cash used financing activities 4162 million 2860 million 2020 2019 respectively 2020 repaid net 1480 million revolving credit facility 2016 credit agreement paid net 585 million debt principal repayments borrowed 50 million revolving credit facility 2020 credit agreement used 1763 million cash share repurchases additionally paid 258 million deferred financing fees related financing activities 308 million early redemption premium payments related repayment 2025 notes note 6 debt notes consolidated financial statements provides additional information regarding company’s financing activities 2020 2019 company borrowed 50 million repaid net 70 million revolving credit facility 2016 credit agreement paid net 1026 million debt principal repayments used 1990 million share repurchases obligations commitments debt december 31 2020 company 20 billion principal amount debt outstanding note 6 debt notes consolidated financial statements provides additional information regarding company’s outstanding debt obligations offbalance sheet arrangements december 31 2020 company entered material offbalance sheet arrangements transactions unconsolidated entities persons contractual cash commitments table summarizes company’s future contractual cash commitments december 31 2020 thousands 1principal repayments company’s debt obligations classified table based contractual repayment dates interest payments based effective interest rates december 31 2020 including effects company’s interest rate swap contracts note 6 debt notes consolidated financial statements provides information regarding company’s debt obligations interest rate swap contracts 2the company leases various facilities automobiles computer equipment assets noncancelable operating lease agreements expiring 2021 2038 total commitment excludes approximately 3254 million estimated future cash receipts company’s subleasing arrangements note 1 business significant accounting policies note 7 leases notes consolidated financial statements provide additional information regarding company’s leases 3the company supplemental deferred compensation arrangements certain employees amounts payable known payment dates classified table based scheduled payment dates amounts payable whose payment dates unknown included due 5 years category company cannot determine amounts paid note 15 employee benefits notes consolidated financial statements provides additional information regarding company’s supplemental deferred compensation arrangements 4other includes contractual commitments software telecom services b secure sites conferences business ii amounts due share repurchase transactions occurred late december 2020 settled cash january 2021 iii projected cash contributions company’s defined benefit pension plans note 15 employee benefits notes consolidated financial statements provides additional information regarding company’s defined benefit pension plans addition contractual cash commitments included table company payables liabilities may legally enforceable considered contractual commitments information regarding company’s payables liabilities included note 5 accounts payable accrued liabilities notes consolidated financial statements quarterly financial data tables present quarterly operating results twoyear period ended december 31 2020 1in conjunction issuance 2030 notes company redeemed 2025 notes september 28 2020 cash company recorded 308 million charges early redemption premium 140 million charges writeoff deferred financing costs related 2025 notes 2016 credit agreement recorded loss extinguishment debt consolidated statements operations 2during 2020 2019 company recorded net tax benefit approximately 283 million 381 million respectively related intercompany sales certain intellectual property increased basic diluted net income per share approximately 031 042 per share second quarter 2020 2019 respectively note 12 income taxes notes consolidated financial statements provides additional information regarding tax impact intercompany sale certain intellectual property 3the aggregate four quarters’ basic diluted net income per share may equal reported full calendar year amounts due effects share repurchases dilutive equity compensation rounding recently issued accounting standards fasb issued accounting standards yet become effective december 31 2020 may impact company’s consolidated financial statements disclosures future periods note 1 business significant accounting policies notes consolidated financial statements provides information regarding accounting standards item 7aitem 7 managements discussion analysis financial condition results operations see exhibit 13 item 8item 7 managements discussion analysis financial condition results operations managements discussion analysis financial condition results operations contained pages 28 35 2000 annual report stockholders company incorporated herein reference item 7aitem 7 management’s discussion analysis financial condition results operations purpose following management’s discussion analysis “mda” help facilitate understanding significant factors influencing operating results financial condition cash flows gartner inc additionally mda also conveys expectations potential impact known trends events uncertainties may impact future results read discussion conjunction consolidated financial statements related notes included report historical results percentage relationships necessarily indicative operating results future periods references “the company” “we” “our” “us” gartner inc consolidated subsidiaries acquired companies 2015 described note 2 acquisitions notes condensed consolidated financial statements included annual report form 10k operating results acquired businesses included consolidated segment operating results beginning respective dates acquisition results material consolidated segment results 2015 forwardlooking statements addition historical information annual report form 10k contains certain forwardlooking statements within meaning section 27a securities act 1933 amended section 21e securities exchange act 1934 amended forwardlooking statements historical fact including statements regarding expectations beliefs hopes intentions strategies regarding future cases forwardlooking statements identified use words “may” “will” “expect” “should” “could” “believe” “plan” “anticipate” “estimate” “predict” “potential” “continue” words similar meaning forwardlooking statements subject risks uncertainties could cause actual results differ materially discussed implied forwardlooking statements factors might cause difference include limited discussed part 1 item 1a risk factors readers place undue reliance forwardlooking statements reflect management’s opinion date made except required law disclaim obligation review update forwardlooking statements reflect events circumstances occur readers review carefully risk factors described reports filed sec business overview gartner inc world’s leading information technology research advisory company helps executives use technology build guide grow enterprises offer independent objective research analysis information technology computer hardware software communications related technology industries provide comprehensive coverage industry thousands client organizations across globe client base consists cios senior personnel executives others wide variety business enterprises government agencies investment community gartner headquartered stamford connecticut usa december 31 2015 7834 associates including 1731 research analysts consultants clients 90 countries three business segments research consulting events • research provides objective insight critical timely technology supply chain initiatives cios professionals supply chain leaders digital marketing professionals technology companies institutional investment community reports briefings proprietary tools access analysts peer networking services membership programs enable clients make better decisions supply chain digital marketing investments • consulting provides customized solutions unique client needs onsite daytoday support well proprietary tools measuring improving performance focus cost performance efficiency quality • events provides supply chain digital marketing business professionals opportunity attend various symposia conferences exhibitions learn contribute network peers flagship symposiumitxpo series summits focused specific technologies industries experimental workshopstyle seminars events distill latest gartner research applicable insight advice business measurements believe following business measurements important performance indicators business segments business segment business measurements research contract value represents value attributable subscriptionrelated research products recognize revenue ratable basis contract value calculated annualized value subscription research contracts effect specific point time without regard duration contract client retention rate represents measure client satisfaction renewed business relationships specific point time client retention calculated percentage basis dividing current clients also clients year ago clients year ago client retention calculated enterprise level represents single company customer wallet retention rate represents measure amount contract value retained clients twelvemonth period wallet retention calculated percentage basis dividing contract value clients one year ago total contract value year ago excluding impact foreign currency exchange wallet retention exceeds client retention indication retention higherspending clients increased spending retained clients wallet retention calculated enterprise level represents single company customer consulting backlog represents future revenue derived inprocess consulting measurement strategic advisory services engagements utilization rate represents measure productivity consultants utilization rates calculated billable headcount percentage basis dividing total hours billed total hours available bill billing rate represents earned billable revenue divided total billable hours average annualized revenue per billable headcount represents measure revenue generating ability average billable consultant calculated periodically multiplying average billing rate per hour times utilization percentage times billable hours available one year events number events represents total number hosted events completed period number attendees represents total number people attend events executive summary operations financial position executed consistent growth strategy since 2005 drive doubledigit annual revenue earnings growth fundamentals strategy include focus creating extraordinary research content delivering innovative highly differentiated product offerings building strong sales capability providing world class client service focus client engagement retention continuously improving operational effectiveness total revenues 2163 billion 2015 increase 7 2014 reported basis 13 adjusted impact foreign currency exchange diluted earnings per share increased 206 per share 2015 203 per share 2014 research revenues rose 10 yearoveryear 1583 billion 2015 contribution margin 69 2014 december 31 2015 research contract value 1761 billion increase 10 december 31 2014 reported basis 14 adjusted impact foreign currency exchange client wallet retention remained strong 84 105 respectively december 31 2015 consulting revenues 2015 decreased 6 compared 2014 flat adjusted foreign exchange impact gross contribution margin 33 2015 compared 34 2014 consultant utilization declined 2 points 2015 66 606 billable consultants december 31 2015 compared 535 yearend 2014 backlog increased 15 yearoveryear 1177 million december 31 2015 highest companys history events revenues increased 11 yearoveryear 2518 million adjusted foreign currency impact events revenues increased 18 segment contribution margin 52 2015 3 point increase 2014 held 65 events 2015 compared 61 2014 number attendees increased 7 yearoveryear 52595 detailed discussion results see segment results section cash flow operating activities 3456 million 2015 ended 2015 3730 million cash equivalents 6560 million available borrowing revolving credit line believe adequate liquidity meet currently anticipated needs continue focus maximizing shareholder value 2015 repurchased 62 million outstanding common shares also acquired nubera ebusiness sl based barcelona spain nubera capterra inc based arlington virginia capterra help organizations find right business software meet needs note 2 acquisitions notes consolidated financial statements included annual report form 10k provides additional information regarding acquisitions fluctuations quarterly results quarterly annual revenue operating income cash flow fluctuate result many factors including timing symposiumitxpo series normally held fourth calendar quarter well events timing amount new business generated mix domestic international business changes market demand products services changes foreign currency rates timing development introduction marketing new products services competition industry acquisitions general economic conditions factors beyond control potential fluctuations operating income could cause periodtoperiod comparisons operating results meaningful could provide unreliable indication future operating results cash flows critical accounting policies estimates preparation financial statements requires application appropriate accounting policies use estimates significant accounting policies described note 1 notes consolidated financial statements included form 10k management considers policies discussed critical understanding financial statements application requires complex subjective management judgments estimates specific risks critical accounting policies described preparation financial statements requires us make estimates assumptions future events develop estimates using current historical experience well factors including general economic environment actions may take future adjust estimates facts circumstances dictate however estimates may involve significant uncertainties judgments cannot determined precision addition estimates based best judgment point time estimates may ultimately differ materially actual results ongoing changes estimates could material would reflected company’s consolidated financial statements future periods critical accounting policies follows revenue recognition revenue recognized accordance requirements us gaap well sec staff accounting bulletin 104 revenue recognition “sab 104” revenue recognized required criteria revenue recognition met revenue significant source accounted follows • research revenues mainly derived subscription contracts research products related revenues deferred recognized ratably applicable contract term fees derived assisting organizations selecting right business software needs recognized leads provided vendors • consulting revenues principally generated fixed fee time material engagements revenues fixed fee contracts recognized proportional performance basis revenues time materials engagements recognized work delivered andor services provided revenues related contract optimization contracts contingent nature recognized upon satisfaction conditions related payment • events revenues deferred recognized upon completion related symposium conference exhibition majority research contracts billable upon signing absent special terms granted limited basis time research contracts noncancelable nonrefundable except government contracts may cancellation fiscal funding clauses policy record entire amount contract billable fee receivable time contract signed corresponding amount deferred revenue since contract represents legally enforceable claim uncollectible fees receivable maintain allowance losses composed bad debt allowance sales reserve provisions charged earnings either reduction revenues increase expense determination allowance losses based historical loss experience assessment current economic conditions aging outstanding receivables financial health specific clients probable losses evaluation inherently judgmental requires estimates valuation reserves periodically reevaluated adjusted information ultimate collectability fees receivable becomes available circumstances could cause valuation reserves increase include changes clients’ liquidity credit quality factors negatively impacting clients’ ability pay obligations come due effectiveness collection efforts following table provides total fees receivable related allowance losses thousands goodwill intangible assets company evaluates recorded goodwill accordance financial accounting standards board fasb accounting standards codification asc topic 350 requires goodwill assessed impairment least annually whenever events changes circumstances indicate carrying value may recoverable addition impairment evaluation amortizable intangible assets may also performed events circumstances indicate potential impairment among factors could trigger impairment review current operating results relative annual plan historical performance changes strategic plan use assets restructuring charges changes business segments competitive pressures changes general economy markets operate significant decline stock price market capitalization relative net book value asc topic 350 requires annual assessment recoverability recorded goodwill either quantitative qualitative nature combination two methods require use estimates turn contain judgments assumptions regarding future trends events result precision reliability resulting estimates subject uncertainty annual goodwill impairment evaluation determines fair value reporting unit less related carrying amount may recognize impairment charge earnings among factors consider qualitative assessment general economic conditions competitive environment actual projected reporting unit financial performance forwardlooking business measurements external market assessments quantitative analysis requires management consider factors relevant qualitative assessment well utilization detailed financial projections include rate revenue growth profitability cash flows well assumptions regarding discount rates companys weightedaverage cost capital data order determine fair value reporting units conducted quantitative assessment fair value companys reporting units third quarter 2015 results test determined fair values companys reporting units continue exceed respective carrying values see note 1 business significant accounting policies notes consolidated financial statements additional information regarding goodwill amortizable intangible assets accounting income taxes company uses asset liability method accounting income taxes estimate income taxes jurisdictions operate process involves estimating current tax expense together assessing temporary differences resulting differing treatment items tax accounting purposes differences result deferred tax assets liabilities included within consolidated balance sheets assessing realizability deferred tax assets management considers likely deferred tax assets realized consider availability loss carryforwards projected reversal deferred tax liabilities projected future taxable income ongoing prudent feasible tax planning strategies making assessment company recognizes tax benefit uncertain tax position likely tax position sustained based technical merits position accounting stockbased compensation company accounts stockbased compensation accordance fasb asc topic 505 718 sec staff accounting bulletins 107 “sab 107” 110 “sab 110” company recognizes stockbased compensation expense based fair value award date grant related service period net estimated forfeitures see note 8 stockbased compensation notes consolidated financial statements additional information determining appropriate fair value model calculating fair value stock compensation awards requires input certain complex subjective assumptions including expected life stock compensation award company’s common stock price volatility addition determining appropriate amount associated periodic expense requires management estimate rate employee forfeitures likelihood achievement certain performance targets assumptions used calculating fair value stock compensation awards associated periodic expense represent management’s best estimates involve inherent uncertainties application judgment result factors change company deems necessary future modify assumptions made use different assumptions quantity nature company’s stockbased compensation awards changes amount expense may need adjusted future stock compensation expense could materially different recorded current period restructuring accruals may record accruals severance costs associated excess facilities leased contract terminations asset impairments costs result ongoing actions undertake streamline organization reposition certain businesses reduce ongoing costs estimates costs incurred complete actions future lease payments sublease income fair value assets severance related benefits based assumptions time actions initiated accruals may need adjusted extent actual costs differ estimates addition actions may revised due changes business conditions foresee time plans approved also record accruals year various employee cash incentive programs amounts accrued end reporting period based estimates may require adjustment ultimate amount paid incentives sometimes known certainty end fiscal year results operations consolidated results 2015 versus 2014 following table presents changes selected line items consolidated statements operations two years ended december 31 2015 thousands total revenues twelve months ended december 31 2015 increased 1416 million 7 compared twelve months ended december 31 2014 revenues increased doubledigits research events businesses declined 6 consulting excluding unfavorable impact foreign currency total revenues increased 13 2015 compared 2014 following table presents total revenues geographic region twelve months ended thousands following table presents revenues segment twelve months ended thousands please refer section mda entitled “segment results” discussion revenues results segment cost services product development “cos expense increased 411 million 5 2015 compared 2014 8391 million compared 7979 million 2014 foreign exchange favorable impact cos expense 2015 adjusted impact cos expense increased 11 2015 compared 2014 yearoveryear increase cos expense due 560 million higher payroll related benefits costs additional headcount merit salary increases 310 million higher charges 2015 events costs travel corporate expenses partially offsetting increased expenses approximately 460 million favorable foreign exchange impact additional headcount primarily research business includes additional employees resulting 2015 acquisitions lesser extent increase headcount consulting business cos percentage revenues 39 2015 2014 periods selling general administrative “sga” expense increased 866 million 2015 10 9627 million compared 8761 million 2014 excluding favorable impact foreign currency exchange sga expense increased 16 yearoveryear increase primarily due 1110 million higher payroll related benefits costs additional headcount higher sales commissions merit salary increases also 270 million additional travel training recruiting costs partially offsetting additional charges approximately 510 million favorable foreign exchange impact sga headcount increased 17 overall majority increase additional quotabearing sales associates related support staff quotabearing sales associates increased 15 yearoveryear 2171 december 31 2015 1881 yearend 2014 depreciation expense increased 8 2015 compared 2014 reflects additional investment fixed assets amortization intangibles increased 133 million 2015 82 million 2014 increase 62 yearoveryear due additional intangibles resulting acquisitions acquisition integration charges 262 million 2015 compared 219 million 2014 charges directlyrelated acquisitions primarily include amounts accrued payments contingent achievement certain employment conditions legal consulting severance costs operating income increased 1 2015 compared 2014 2880 million 2015 2862 million 2014 operating income percentage revenues 13 2015 14 2014 decrease primarily driven higher yearoveryear sga costs lesser extent lower gross contribution consulting business additional charges acquisitions interest expense net increased 91 yearoveryear due additional borrowings 2015 period income expense net 50 million 2015 includes 68 million gain sale certain state tax credits partially offset net losses resulting foreign currency exchange transactions 06 million expense 2014 due net foreign currency transaction gains losses provision income taxes 966 million 2015 compared 909 million 2014 effective tax rate 355 2015 compared 331 2014 higher effective tax rate 2015 primarily due decreases foreign tax credit benefits increases nondeductible expenses relating acquisitions increases valuation allowances foreign net operating losses net income 1756 million 2015 1838 million 2014 decrease 4 diluted earnings per share increased 1 yearoveryear 206 2015 compared 203 2014 due 6 decrease number weightedaverage shares 2015 period 2014 versus 2013 following table presents changes selected line items consolidated statements operations two years ended december 31 2014 thousands total revenues twelve months ended december 31 2014 increased 2372 million 13 compared twelve months ended december 31 2013 total revenues increased 14 excluding unfavorable impact foreign currency revenues increased three business segments across geographic regions following table presents total revenues geographic region twelve months ended thousands following table presents revenues segment twelve months ended thousands cost services product development “cos” expense increased 12 2014 compared 2013 844 million 7979 million compared 7135 million 2013 impact foreign currency exchange full year significant increase primarily due higher payroll related benefits costs additional headcount increased 12 headcount increase reflects continued investment research business includes additional employees resulting 2014 acquisitions cos percentage revenues 39 2014 period compared 40 2013 period selling general administrative “sga” expense increased 1156 million 2014 15 8761 million compared 7605 million 2013 excluding favorable impact foreign currency exchange sga expense increased 16 yearoveryear increase primarily due higher payroll related benefits costs additional headcount higher sales commissions merit salary increases increased headcount includes investment additional quotabearing sales associates increased 1881 december 31 2014 14 increase yearend 2013 depreciation expense increased 8 2014 compared 2013 reflects additional investment fixed assets amortization intangibles increased 51 yearoveryear due intangibles arising 2014 acquisitions acquisition integration charges 219 million 2014 compared 03 million 2013 charges directlyrelated acquisitions primarily include amounts accrued payments contingent achievement certain employment conditions legal consulting severance costs operating income increased 107 million yearoveryear 4 2862 million 2014 2755 million 2013 increased operating income attributable higher segment contributions research events businesses operating income percentage revenues 14 2014 15 2013 interest expense net increased 23 yearoveryear due additional borrowings 2014 period expense net 06 million 2014 02 million 2013 expenses primarily consisted net foreign currency exchange gains losses provision income taxes 909 million 2014 compared 836 million 2013 effective tax rate 331 2014 compared 314 2013 higher effective tax rate 2014 primarily due impact certain favorable items 2013 well unfavorable mix pretax income jurisdiction 2014 partially offset foreign tax credit benefits 2014 favorable items 2013 included enactment certain beneficial legislation 2013 release tax reserves due audit settlements increased tax exempt income 2014 internal revenue service closed audit companys 2011 2010 federal income tax returns resolution audit material adverse effect companys consolidated financial position cash flows results operations net income 1838 million 2014 1828 million 2013 increase 1 increased operating income 2014 substantially offset additional income tax charges diluted earnings per share increased 5 yearoveryear 203 2014 primarily due lower number weightedaverage shares outstanding segment results evaluate reportable segment performance allocate resources based gross contribution margin gross contribution defined operating income excluding certain cost services product development charges sga depreciation acquisition integration charges amortization intangibles gross contribution margin defined gross contribution percentage revenues following sections present results three business segments three yearsended december 31 2015 research following table presents financial results business measurements research segment twelve months ended december 31 1 dollars thousands 2015 versus 2014 research segment revenues increased 10 2015 compared 2014 excluding unfavorable impact foreign currency research revenues increased 16 2015 segment gross contribution margin 69 annual periods contribution margin remained 69 spite 12 increase segment headcount mostly driven new hires also lesser extent additional employees resulting acquisitions overall headcount increase reflects continuing investment business research contract value increased 10 2015 1761 billion increased 14 yearoveryear adjusted impact foreign currency exchange growth contract value broadbased every region client size industry sector growing doubledigit rates exception energy utilities sector still increased yearoveryear slower rate number research client enterprises increased 8 2015 10796 client retention wallet retention remained strong 84 105 respectively december 31 2015 2014 versus 2013 research segment revenues 2014 increased 14 compared 2013 impact foreign exchange translation significant segment gross contribution margin 69 periods research contract value increased 13 2014 1603 billion increased 14 yearoveryear adjusted impact foreign currency translation growth contract value broadbased every region industry segment client size growing doubledigit rates compared 2013 number research client enterprises increased 10 2014 9958 client retention wallet retention 85 106 december 31 2014 respectively consulting following table presents financial results business measurements consulting segment twelve months ended december 31 1 dollars thousands 2015 versus 2014 consulting revenue decreased 6 yearoveryear essentially flat excluding negative foreign exchange impact revenue decline primarily core consulting practice mainly driven foreign exchange impact also lower revenues contract optimization practice fluctuate period yearoveryear gross contribution margin declined 1 point primarily driven higher headcount backlog increased 151 million yearoveryear 15 1177 million december 31 2015 highest backlog companys history 2014 versus 2013 consulting revenues increased 11 yearoveryear 12 adjusted impact foreign exchange increase primarily due higher core consulting revenues lesser extent higher contract optimization revenues contract optimization revenues fluctuate period generally 1015 total annual consulting segment revenues gross contribution margin 34 periods backlog decreased 35 million 3 yearoveryear 1026 million december 31 2014 events following table presents financial results business measurements events segment twelve months ended december 31 1 dollars thousands 2015 versus 2014 events revenues increased 241 million comparing 2015 2014 11 excluding negative impact foreign currency translation revenues increased 18 yearoveryear held 65 events 2015 consisting 61 ongoing events 4 new events compared 61 events 2014 yearoveryear revenue increase primarily attributable higher attendee revenue ongoing events lesser extent higher exhibitor revenuethe number attendees 2015 increased 7 number exhibitors increased 4 average revenue per attendee rose 9 average revenue per exhibitor increased 2 gross contribution margin increased 3 points yearoveryear 2014 versus 2013 events revenues increased 288 million comparing 2014 2013 14 excluding impact foreign currency translation revenues increased 16 yearoveryear held 61 events 2014 consisting 59 ongoing events 2 new events compared 64 events 2013 yearoveryear revenue increase primarily attributable higher exhibitor revenue ongoing events lesser extent higher attendee revenue overall number attendees increased 9 number exhibitors increased 10 average revenue per attendee rose 6 average revenue per exhibitor increased 9 gross contribution margin increased 3 points yearoveryear liquidity capital resources 3730 million cash equivalents december 31 2015 6560 million available borrowing capacity 2014 credit agreement addition 2014 credit agreement contains expansion feature company may borrow additional 5000 million aggregate certain conditions believe consistently strong operating cash flow well existing cash balances available borrowing capacity 2014 credit agreement provide us adequate liquidity meet currently anticipated needs however need borrow additional amounts believe would able reasonable terms operating cash flow 3456 million 2015 addition also borrowed additional 4200 million net basis 2014 credit agreement 2015 used 1962 million cash acquire businesses also used 5090 million cash repurchase common shares currently 12 billion board approved authorization repurchase companys common stock december 31 2015 approximately 11 billion authorization remains historically generated significant cash flows operating activities operating cash flow continuously enhanced leverage characteristics subscriptionbased business model well focus operational efficiencies revenues research segment largest business segment increased 10 2015 compared 2014 constituted 73 72 total revenues 2015 2014 respectively majority research contracts paid advance renew annually combined strong customer retention rate high incremental margins resulted continuously strong operating cash flow cash flow generation also benefited continuing efforts improve operating efficiencies businesses well focus optimal management working capital increase sales volume cash equivalents held numerous locations throughout world december 31 2015 approximately 3510 million total 3730 million cash equivalents held outside us 3510 million cash equivalents held overseas approximately 80 represents unremitted earnings nonus subsidiaries us accounting rules provision income taxes may result remittance earnings required company intends reinvest funds overseas indefinitely current plans demonstrate need repatriate undistributed earnings fund us operations otherwise satisfy liquidity needs us operations intend reinvest earnings nonus operations except instances repatriation earnings would result minimal additional tax result company recognized additional income tax expense could result remittance earnings however liquidity needs change decide repatriate unremitted earnings may required accrue additional taxes could material effect consolidated financial position cash flows results operations future periods changes cash equivalents following table summarizes explains changes cash equivalents three years ended december 31 2015 thousands 1 number foreign currencies hold cash weakened relative us dollar past two years result effects foreign currency exchange rates significant impact cash equivalents balances 2015 versus 2014 operating cash flow decreased slightly comparing 2015 2014 decrease reflects negative impact stronger us dollar lower 2015 net income well additional cash payments employee incentives related acquisitions income taxes interest debt obligations 2015 period partially offsetting elements additional collections 2015 period investing used additional 796 million cash investing activities 2015 compared 2014 primarily due acquisitions made 2015 total used 1962 million 1243 million cash net cash acquired acquisitions 2015 2014 respectively company used existing cash additional borrowings finance 2015 acquisitions also used additional 76 million cash capital expenditures 2015 period total 461 million used 2015 compared 385 million 2014 financing total used 677 million cash financing activities 2015 compared 2087 million cash used 2014 company used 5090 million cash share repurchases 2015 compared 4320 million used share repurchases 2014 company borrowed additional 4200 million 2015 net basis compared 2000 million net additional borrowings 2014 additions financing cash flows employee sharebased activities 214 million 2015 280 million 2014 versus 2013 operating cash flow increased 311 million 10 comparing 2014 2013 increase primarily due additional cash collections research events businesses positive working capital changes partially offsetting additional collections higher cash payments bonuses commissions income taxes investing used additional 1263 million cash investing activities 2014 compared 2013 principally due 2014 acquisitions paid total 1099 million net cash acquired additional 143 million placed escrow company used existing cash additional borrowings finance 2014 acquisitions also used additional 20 million cash capital expenditures 2014 period financing used 2087 million cash financing activities 2014 compared 1539 million cash used 2013 2014 company used 4320 million cash share repurchases partially offset 1954 million net proceeds debt issuance related debt issuance costs 280 million employee sharebased activity 2013 company used 1820 million cash share repurchases 40 million debt refinancing fees partially offset 320 million employee sharebased activities obligations commitments 2014 credit agreement company fiveyear credit arrangement entered december 2014 provides 4000 million term loan 11 billion revolving credit facility “2014 credit agreement” revolving credit facility amounts may borrowed repaid reborrowed maturity date agreement december 2019 term revolving facilities may increased companys option additional 5000 million aggregate december 31 2015 company 3800 million outstanding term facility 4400 million revolver see note 5 debt notes consolidated financial statements additional information regarding 2014 credit agreement offbalance sheet arrangements december 31 2015 entered offbalance sheet arrangements transactions unconsolidated entities persons contractual cash commitments company certain commitments contractually require future cash payments following table summarizes contractual cash commitments due december 31 2015 thousands 1 amounts borrowed companys 2014 credit agreement matures december 2019 classified table based scheduled repayment dates projected interest payments amounts outstanding based effective interest rates december 31 2015 see note 5 debt notes consolidated financial statements additional information 2 company also 50 million state connecticut economic development loan classified due 5 years category since 10 year maturity interest payments loan calculated based contractual fixed rate interest certain circumstances part debt may forgiven state see note 5 debt notes consolidated financial statements additional information 3 company leases various facilities furniture computer equipment automobiles leases expire 2016 2030 see note 1 business significant accounting policies notes consolidated financial statements additional information companys leases 4 company supplemental deferred compensation arrangement certain employees see note 13 employee benefits notes consolidated financial statements additional information amounts payable known payment date classified table based payment date amounts payable whose payment date unknown included due 5 years category since company cannot determine amounts paid 5 category includes contractual commitments software building maintenance telecom services ii amounts due share repurchase transactions occurred late december 2015 settled january 2016 iii projected cash contributions companys defined benefit pension plans addition contractual cash commitments included table company payables liabilities may legally enforceable considered contractual commitments information regarding companys payables liabilities included note 4 accounts payable accrued liabilities notes consolidated financial statements among liabilities approximately 300 million unrecognized tax benefits related interest penalties quarterly financial data following tables present quarterly operating results twoyear period ended december 31 2015 1 aggregate four quarters’ basic diluted earnings per common share may equal reported full calendar year amounts due effects share repurchases dilutive equity compensation rounding recently issued accounting standards accounting rules issued various us standard setting governmental authorities yet become effective may impact consolidated financial statements future periods described together assessment potential impact may consolidated financial statements related disclosures future periods business combinations september 2015 fasb issued accounting standards update asu 201516 business combinations simplifying accounting measurementperiod adjustments asu 201516 asu 201516 requires recognition adjustments business combination provisional amounts identified measurement period reporting period adjustments determined effects adjustments provisional amounts depreciation amortization income effects recognized currentperiod earnings accounting completed acquisition date disclosure portion adjustment recorded currentperiod earnings would reported prior reporting periods adjustment provisional amounts recognized acquisition date also required rule applied retrospectively effective gartner january 1 2016 asu 201516 impact company’s consolidated financial statements date adoption however asu 201616 could impact companys consolidated financial statements future transaction occurs within scope rule debt issuance cost presentation april 2015 fasb issued asu 201503 “simplifying presentation debt issuance costs” amends current presentation debt issuance costs financial statements asu 201503 requires debt issuance costs related recognized debt liability presented balance sheet direct deduction carrying amount debt liability consistent debt discounts instead deferred asset amendment applied retrospectively effective gartner january 1 2016 adoption new guidance expected material impact company’s consolidated financial statements revenue recognition may 2014 fasb issued asu 201409 revenue contracts customers asu 201409 asu 201409 intended clarify principles recognizing revenue removing inconsistencies weaknesses revenue recognition requirements providing robust framework addressing revenue issues improving comparability revenue recognition practices across entities industries jurisdictions capital markets providing useful information users financial statements improved revenue disclosure requirements asu 201409 effective gartner january 1 2018 continue evaluate impact asu 201409 fasb also continues work number significant accounting rules issued could materially impact companys accounting policies disclosures future periods however since rules yet issued effective dates potential impact unknown item 7aitem 7 management’s discussion analysis financial condition results operations purpose following management’s discussion analysis “mda” help facilitate understanding significant factors influencing operating results financial condition cash flows gartner inc additionally mda also conveys expectations potential impact known trends events uncertainties may impact future results read discussion conjunction consolidated financial statements related notes included report historical results percentage relationships necessarily indicative operating results future periods forwardlooking statements addition historical information annual report contains forwardlooking statements forwardlooking statements historical fact including statements regarding expectations beliefs hopes intentions strategies regarding future cases forwardlooking statements identified use words “may” “will” “expect” “should” “could” “believe” ‘plan” “anticipate” “estimate” “predict” “potential” “continue” words similar meaning forwardlooking statements subject risks uncertainties could cause actual results differ materially discussed implied forwardlooking statements factors might cause difference include limited discussed part 1 item 1a risk factors readers place undue reliance forwardlooking statements reflect management’s opinion date made except required law disclaim obligation review update forwardlooking statements reflect events circumstances occur readers review carefully risk factors described reports filed sec business overview gartner inc world’s leading information technology research advisory company helps executives use technology build guide grow enterprises offer independent objective research analysis information technology computer hardware software communications related technology industries provide comprehensive coverage industry approximately 10000 client organizations including approximately 400 fortune 500 companies across 80 countries client base consists primarily cios senior executives wide variety business enterprises government agencies investment community three business segments research consulting events • research provides insight cios professionals technology companies investment community reports briefings access analysts well peer networking services membership programs designed specifically cios senior executives • consulting consists primarily consulting measurement engagements strategic advisory services paid oneday analyst engagements “sas” provide assessments cost performance efficiency quality focused industry • events consists various symposia conferences exhibitions focused industry business measurements believe following business measurements important performance indicators business segments business segment business measurements research contract value represents value attributable subscriptionrelated research products recognize revenue ratable basis contract value calculated annualized value subscription research contracts effect specific point time without regard duration contract client retention rate represents measure client satisfaction renewed business relationships specific point time client retention calculated percentage basis dividing current clients also clients year ago clients year ago wallet retention rate represents measure amount contract value retained clients twelvemonth period wallet retention calculated percentage basis dividing contract value clients one year earlier total contract value year earlier wallet retention exceeds client retention indication retention higherspending clients increased spending retained clients number executive program members represents number paid participants executive programs consulting backlog represents future revenue derived inprocess consulting measurement strategic advisory services engagements utilization rates represent measure productivity consultants utilization rates calculated billable headcount percentage basis dividing total hours billed total hours available bill billing rate represents earned billable revenue divided total billable hours average annualized revenue per billable headcount represents measure revenue generating ability average billable consultant calculated periodically multiplying average billing rate per hour times utilization percentage times billable hours available one year events number events represents total number hosted events completed period number attendees represents number people attend events executive summary operations financial position cornerstones strategy focus producing extraordinary research content deliver innovative highly differentiated product offerings enhance sales capability provide world class client service improve operational effectiveness total revenues 12791 million 2008 9 prior year total revenues increased geographic regions income continuing operations 971 million 2008 098 per diluted share compared income continuing operations 707 million 065 per diluted share 2007 improved results due number factors including higher overall revenues research consulting continued focus expense management impact legal settlement charges 2007 favorable impact foreign currency lower share base due share repurchases positive trends offset lower revenue profitability events segment research business strong doubledigit revenue growth 2008 revenues 15 prior year 7732 million revenue growth occurred across entire product portfolio client sizes industry segments products delivering growth research contract value 8343 million december 31 2008 11 december 31 2007 record level us contract value growth broadbased across industry sectors excluding favorable impact foreign currency translation revenues contract value 14 8 yearoveryear respectively client retention wallet retention rates 2008 remained strong 82 98 respectively compared 82 101 prior year executive program membership 3733 december 31 2008 compared 3753 members december 31 2007 consulting revenue 2008 7 2007 3474 million reflecting growth core consulting benchmarking businesses exceptionally strong results contract optimization business consultant utilization rate increased 3 points 72 69 prior year reflecting improved engagement management billable headcount 499 december 31 2008 472 december 31 2007 hourly billing rate remained 350 per hour 2008 average annualized revenue per billable headcount approximately 458000 2008 7 higher prior year consulting backlog december 31 2008 972 million 1214 million december 31 2007 events revenues decreased 6 100 million 1501 million 2008 compared 1601 million 2007 held 70 events 2008 compared 62 2007 revenue decrease due declines number attendees exhibitors travel restrictions expense controls negatively impacted fourth quarter events segment results 2009 currently planning hold 54 events detailed discussion segment results see segment results repurchased 97 million common shares 2008 1844 million operating cash flow 2008 significantly higher prior year ended year 1409 million cash equivalents december 31 2008 also 1783 million available borrowing capacity revolving credit facility believe strong cash position adequate borrowing capacity fluctuations quarterly operating results quarterly annual revenue operating income cash flow fluctuate result many factors including timing symposiumitxpo series normally occurs fourth calendar quarter events amount new business generated mix domestic international business changes market demand products services changes foreign currency rates timing development introduction marketing new products services competition industry factors potential fluctuations operating income could cause periodtoperiod comparisons operating results meaningful could provide unreliable indication future operating results critical accounting policies estimates preparation financial statements requires application appropriate accounting policies significant accounting policies described note 1 notes consolidated financial statements management considers policies discussed critical understanding financial statements application requires complex subjective judgments use estimates specific risks critical accounting policies described revenue recognition recognize revenue accordance sec staff accounting bulletin 101 revenue recognition financial statements “sab 101” sec staff accounting bulletin 104 revenue recognition “sab 104” required criteria revenue recognition met revenue significant source accounted follows • research revenues derived subscription contracts research products revenues research products deferred recognized ratably applicable contract term • consulting revenues principally generated fixed fee time material engagements revenue fixed fee contracts recognized percentage completion basis revenues time materials engagements recognized work delivered andor services provided revenues related contract optimization contracts contingent nature recognized upon satisfaction conditions related payment • events revenues deferred recognized upon completion related symposium conference exhibition • revenues consist primarily fees research reprints recognized reprint shipped majority research contracts billable upon signing absent special terms granted limited basis time research contracts noncancelable nonrefundable except government contracts may cancellation fiscal funding clauses produced material cancellations date policy record entire amount contract billable fee receivable time contract signed corresponding amount deferred revenue since contract represents legally enforceable claim government contracts permit termination bill client full amount billable contract record receivable equal earned portion contract addition record deferred revenue government contracts cash received deferred revenues attributable government contracts 616 million 576 million december 31 2008 december 31 2007 respectively addition december 31 2008 december 31 2007 recognized uncollected receivables deferred revenues relating government contracts permit termination 121 million 108 million respectively uncollectible fees receivable allowance losses composed bad debt sales allowance reserve provisions charged earnings either reduction revenues increase expense measurement likely probable losses allowance uncollectible fees receivable based historical loss experience aging outstanding receivables assessment current economic conditions financial health specific clients evaluation inherently judgmental requires material estimates valuation reserves periodically reevaluated adjusted information ultimate collectibility fees receivable becomes available circumstances could cause valuation reserves increase include changes clients’ liquidity credit quality factors negatively impacting clients’ ability pay obligations come due effectiveness collection efforts following table provides total fees receivable along related allowance losses thousands impairment goodwill intangible assets evaluation goodwill performed accordance statement financial accounting standards 142 “goodwill intangible assets” “sfas 142” among requirements standard eliminated goodwill amortization upon adoption requires ongoing annual assessments goodwill impairment evaluation intangible assets performed periodic basis assessments require management estimate fair values reporting units based estimates future business operations market economic conditions developing longterm forecasts determine fair value reporting unit less carrying amount must recognize impairment charge associated goodwill reporting unit earnings financial statements goodwill evaluated impairment least annually whenever events changes circumstances indicate carrying value may recoverable factors consider important could trigger review impairment include following • significant underperformance relative historical projected future operating results • significant changes manner use acquired assets strategy overall business • significant negative industry economic trends • significant decline stock price sustained period • market capitalization relative net book value due numerous variables associated judgments assumptions relating valuation reporting units effects changes circumstances affecting valuations precision reliability resulting estimates subject uncertainty additional information becomes known may change estimates accounting income taxes prepare consolidated financial statements estimate income taxes jurisdictions operate process involves estimating current tax expense together assessing temporary differences resulting differing treatment items tax accounting purposes differences result deferred tax assets liabilities included within consolidated balance sheets record valuation allowance reduce deferred tax assets future realization question consider availability loss carryforwards existing deferred tax liabilities future taxable income ongoing prudent feasible tax planning strategies assessing need valuation allowance event determine able realize deferred tax assets future excess net recorded amount adjustment made reduce valuation allowance increase income period determination made likewise determine able realize part net deferred tax asset future adjustment valuation allowance charged income period determination made january 1 2007 adopted fasb interpretation 48 “accounting uncertainty income taxes” “fin 48” see note 11 income taxes notes consolidated financial statements fin 48 interpretation fasb statement 109 “accounting income taxes” seeks reduce diversity practice associated certain aspects measurement recognition accounting income taxes addition fin 48 provides guidance derecognition classification interest penalties accounting interim periods requires expanded disclosure respect uncertainty income taxes accounting stockbased compensation january 1 2006 adopted statement financial accounting standards 123r “sharebased payment” “sfas 123r” interpreted sec staff accounting bulletin 107 “sab 107” effective adoption sfas 123r company recognizing stockbased compensation expense based fair value award date grant related service period net estimated forfeitures see note 9 stockbased compensation notes consolidated financial statements determining appropriate fair value model calculating fair value stock compensation awards requires input certain highly complex subjective assumptions including expected life stock compensation awards company’s common stock price volatility addition determining appropriate amount associated periodic expense requires management estimate rate employee forfeitures likelihood achievement certain performance targets assumptions used calculating fair value stock compensation awards associated periodic expense represent management’s best estimates involve inherent uncertainties application judgment result factors change company deems necessary future modify assumptions made use different assumptions quantity nature company’s stockbased compensation awards changes amount expense may need adjusted future stock compensation expense could materially different recorded current period contingencies loss reserves accruals record accruals severance costs lease costs associated excess facilities contract terminations asset impairments result actions undertake streamline organization reposition certain businesses reduce ongoing costs estimates costs incurred complete actions future lease payments sublease income fair value assets severance related benefits based assumptions time actions initiated extent actual costs differ estimates reserve levels may need adjusted addition actions may revised due changes business conditions foresee time plans approved additionally record accruals estimated incentive compensation costs year amounts accrued end reporting period based estimates may require adjustment ultimate amount paid incentives sometimes known year end results operations february 2008 company sold vision events business part events segment reported results operations business discontinued operation see note 2 discontinued operations notes consolidated financial statements result results discussed “segment results” section years ended prior december 31 2008 restated present results operations vision events business discontinued operation order consistent current year presentation 2008 versus 2007 total revenues increased 1106 million 9 12791 million 2008 11685 million 2007 excluding favorable effects foreign currency translation total revenues 2008 would increased 8 2007 total revenues increased geographic regions revenues sales united states canadian clients increased 9 7232 million 2008 6612 million 2007 revenues sales clients europe middle east africa “emea” increased 4304 million 2008 4039 million 2007 7 increase revenues sales clients international region increased 21 1254 million 2008 1033 million 2007 overview results segment follows please refer section mda entitled “segment results” discussion results segment cost services product development increased 240 million 5 comparing 2008 2007 5548 million 5308 million excluding unfavorable impact foreign exchange cost service product development would increased 4 yearoveryear increase 240 million due several factors 170 million higher salary commissions benefit costs 57 million additional severance benefits charges related fourth quarter reduction force 40 million additional events fulfillment costs impact foreign currency translation added 21 million expense partially offsetting higher charges decrease approximately 30 million lower headcount costs primarily due exit consulting operations asiapacific mid2007 well lower stockcompensation charges 12 million percentage sales cost services product development 43 45 2008 2007 respectively decrease 2 points due number factors include higher revenues coupled inherent operating leverage research business improved productivity core consulting substantially increased revenues higher margin contract optimization business consulting segment continued focus expense management selling general administrative “sga” expense increased 13 596 million 5324 million 2008 compared 4727 million 2007 yearoveryear impact foreign currency translation flat 596 million increase sga expense resulted primarily increased investment sales organization severance benefits charges related fourth quarter reduction force increases payroll benefits costs growth sales organization resulted approximately 380 million additional payroll benefits commissions travel expense 2008 compared 2007 928 quotabearing sales associates 15 increase december 31 2007 28 million severance benefits charges related fourth quarter reduction force higher payroll related benefits costs staff added 130 million costs remaining increase spread across number cost categories offset extent lower recruiting stockcompensation charges depreciation expense increased 7 2008 259 million compared 243 million prior year increase primarily due change mix investment capital expenditures amortization intangibles 16 million 2008 compared 21 million 2007 decrease due certain intangibles becoming fully amortized 2007 charges zero 2008 91 million 2007 91 million included charges 87 million related settlement litigation 27 million severance costs related company’s exit consulting operations asia offsetting charges credit 23 million related excess facility company returned service operating income 1644 million 1295 million 2008 2007 respectively increase 349 million 27 operating income percentage revenues 13 2008 11 2007 due number factors significant impact higher revenues research consulting businesses please refer section mda entitled “segment results” discussion revenues results segment improved operating performance also reflects continued focus expense management charges 91 million 2007 related settlement litigation items positive impact foreign currency translation interest expense net 193 million 222 million 2008 2007 respectively decrease 29 million decrease primarily due decline weightedaverage interest rate outstanding debt weightedaverage interest rate debt including impact interest rate swaps 48 2008 60 2007 impact lower average rate partially offset increase weightedaverage amount debt outstanding approximately 500 million 2008 also 02 million additional interest income well 02 million decrease amortization debt issuance costs recorded interest expense net expense income net 04 million 2008 32 million 2007 04 million expense 2008 primarily consisted 12 million gain related settlement litigation matter net foreign currency exchange gains losses 32 million income 2007 primarily consisted 18 million gain settlement claim net foreign currency exchange gains losses provision income taxes continuing operations 476 million 2008 compared 398 million 2007 effective tax rate 329 2008 360 2007 lower effective tax rate 2008 compared 2007 attributable several items significant items included following company generated larger percentage income low tax jurisdictions 2008 compared 2007 b differences relating tax impact repatriated funds 2008 compared 2007 income discontinued operations net taxes includes results company’s vision events business 67 million 29 million 2008 2007 respectively company sold vision events business part company’s events segment early 2008 results 2008 include net gain sale approximately 71 million loss operations 04 million net income 1039 million 736 million 2008 2007 respectively increase 303 million 41 basic earnings per share 109 per share 2008 071 per share 2007 diluted 105 per share 2008 068 per share 2007 basic diluted earnings 2008 include 007 per share discontinued operations basic diluted earnings 2007 include 003 per share discontinued operations 2007 versus 2006 total revenues increased 1312 million 13 11685 million 2007 10373 million 2006 excluding favorable effects foreign currency translation total revenues 2007 would increased 9 2006 please refer section mda entitled “segment results” discussion revenues segment revenues increased regions revenues sales united states canadian clients increased 9 6612 million 2007 6083 million 2006 revenues sales clients europe middle east africa “emea” increased 4039 million 2007 3377 million 2006 20 increase revenues sales clients international region increased 13 1033 million 2007 913 million 2006 cost services product development increased 402 million 8 comparing 2007 2006 5301 million 4906 million respectively excluding unfavorable effects foreign currency translation cost services product development would increased 4 402 million increase primarily due impact foreign currency added 170 million additional expense 182 million merit salary bonus fringe increases 64 million higher event fulfillment costs driven higher events revenue additional stockbased compensation costs sfas 123r 25 million increases offset extent lower nonsales headcount charges years ended december 31 2007 2006 cost services product development percentage revenue 45 47 respectively selling general administrative “sga” expense increased 597 million 14 4727 million 4131 million comparing 2007 2006 excluding unfavorable effects foreign currency translation sga expense would increased 12 yearoveryear 597 million increase sga yearoveryear resulted primarily increased investment sales organization expenses approximately 300 million foreign currency translation added 91 million expense additional stockbased compensation sfas 123r 54 million december 31 2007 806 sales associates 22 increase prior yearend sga expense increased 14 yearoveryear salesrelated expenses excluded general administrative ga expense one percentage point yearoveryear percentage revenue depreciation expense year ended december 31 2007 243 million compared 234 million 2006 driven higher capital expenditures 242 million 211 million capital expenditures 2007 2006 respectively amortization intangibles 21 million 2007 compared 107 million 2006 decrease due certain intangibles becoming fully amortized 2006 meta integration charges zero 2007 15 million 2006 expenses primarily severance consulting accounting tax services charges 91 million zero 2007 2006 respectively 91 million included charges 87 million related settlement litigation 27 million severance costs related company’s exit consulting operations asia offsetting charges credit 23 million related excess facility company returned service operating income 1295 million 980 million 2007 2006 respectively increase 314 million 32 operating income percentage revenues 11 2007 9 2006 improved operating income primarily resulted higher revenues research consulting businesses please refer section mda entitled “segment results” discussion revenues results segment interest expense net 222 million 166 million years ended december 31 2007 2006 respectively increase interest expense due higher weightedaverage amount debt outstanding 2007 increased interest expense additional debt outstanding partially offset slight decline rates higher interest income expense income net 32 million 08 million years ended december 31 2007 2006 respectively 2007 includes gain settlement claim 18 million majority remaining net balances years consists net foreign currency exchange gains losses provision income taxes 398 million 2007 compared 264 million 2006 effective tax rate 2007 360 compared 327 2006 higher effective tax rate 2007 compared 2006 attributable several items significant items included following company generated smaller percentage income low tax jurisdictions 2007 compared 2006 b differences relating release valuation allowances changes reserves income discontinued operations net taxes includes results company’s vision events business 29 million 39 million 2007 2006 respectively net income 736 million 582 million 2007 2006 respectively increase 154 million 26 basic earnings per share 071 per share 2007 051 per share 2006 diluted 068 per share 2007 050 per share 2006 basic diluted earnings 2007 2006 includes 003 per share discontinued operations 2008 segment results evaluate reportable segment performance allocate resources based gross contribution margin gross contribution defined operating income excluding certain cost services product development charges selling general administrative expenses depreciation meta integration charges amortization intangibles charges gross contribution margin defined gross contribution percentage revenues research revenue research business 15 2008 7733 million 6733 million 2007 growth across entire product portfolio 2008 excluding favorable impact foreign currency revenue approximately 14 prior year research gross contribution increased 5077 million 2008 4291 million 2007 18 increase contribution margin increased 2 points 66 64 yearoveryear contribution margin improved primarily due stronger revenue performance coupled operating leverage inherent research business along tight expense management contract value 8343 million december 31 2008 11 7525 million december 31 2007 adjusted favorable impact foreign currency translation contract value approximately 8 december 31 2008 research client retention rate remained strong 82 rate december 31 2007 wallet retention 98 december 31 2008 101 december 31 2007 executive program membership 3733 december 31 2008 compared 3753 members december 31 2007 consulting revenues 3474 million 3250 million 2008 2007 respectively increase 224 million 7 excluding favorable impact foreign currency translation revenues 2008 6 revenue increase due strength core consulting benchmarking businesses exceptionally strong results contract optimization business contributing yearoveryear revenue increase contract optimization business completion one large contract fourth quarter 2008 resulted approximately 110 million revenue consulting gross contribution 1414 million 2008 increased 10 1282 million 2007 contribution margin 2008 increased 2 points 41 39 prior year increase gross contribution gross contribution margin driven improved utilization higher headcount higher billing rates higher revenues contract optimization business higher margin core consulting business consultant utilization rates 72 69 2008 2007 respectively 366 hourly billing rate 3 yearoveryear billable headcount 499 december 31 2008 compared 472 december 31 2007 average annualized revenue per billable headcount approximately 458000 2008 7 higher prior year strong metrics reflect improved engagement management continuation focus larger profitable engagements consulting backlog represents future revenues recognized inprocess consulting measurement sas 972 million december 31 2008 compared 1214 million december 31 2007 bookings slowed fourth quarter 2008 due weaker economic environment ended 2008 499 billable consultants reduction force action took january 2009 reduced number approximately 30 consultants action taken order better align delivery resources lower backlog move 2009 events revenues decreased 6 yearoveryear 100 million 1501 million 2008 compared 1601 million 2007 reflecting lower revenues attendees exhibitors excluding favorable impact foreign currency translation events revenues approximately 7 yearoveryear held 70 events 2008 compared 62 events 2007 overall attendance 6 41352 2008 44216 2007 70 events held 2008 included 59 ongoing events 11 new events 2008 number exhibitors ongoing events declined approximately 13 attendance 38961 compared 42554 attendees 2007 8 decrease pricing ongoing events declined slightly attendees increased slightly exhibitors revenues 11 new events held 2008 slightly higher events discontinued majority yearoveryear revenue shortfall occurred fourth quarter travel restrictions cuts marketing budgets expense controls many companies took effect response credit crisis weakening global economy events gross contribution 650 million 2008 compared 819 million 2007 yearoveryear gross contribution margin declined 8 points 43 51 decrease gross contribution margin primarily due lower revenues higher fulfillment costs impact lower margin new events severance charges related reduction force result travel restrictions budget cuts many companies weakening economy reduced number events planned 2009 54 reflects discontinuance 18 events including two spring symposia well launch two smaller new events 18 discontinued events approximately 210 million revenue 2008 2007 segment results research revenue research business increased 1021 million 18 2007 6733 million compared 5712 million 2006 yearoveryear growth across entire product portfolio geographic regions excluding favorable impact foreign currency revenue 15 yearoveryear research gross contribution increased 4291 million 2007 3455 million 2006 24 increase contribution margin increased 4 points 64 60 contribution margin improved primarily due stronger revenue performance contract value 7525 million december 31 2007 18 6403 million december 31 2006 yearoveryear increase driven increases core research executive programs reflects success new rolebased product offerings contract value growth across major geographic regions client industry segments adjusted favorable impact foreign currency translation contract value 14 yearoveryear december 31 2007 research client retention rate remained strong 82 81 december 31 2006 wallet retention 101 december 31 2007 96 december 31 2006 reflecting higher spending retained clients executive program membership 3753 december 31 2007 3 prior yearend consulting revenues 3250 million 2007 compared 3052 million 2006 increase 6 198 million despite decline billable headcount excluding favorable impact foreign currency translation revenues 3 yearoveryear increased revenue driven substantial improvement contract optimization business well higher utilization billing rates core consulting business contract optimization business weak fourth quarter 2006 due changes sales incentives rectified 2007 billable headcount 472 december 31 2007 compared 518 december 31 2006 9 decrease reduced billable headcount primarily reflects decision exit consulting business asia consulting gross contribution 1282 million 2007 increased 6 1207 million 2006 contribution margin decreased 1 point 39 2007 40 prior year decrease gross contribution margin yearoveryear driven lower sas revenue performance additional investment senior level consultants consultant utilization rate 69 64 years ended december 31 2007 2006 respectively billing rate remained 350 per hour 2007 2006 average annualized revenue per billable headcount 5 approximately 430000 2007 410000 2006 consulting backlog represents future revenues recognized inprocess consulting measurement sas increased 11 1214 million december 31 2007 1096 million december 31 2006 events revenues 2007 increased 9 137 million 1601 million compared 1464 million 2006 adjusted favorable impact foreign exchange revenues approximately 5 held 62 events 2007 58 2006 increased revenue primarily due addition 10 new events 2007 increase attendee volume ticket prices attendance events 44216 2007 8 increase 2006 gross contribution 819 million 2007 compared 754 million 2006 9 increase gross contribution margin 51 2007 2006 liquidity capital resources finance operations primarily cash generated ongoing operating activities year ended december 31 2008 cash operating activities 1844 million approximately 24 higher 1483 million realized 2007 2008 used 2008 million cash repurchase common shares december 31 2008 1409 million cash equivalents 1783 million available borrowing capacity revolving credit facility including 1000 million expansion feature believe cash expect earn ongoing operating activities existing cash balances borrowing capacity fiveyear revolving credit facility sufficient expected shortterm foreseeable longterm operating needs following sections discuss company’s changes cash equivalents three years ending december 31 2008 cash provided operating activities totaled 1844 million year december 31 2008 compared cash provided 1483 million year ended december 31 2007 361 million 24 increase cash flow operating activities primarily due substantially increased cash core operations improvement working capital together added approximately 450 million higher operating cash flow working capital improved primarily due improved collection receivables also contributing improved cash flow 120 million lower cash payments related severance excess facilities settlement litigation 20 million less interest paid debt interest rates declined improved operating cash flow 2008 somewhat offset higher cash payments taxes bonuses approximately 230 million cash used investing activities 165 million year ended december 31 2008 compared cash used 241 million 2007 capital expenditures 243 million year ended december 31 2008 offset net cash proceeds sale vision events business approximately 78 million capital expenditures 242 million 2007 cash used financing activities totaled 1198 million 2008 compared cash used 937 million 2007 increase cash used 261 million increased use cash primarily due significantly higher use cash stock repurchases 2008 used additional 340 million cash repurchase shares 2008 million 2008 compared 1668 million 2007 partially offsetting additional use cash used stock repurchases increase 102 million cash proceeds stock issued stock plans rose 447 million 2008 compared 345 million 2007 driven higher option exercises cash equivalents 1409 million december 31 2008 compared 1099 million december 31 2007 effect exchange rate changes decreased cash equivalents approximately 171 million year ended december 31 2008 cash equivalents held numerous locations throughout world 55 held outside us december 31 2008 cash provided operating activities totaled 1483 million year ended december 31 2007 compared cash provided 1063 million year ended december 31 2006 increase 421 million 40 increase cash flow operating activities primarily due increase cash core operations approximately 390 million lower cash payments taxes 210 million lesser extent lower cash payments severance items 50 million offsetting improvements payment 95 million related legal settlement higher cash payments interest outstanding debt 80 million higher reduction excess tax benefits stockbased compensation 56 million cash used investing activities 241 million year ended december 31 2007 compared 218 million 2006 increase due yearoveryear increase capital expenditures increased 242 million 2007 211 million 2006 cash used financing activities increased slightly 937 million year ended december 31 2007 compared 915 million 2006 net basis borrowed 240 million 2007 compared 1230 million 2006 decrease 990 million yearoveryear decreased use cash repurchase shares 1039 million repurchased 1668 million common stock 2007 compared 2707 million 2006 received proceeds stock issued stock plans 345 million 2007 compared 467 million 2006 decrease 122 million excess tax benefits stock compensation increased approximately 56 million 148 million 2007 compared 92 million 2006 december 31 2007 cash equivalents totaled 1099 million effect exchange rates increased cash equivalents 116 million 2007 obligations commitments december 31 2008 4163 million outstanding credit agreement provides two amortizing term loans 3000 million revolving credit facility revolving credit facility may increased additional 1000 million lenders’ discretion “expansion feature” total revolving credit facility 4000 million however 1000 million expansion feature may available us depending upon prevailing credit market conditions term loans repaid consecutive quarterly installments plus final payment due january 31 2012 may prepaid time without penalty premium option revolving loans may borrowed repaid reborrowed january 31 2012 time amounts borrowed must repaid see note 6 debt accompanying notes consolidated financial statements additional information regarding company’s credit agreement following table represents contractual cash commitments due december 31 2008 thousands 1 company leases various facilities furniture computer equipment expiring 2009 2025 2 represent amounts due company’s credit agreement 3 excludes required interest payments outstanding debt due variable nature interest rates resulting payment amounts information regarding current interest rates company’s debt contained note 6debt notes consolidated financial statements contained within form 10k years ended december 31 2008 2007 cash interest paid debt 224 million 241 million respectively 4 represents liability company’s supplemental deferred compensation arrangement amounts payable active employees whose payment date unknown included 5 years category since company cannot determine amounts paid 5 includes interest penalties addition 23 million liability approximately 163 million unrecognized tax benefits recorded liabilities accordance fasb interpretation 48 uncertain amounts may settled related unrecognized tax benefits included table company also recorded liability potential interest penalties 15 million quarterly financial data 1 aggregate four quarters’ basic diluted earnings per common share may equal reported full calendar year amounts due effects share repurchases dilutive equity compensation rounding 2 first quarter 2008 includes 007 per share gain disposal discontinued operations 3 includes 91 million pretax charges second quarter 2007 new accounting standards december 2007 fasb issued sfas 141 revised 2007 “business combinations” “sfas 141r” replaces fasb statement 141 sfas 141r establishes principles requirements acquirer recognizes measures financial statements identifiable assets acquired liabilities assumed non controlling interest acquiree goodwill acquired business combination statement requires adjustments tax benefits related acquiree recorded subsequent acquisition date recognized income rather adjustment goodwill current rules statement also establishes disclosure requirements enable users evaluate nature financial effects business combination sfas 141r effective beginning entity’s fiscal year begins december 15 2008 gartner fiscal year beginning january 1 2009 december 31 2008 approximately 83 million unrecognized tax benefits valuation allowances related acquisition meta possibility exists portion items may reverse future periods believe impact provision results operations would significant accordingly believe adoption standard material impact financial position results operations december 2007 fasb issued sfas 160 “noncontrolling interests consolidated financial statementamendments arb 51 “sfas 160”” sfas 160 requires accounting reporting minority interests noncontrolling interests classified component equity statement also establishes reporting requirements provide sufficient disclosures clearly identify distinguish interests parent interests noncontrolling owners sfas 160 applies entities prepare consolidated financial statements except notforprofit organizations affect entities outstanding noncontrolling interest one subsidiaries deconsolidate subsidiary statement effective beginning entity’s first fiscal year beginning december 15 2008 company’s fiscal year beginning january 1 2009 company believe adoption standard material impact financial position results operations item 7aitem 7 management’s discussion analysis financial condition results operations purpose following management’s discussion analysis “mda” help facilitate understanding significant factors influencing operating results financial condition cash flows gartner inc additionally mda also conveys expectations potential impact known trends events uncertainties may impact future results read discussion conjunction consolidated financial statements related notes included report historical results percentage relationships necessarily indicative operating results future periods references “the company” “we” “our” “us” gartner inc consolidated subsidiaries following items impact presentation discussion results mda section december 18 2009 acquired amr research december 30 2009 acquired burton group financial results businesses material 2009 results included results beginning respective dates acquisition see note 2 acquisitions notes consolidated financial statements operating metrics acquired businesses excluded business measurements presentations discussions comparability purposes effective january 1 2009 company reclassified certain amounts presented consolidated statements operations company eliminated previously reported “other” revenue line “other” revenue line primarily consisted fees earned research reprints miscellaneous products revenues related expenses included research segment addition certain expenses formerly classified selling general administrative included cost services product development included research segment expense prior periods reclassified order consistent current period presentation see note 1 business significant accounting policies note 16 segment information notes consolidated financial statements early 2008 sold vision events business part events segment result results operations business 2008 earlier periods reported discontinued operation see note 3 discontinued operations notes consolidated financial statements forwardlooking statements addition historical information annual report form 10k contains certain forwardlooking statements forwardlooking statements historical fact including statements regarding expectations beliefs hopes intentions strategies regarding future cases forwardlooking statements identified use words “may” “will” “expect” “should” “could” “believe” “plan” “anticipate” “estimate” “predict” “potential” “continue” words similar meaning forwardlooking statements subject risks uncertainties could cause actual results differ materially discussed implied forwardlooking statements factors might cause difference include limited discussed part 1 item 1a risk factors readers place undue reliance forwardlooking statements reflect management’s opinion date made except required law disclaim obligation review update forwardlooking statements reflect events circumstances occur readers review carefully risk factors described reports filed sec business overview gartner inc world’s leading information technology research advisory company helps executives use technology build guide grow enterprises offer independent objective research analysis information technology computer hardware software communications related technology industries provide comprehensive coverage industry approximately 10000 client organizations including approximately 400 fortune 500 companies 80 countries client base consists primarily cios senior executives wide variety business enterprises government agencies investment community three business segments research consulting events • research provides insight cios executives professionals business leaders technology companies investment community research reports briefings access analysts well peer networking services membership programs • consulting consists primarily consulting engagements utilize research insight benchmarking data problemsolving methodologies hands experience improve return organization’s investment assessments cost performance efficiency quality • events consists various symposia summits conferences focused industry whole well applicable particular industries particular roles within organization business measurements believe following business measurements important performance indicators business segments business segment business measurements research contract value represents value attributable subscriptionrelated research products recognize revenue ratable basis contract value calculated annualized value subscription research contracts effect specific point time without regard duration contract client retention rate represents measure client satisfaction renewed business relationships specific point time client retention calculated percentage basis dividing current clients also clients year ago clients year ago wallet retention rate represents measure amount contract value retained clients twelvemonth period wallet retention calculated percentage basis dividing contract value clients one year earlier total contract value year earlier excluding impact foreign currency exchange wallet retention exceeds client retention indication retention higherspending clients increased spending retained clients number executive program members represents number paid participants executive programs consulting backlog represents future revenue derived inprocess consulting measurement strategic advisory services engagements utilization rates represent measure productivity consultants utilization rates calculated billable headcount percentage basis dividing total hours billed total hours available bill billing rate represents earned billable revenue divided total billable hours average annualized revenue per billable headcount represents measure revenue generating ability average billable consultant calculated periodically multiplying average billing rate per hour times utilization percentage times billable hours available one year events number events represents total number hosted events completed period number attendees represents number people attend events executive summary operations financial position purchased amr research burton group december 2009 believe companies recognized bestinclass expand research market opportunity accelerate growth rate time total revenues 11398 million 2009 decline 11 prior year revenues decreased 3 business segments geographic regions excluding impact foreign currency translation total revenues 8 2009 attribute decline revenue global economic downturn began 2008 income continuing operations 830 million 2009 085 per diluted share compared income continuing operations 971 million 098 per diluted share 2008 decline primarily reflects lower profitability consulting events segments research revenues 4 yearoveryear 7525 million 2009 7816 million prior year excluding impact foreign currency research revenues 1 yearoveryear despite yearoveryear decline research revenues gross contribution margin increased 2 points primarily due tight cost controls implemented lesser extent ability implement price increases products december 31 2009 research contract value 7844 million client retention 78 wallet retention 87 research contract value december 31 2009 6 compared prior year end adjusted impact foreign currency 1 yearoveryear 7844 million contract value december 31 2009 increased 6 september 30 2009 reflecting broadbased increase industries geographies client sizes showing improvement quarter consulting revenues declined 17 yearoveryear 2868 million 2009 3474 million 2008 primarily due decline core consulting excluding unfavorable impact foreign currency translation revenues declined 15 consulting segment contribution margin declined 2 points primarily due lower revenue contract optimization business fewer sas days filled higher contribution margin core consulting utilization core consulting 68 2009 backlog 909 million december 31 2009 decline 6 december 31 2008 events revenues decreased 33 2009 compared prior year due discontinued events decline revenue ongoing events discontinued number events 2009 response economic downturn travel restrictions factors held 54 events 2009 compared 70 2008 12 decline attendees 51 ongoing events segment contribution margin declined 2 points yearoveryear 41 detailed discussion segment results see segment results 2009 continued focus enhancing shareholder value reducing outstanding debt repaid 953 million term loans 2009 represented approximately 32 amount outstanding also used 1045 million cash acquire amr research burton group 1619 million operating cash flow year ended december 31 2009 cash equivalents totaled 1166 million december 31 2009 approximately 1700 million available borrowing capacity revolving credit facility believe cash position borrowing capacity adequate meet existing cash liquidity requirements fluctuations quarterly results quarterly annual revenue operating income cash flow fluctuate result many factors including timing symposiumitxpo series normally held fourth calendar quarter events amount new business generated mix domestic international business changes market demand products services changes foreign currency rates timing development introduction marketing new products services competition industry factors potential fluctuations operating income could cause periodtoperiod comparisons operating results meaningful could provide unreliable indication future operating results critical accounting policies estimates preparation financial statements requires application appropriate accounting policies use estimates significant accounting policies described note 1 notes consolidated financial statements management considers policies discussed critical understanding financial statements application requires complex subjective management judgments estimates specific risks critical accounting policies also described preparation financial statements also requires us make estimates assumptions future events develop estimates using current historical experience well factors including general economic environment actions may take future adjust estimates facts circumstances dictate however estimates may involve significant uncertainties judgments cannot determined precision addition estimates based best judgment point time estimates may ultimately differ actual results ongoing changes estimates could material would reflected company’s financial statements future periods critical accounting policies follows revenue recognition recognize revenue accordance sec staff accounting bulletin 101 revenue recognition financial statements “sab 101” sec staff accounting bulletin 104 revenue recognition “sab 104” required criteria revenue recognition met revenue significant source accounted follows • research revenues derived subscription contracts research products deferred recognized ratably applicable contract term fees research reprints recognized reprint shipped • consulting revenues principally generated fixed fee time material engagements revenues fixed fee contracts recognized percentage completion basis revenues time materials engagements recognized work delivered andor services provided revenues related contract optimization contracts contingent nature recognized upon satisfaction conditions related payment • events revenues deferred recognized upon completion related symposium conference exhibition majority research contracts billable upon signing absent special terms granted limited basis time research contracts noncancelable nonrefundable except government contracts may cancellation fiscal funding clauses produced material cancellations date policy record entire amount contract billable fee receivable time contract signed corresponding amount deferred revenue since contract represents legally enforceable claim government contracts permit cancellation bill client full amount billable contract record receivable equal earned portion contract addition record deferred revenue government contracts cash received deferred revenues attributable government contracts 653 million 616 million december 31 2009 december 31 2008 respectively addition december 31 2009 december 31 2008 recognized uncollected receivables deferred revenues relating government contracts permit termination 83 million 121 million respectively uncollectible fees receivable allowance losses composed bad debt allowance sales reserve provisions charged earnings either reduction revenues increase expense measurement likely probable losses allowance losses based historical loss experience aging outstanding receivables assessment current economic conditions financial health specific clients evaluation inherently judgmental requires material estimates valuation reserves periodically reevaluated adjusted information ultimate collectibility fees receivable becomes available circumstances could cause valuation reserves increase include changes clients’ liquidity credit quality factors negatively impacting clients’ ability pay obligations come due effectiveness collection efforts following table provides total fees receivable related allowance losses thousands impairment goodwill intangible assets evaluation goodwill performed accordance financial accounting standards board fasb accounting standards codification asc topic 350 requires goodwill assessed impairment least annually whenever events changes circumstances indicate carrying value may recoverable addition impairment evaluation amortizable intangible assets performed periodic basis annual goodwill assessment requires us estimate fair values reporting units based estimates future business operations market economic conditions developing longterm forecasts determine fair value reporting unit less carrying amount must recognize impairment charge portion associated goodwill reporting unit earnings financial statements factors consider important could trigger review impairment include following • significant underperformance relative historical projected future operating results • significant changes manner use acquired assets strategy overall business • significant negative industry economic trends • significant decline stock price sustained period • market capitalization relative net book value due numerous variables associated judgments assumptions relating valuation reporting units effects changes circumstances affecting valuations precision reliability resulting estimates subject uncertainty additional information becomes known may change estimates completed annual goodwill impairment testing quarter ended september 30 2009 concluded fair values company’s reporting units substantially exceeded respective carrying values accounting income taxes prepare consolidated financial statements estimate income taxes jurisdictions operate process involves estimating current tax expense together assessing temporary differences resulting differing treatment items tax accounting purposes differences result deferred tax assets liabilities included within consolidated balance sheets record valuation allowance reduce deferred tax assets future realization question consider availability loss carryforwards existing deferred tax liabilities future taxable income ongoing prudent feasible tax planning strategies assessing need valuation allowance event determine able realize deferred tax assets future excess net recorded amount adjustment made reduce valuation allowance increase income period determination made likewise determine able realize part net deferred tax asset future adjustment valuation allowance charged income period determination made accounting stockbased compensation company accounts stockbased compensation accordance fasb asc topics 505 718 interpreted sec staff accounting bulletins 107 “sab 107” 110 “sab 110” company recognizes stockbased compensation expense based fair value award date grant related service period net estimated forfeitures see note 10 stockbased compensation notes consolidated financial statements determining appropriate fair value model calculating fair value stock compensation awards requires input certain highly complex subjective assumptions including expected life stock compensation awards company’s common stock price volatility addition determining appropriate amount associated periodic expense requires management estimate rate employee forfeitures likelihood achievement certain performance targets assumptions used calculating fair value stock compensation awards associated periodic expense represent management’s best estimates involve inherent uncertainties application judgment result factors change company deems necessary future modify assumptions made use different assumptions quantity nature company’s stockbased compensation awards changes amount expense may need adjusted future stock compensation expense could materially different recorded current period restructuring accruals may record accruals severance costs associated excess facilities leased contract terminations asset impairments costs result ongoing actions undertake streamline organization reposition certain businesses reduce ongoing costs estimates costs incurred complete actions future lease payments sublease income fair value assets severance related benefits based assumptions time actions initiated accruals may need adjusted extent actual costs differ estimates addition actions may revised due changes business conditions foresee time plans approved also record accruals year various employee cash incentive programs amounts accrued end reporting period based estimates may require adjustment ultimate amount paid incentives sometimes known certainty year end results operations following table summarizes changes selected line items consolidated statements operation periods indicated dollars thousands december 2009 acquired amr research burton group operating results businesses included consolidated results beginning respective dates acquisition results businesses material 2009 results 2009 versus 2008 total revenues twelve months ended december 31 2009 decreased 1393 million 11 compared twelve months ended december 31 2008 revenues declined across geographic regions three business segments impact foreign currency negative impact revenues 2009 excluding impact total revenues 2009 8 compared 2008 revenues operating results negatively impacted global economic conditions 2009 overview results geographic region follows • revenues sales united states canadian clients decreased 8 6638 million 2009 7232 million 2008 • revenues sales clients europe middle east africa “emea” decreased 3608 million 2009 4304 million 2008 16 decrease • revenues sales clients international region decreased 8 1152 million 2009 1254 million 2008 overview results segment follows • research revenues decreased 4 2009 7525 million compared 7816 million 2008 comprised approximately 66 61 total revenues 2009 2008 respectively • consulting revenues decreased 17 2009 2868 million compared 3474 million 2008 comprised approximately 25 27 total revenues 2009 2008 respectively • events revenues 1004 million 2009 decrease 33 1501 million 2008 comprised approximately 9 12 total revenues 2009 2008 respectively please refer section mda entitled “segment results” discussion revenues results segment cost services product development decreased 738 million yearoveryear 13 favorable impact foreign currency translation reduced expense 190 million lower conference expenses 185 million primarily due discontinued events also reduced travel internal meeting charges 167 million lower personnel costs 125 million primarily due tight cost controls remaining 71 million net decrease spread across number expense categories cost services product development percentage sales declined 1 point 44 2009 45 2008 primarily due tight expense controls across businesses selling general administrative “sga” expense decreased 380 million 2009 7 compared 2008 despite increasing sales force impact foreign currency translation reduced expense 180 million also lower travel internal meeting recruiting costs 190 million due tight cost controls remaining net reduction spread across number expense categories excluding 60 sales associates joined us amr research burton group 942 quotabearing sales associates december 31 2009 2 increase prior year end additional investment sales associates resulted 90 million higher payroll benefits costs offset lower ga charges depreciation expense decreased 2 yearoveryear reflects reduced capital spending 2009 capital spending decreased 151 million 2009 243 million 2008 38 decline reflects company’s reduced 2009 capital expenditures amortization intangibles 16 million 2009 2008 acquisition integration charges 29 million 2009 zero 2008 included charges legal fees consultant fees connection acquisitions integration amr research burton group well severance costs related redundant headcount operating income decreased 18 yearoveryear 1345 million 2009 1644 million 2008 operating income percentage revenues declined 1 point yearoveryear primarily due lower profitability consulting events segments 29 million acquisition integration charge related amr research burton group please refer section mda entitled “segment results” discussion revenues results segment interest expense net 160 million 2009 193 million 2008 17 decline 2009 period includes 11 million expense related discontinuance hedge accounting interest rate swap contract see note 7 debt notes consolidated financial statements excluding 11 million charge interest expense net would declined approximately 22 yearoveryear decline primarily attributable reduction weightedaverage amount debt outstanding expense income net 29 million 2009 consisted net foreign currency exchange losses 04 million expense 2008 primarily consisted 12 million gain related settlement litigation matter offset net foreign currency exchange losses provision income taxes continuing operations 326 million 2009 compared 476 million 2008 effective tax rate 282 2009 329 2008 lower effective tax rate 2009 compared 2008 attributable several items significant items include following release reserves uncertain tax positions relating expiration statutes limitation larger 2009 2008 pretax income lower b differences relating taxability life insurance contracts yearoveryear income discontinued operations net taxes includes results company’s vision events business sold early 2008 67 million income 2008 includes net gain sale approximately 71 million 04 million operating loss net income 830 million 2009 1039 million 2008 decline 209 million 20 decline primarily driven reduced contributions three business segments 2009 period lesser extent 29 million acquisition integration charge recorded related amr research burton group decreases partially offset lower sga charges lower effective income tax rate reduced interest expense also contributing yearoveryear decline net income 67 million net gain sale company’s former vision events business recorded 2008 period basic earnings per share continuing operations decreased 14 yearoveryear diluted earnings per share continuing operations decreased 13 yearoveryear 2008 versus 2007 total revenues twelve months ended december 31 2008 increased 1106 million 9 compared twelve months ended december 31 2007 revenues increased across geographic regions research consulting segments excluding favorable effect foreign currency translation total revenues 2008 would increased 8 2007 overview results geographic region follows • revenues sales united states canadian clients increased 9 7232 million 2008 6612 million 2007 • revenues sales clients emea increased 4304 million 2008 4039 million 2007 7 increase • revenues sales clients international region increased 21 1254 million 2008 1033 million 2007 overview results segment follows • research revenues increased 14 2008 7816 million compared 6834 million 2007 comprised approximately 61 58 total revenues 2008 2007 respectively • consulting revenues increased 7 2008 3474 million compared 3250 million 2007 comprised approximately 27 28 total revenues 2008 2007 respectively • events revenues 1501 million 2008 decrease 6 1601 million 2007 comprised approximately 12 14 total revenues 2008 2007 respectively please refer section mda entitled “segment results” discussion revenues results segment cost services product development increased 256 million yearoveryear 5 excluding unfavorable impact foreign exchange cost service product development would increased 4 yearoveryear increase due several factors 170 million higher salary commissions benefit costs 57 million additional severance benefits charges related fourth quarter reduction force 40 million additional events fulfillment costs impact foreign currency translation added 21 million expense partially offsetting higher charges decrease approximately 32 million lower headcount costs primarily due exit consulting operations asiapacific mid2007 percentage sales cost services product development 45 47 2008 2007 respectively decrease 2 points due number factors include higher revenues coupled inherent operating leverage research business improved productivity core consulting substantially increased revenues higher margin contract optimization business consulting segment continued focus expense management sga expense increased 580 million 2008 13 compared 2007 increase 2008 expense primarily due higher investment sales organization severance benefits charges related fourth quarter reduction force increases payroll benefits costs growth sales organization resulted approximately 380 million additional payroll benefits commissions travel expense 2008 compared 2007 928 quotabearing sales associates december 31 2008 15 increase december 31 2007 28 million severance benefits charges related fourth quarter 2008 reduction force higher payroll related benefits costs staff added 130 million costs remaining increase spread across number cost categories offset extent lower recruiting stockbased compensation charges depreciation expense increased 7 2008 259 million compared 243 million prior year increase primarily due change mix investment capital expenditures amortization intangibles 16 million 2008 compared 21 million 2007 decrease due certain intangibles becoming fully amortized 2007 charges zero 2008 91 million 2007 91 million included charges 87 million related settlement litigation 27 million severance costs related company’s exit consulting operations asia offsetting charges credit 23 million related excess facility company returned service operating income 1644 million 1295 million 2008 2007 respectively increase 349 million 27 operating income percentage revenues 13 2008 11 2007 2 point increase due number factors significant impact higher revenues research consulting businesses improved operating margin also reflects tight focus expense management charges 91 million 2007 related settlement litigation items please refer section mda entitled “segment results” discussion revenues results segment interest expense net 193 million 222 million 2008 2007 respectively decrease 29 million decrease primarily due decline weightedaverage interest rate outstanding debt weightedaverage interest rate debt including impact interest rate swaps 48 2008 60 2007 impact lower average rate partially offset increase weightedaverage amount debt outstanding approximately 500 million 2008 also 02 million additional interest income well 02 million decrease amortization debt issuance costs recorded interest expense net expense income net 04 million 2008 32 million 2007 04 million expense 2008 primarily consisted 12 million gain related settlement litigation matter offset net foreign currency exchange losses 32 million income 2007 primarily consisted 18 million gain settlement claim net foreign currency exchange gains provision income taxes continuing operations 476 million 2008 compared 398 million 2007 effective tax rate 329 2008 360 2007 lower effective tax rate 2008 compared 2007 attributable several items significant items included following company generated larger percentage income low tax jurisdictions 2008 compared 2007 b differences relating tax impact repatriated funds 2008 compared 2007 income discontinued operations net taxes includes results company’s vision events business 67 million 29 million 2008 2007 respectively company sold vision events business part company’s events segment early 2008 results 2008 included net gain sale approximately 71 million loss operations 04 million net income 1039 million 736 million 2008 2007 respectively increase 303 million 41 basic earnings per share continuing operations increased 034 per share yearoveryear diluted earnings per share continuing operations increased 033 per share yearoveryear segment results evaluate reportable segment performance allocate resources based gross contribution margin gross contribution defined operating income excluding certain cost services product development charges sga depreciation acquisition integration charges amortization intangibles charges gross contribution margin defined gross contribution percentage revenues acquired amr research december 18 2009 burton group december 30 2009 financial results businesses included financial measurements beginning respective dates acquisition results businesses material segment results business measurements exclude data applicable businesses following sections present results three segments research 1 includes operating results amr research burton group purchased december 2009 results businesses material 2009 segment results 2 dollars thousands 3 excludes amr research burton group 2009 versus 2008 research revenues declined 4 yearoveryear excluding unfavorable effect foreign currency translation research revenues 1 spite lower revenues research contribution margin increased 2 points yearoveryear improved margin primarily driven tight cost controls implemented resulted lower costs concentrated personnel travel internal meetings ability implement price increases products contract value decreased 6 comparing december 31 2009 december 31 2008 excluding impact foreign currency translation contract value 1 yearoveryear contract value increased 420 million fourth quarter 2009 6 one highest ever quarterly increases growth across industries geographies client sizes believe increase reflects improved sales effectiveness well improving economic environment 2008 versus 2007 revenue research business 14 2008 7816 million growth across entire product portfolio 2008 foreign currency translation impact significant research gross contribution increased 4954 million 2008 4196 million 2007 18 increase contribution margin increased 2 points 63 61 yearoveryear contribution margin improved primarily due stronger revenue performance coupled operating leverage inherent research business along tight expense management contract value 8343 million december 31 2008 11 7525 million december 31 2007 adjusted favorable impact foreign currency translation contract value approximately 8 consulting 1 includes operating results amr research burton group purchased december 2009 results businesses material 2009 segment results 2 dollars thousands 3 excludes amr research burton group 2009 versus 2008 consulting revenues declined 17 comparing 2009 2008 majority decline core consulting lesser extent sas contract optimization businesses decline core consulting driven lower headcount utilization billing rates decline revenue contract optimization business reflects large contract received end 2008 repeated 2009 sas revenues declined due approximately 17 fewer fulfilled sas days excluding unfavorable impact foreign currency overall consulting revenues 15 2 point decline consulting contribution margin reflects lower revenue sas contract optimization businesses higher margins core consulting lesser extent decline also reflects lower utilization billing rates core consulting ended 2009 442 billable consultants decline 11 prior year end tightly managed resources match demand decline reflects normal attrition well termination approximately 30 consultants january 2009 better align delivery resources lower backlog consulting backlog declined 6 yearoveryear increased 7 sequentially fourth quarter 2009 909 million demand consulting services solid us demand europe lagged 2008 versus 2007 consulting revenues increased yearoveryear 224 million 7 excluding favorable impact foreign currency translation revenues 2008 6 revenue increase due strength core consulting benchmarking businesses exceptionally strong results contract optimization business contributing yearoveryear revenue increase contract optimization business completion one large contract fourth quarter 2008 resulted approximately 110 million revenue consulting gross contribution increased 131 million gross contribution margin improved 2 points improvements driven improved utilization higher headcount higher billing rates higher revenues contract optimization business higher margin core consulting business consulting backlog represents future revenues recognized inprocess consulting measurement sas 972 million december 31 2008 compared 1214 million december 31 2007 bookings slowed fourth quarter 2008 due weaker economic environment events 1 includes operating results amr research burton group purchased december 2009 results businesses material 2009 segment results 2 dollars thousands 3 excludes amr research burton group 2009 versus 2008 events revenue 496 million 33 2009 due impact discontinued events decline revenue ongoing events held 54 events 2009 decline 16 events compared prior year 54 events held 2009 consisted 51 ongoing events 3 new events number attendees 51 ongoing events 12 number exhibitors 31 excluding unfavorable impact foreign currency events revenues 32 yearoveryear approximately 240 million revenue decrease due 19 discontinued events including spring symposium significant event prior years discontinued events 2009 response difficult operating environment tight travel restrictions budget cuts many companies due weak economy also 300 million decline revenue 51 ongoing events declines slightly offset approximately 40 million higher revenue new event launches miscellaneous events revenues events contribution margin 2 points yearoveryear primarily due lower average attendee exhibitor revenue 51 ongoing events number attendees significantly yearoveryear trend began show improvement fourth quarter 2009 attendance ongoing events 2 also began see improvement exhibitor participation believe trends reflect loosening corporate travel budgets resumed growth marketing spend technology companies continuing efforts increase client retention enhancing value experience clients derive events 2008 versus 2007 events revenues decreased 6 yearoveryear 100 million reflecting lower revenues attendees exhibitors excluding favorable impact foreign currency translation events revenues approximately 7 yearoveryear held 70 events 2008 compared 62 events 2007 overall attendance 6 41352 2008 44216 2007 70 events held 2008 included 59 ongoing events 11 new events 2008 number exhibitors ongoing events declined approximately 13 attendance 38961 compared 42554 attendees 2007 8 decrease average revenue ongoing events declined slightly attendees increased slightly exhibitors revenues 11 new events held 2008 slightly higher events discontinued majority yearoveryear revenue shortfall occurred fourth quarter travel restrictions cuts marketing budgets expense controls many companies took effect response credit crisis weakening global economy events gross contribution 650 million 2008 compared 819 million 2007 yearoveryear gross contribution margin declined 8 points 43 51 decrease gross contribution margin primarily due lower revenues higher fulfillment costs impact lower margin new events severance charges related reduction force liquidity capital resources finance operations primarily cash generated ongoing operating activities december 31 2009 1165 million cash equivalents 1700 million available borrowing capacity revolving credit facility including 1000 million expansion feature cash equivalents held numerous locations throughout world approximately 60 held outside united states december 31 2009 repaid 953 million term loans 2009 thus reducing amount term loans outstanding 32 paid 1045 million cash december 2009 131 million january 2010 acquisitions amr research burton group believe adequate liquidity cash expect earn ongoing operating activities existing cash balances borrowing capacity revolving credit facility sufficient expected shortterm foreseeable longterm operating needs following table summarizes company’s changes cash equivalents three years ending december 31 2009 versus 2008 operating cash flow decreased 12 2009 224 million decline approximately 230 million cash core operations along 145 million cash taxes paid 80 million higher severance payments due workforce reduction completed early january 2009 partially offsetting declines 148 million lower interest payments debt bonus payments excess facilities 83 million improvement working capital improved working capital primarily reflects improved cash collection receivables investing used additional 1032 million cash investing activities 2009 due 1045 million cash used acquisitions amr research burton group 151 million capital expenditures 2009 decline 38 compared 243 million capital expenditures 2008 decline reflects company’s tight focus reducing costs also realized 78 million cash proceeds 2008 sale vision events business financing cash used financing activities declined 461 million primarily due significant decline use cash stock repurchases cash used stock repurchases declined 1971 million offsetting decline cash used share repurchases increase use cash repay debt 1087 million decline cash proceeds option exercises excess tax benefits equity compensation approximately 423 million 2008 versus 2007 operating cash provided operating activities increased 361 million 24 2008 compared 2007 increase cash flow operating activities primarily due substantially increased cash core operations improvement working capital together added approximately 450 million higher operating cash flow working capital improved primarily due improved collection receivables also contributing improved cash flow 120 million lower cash payments related severance excess facilities settlement litigation 20 million less interest paid debt interest rates declined improved operating cash flow 2008 somewhat offset higher cash payments taxes bonuses approximately 230 million investing cash used investing activities 165 million year ended december 31 2008 compared cash used 241 million 2007 capital expenditures 243 million year ended december 31 2008 offset net cash proceeds sale vision events business approximately 78 million capital expenditures 242 million 2007 financing cash used financing activities totaled 1198 million 2008 compared cash used 937 million 2007 increase cash used 261 million increased use cash primarily due significantly higher use cash stock repurchases 2008 used additional 340 million cash repurchase shares 2008 million 2008 compared 1668 million 2007 partially offsetting additional use cash used stock repurchases increase 102 million cash proceeds stock issued stock plans rose 447 million 2008 compared 345 million 2007 driven higher option exercises obligations commitments december 31 2009 3290 million outstanding credit agreement provides two amortizing term loans 3000 million revolving credit facility revolving credit facility may increased additional 1000 million lenders’ discretion “expansion feature” total revolving credit facility 4000 million however 1000 million expansion feature may available us depending upon prevailing credit market conditions term loans repaid consecutive quarterly installments plus final payment due january 31 2012 may prepaid time without penalty premium option revolving loan facility may borrowed repaid reborrowed january 31 2012 time amounts borrowed must repaid see note 7 debt accompanying notes consolidated financial statements additional information regarding credit agreement commitments following table presents contractual cash commitments due december 31 2009 thousands 1 company leases various facilities furniture computer equipment expiring 2010 2025 2 represent amounts due credit agreement amounts due revolver classified 13 years category since amounts contractually due january 31 2012 interest payments outstanding debt excluded amounts payable due variable nature interest rates resulting payment amounts information regarding current interest rates company’s debt contained note 7 debt notes consolidated financial statements years ended december 31 2009 2008 2007 cash interest paid debt 139 million 224 million 241 million respectively 3 includes amounts payable consisting primarily portion purchase price related acquisition burton group december 30 2009 amounts paid january 2010 4 represents liability company’s supplemental deferred compensation arrangement amounts payable active employees whose payment date unknown included 5 years category since company cannot determine amounts paid 5 includes interest penalties addition 13 million liability approximately 138 million unrecognized tax benefits recorded liabilities uncertain amounts may settled related unrecognized tax benefits included table company also recorded liability potential interest penalties 15 million quarterly financial data following tables present quarterly operating results two year period ended december 31 2009 1 aggregate four quarters’ basic diluted earnings per common share may equal reported full calendar year amounts due effects share repurchases dilutive equity compensation rounding 2 first quarter 2008 includes 007 per share gain disposal discontinued operations new accounting standards january 2010 fasb issued asu 20106 improving disclosures fair value measurements requires reporting entities make new disclosures recurring nonrecurring fairvalue measurements including significant transfers level 1 level 2 fairvalue measurements information purchases sales issuances settlements gross basis reconciliation level 3 fairvalue measurements asu 20106 effective annual reporting periods beginning december 15 2009 except level 3 reconciliation disclosures effective annual periods beginning december 15 2010 expect adoption asu 20106 material impact consolidated financial statements item 7a nanitem 7a quantitative qualitative disclosures market risk amounts invested companys foreign operations translated us dollars exchange rates effect year end resulting translation adjustments recorded cumulative translation adjustment component stockholders equity consolidated balance sheets item 8item 7a quantitative qualitative disclosures market risk quantitative qualitative disclosures market risk contained page 25 1999 annual report stockholders registrant incorporated herein reference item 8item 7a quantitative qualitative disclosures market risk companys exposure market risk changes interest rates relates primarily borrowing longterm debt consists 2000 million unsecured senior revolving credit facility jpmorgan chase bank 3262 million 6 convertible subordinated notes see note 10 debt notes consolidated financial statements september 30 2001 150 million outstanding revolving credit facility revolving credit facility interest rate borrowings based libor plus additional 100 200 basis points based companys debt ebitda ratio company believes increase decrease 10 effective interest rate available borrowings senior revolving credit facility fully utilized material effect future results operations addition pursuant terms convertible subordinated notes conversion price september 30 2001 745 per share number shares class common stock issuable upon conversion notes september 30 2001 439 million shares total market value 3972 million using companys september 30 2001 market price commencing april 17 2003 note holder convert notes shares class common stock although company right redeem notes certain circumstances including conversion election assurance company able obtain sufficient capital commercially reasonable basis fund redemption beginning 1997 company entered series forward purchase agreements extended may 2003 offset dilutive effect companys stockbased employee compensation plans agreements settled quarterly net basis either shares companys class common stock cash companys option year ended september 30 2001 two settlements resulted companys issuance 491789 shares class common stock paying approximately 64000 cash quarter ended june 30 2001 company reacquired 1164154 shares class common stock approximately 97 million early termination forward purchase agreements september 30 2001 company remaining commitments forward purchase agreements company exposed market risk relates changes market value equity investments company invests equity securities public companies directly si ii company owns 34 si ii si ii engaged making venture capital investments early midstage itbased internetenabled companies see note 5 investments notes consolidated financial statements september 30 2001 company equity investments totaling 185 million including available sale marketable securities fair market value 32 million cost basis 53 million gross unrealized losses 20 million recorded net deferred taxes 08 million separate component accumulated comprehensive income stockholders equity section consolidated balance sheets gross unrealized gains insignificant investments inherently risky businesses typically early development stages may never develop furthermore certain investments publicly traded companies whose shares subject significant market price volatility adverse changes market conditions poor operating results underlying investments may result company incurring additional losses inability recover original carrying value investments company attempt reduce eliminate market exposure investments equity securities may incur additional losses related investments 100 adverse change value companys equity portfolio september 30 2001 would result noncash impairment charge 185 million company faces two risks related foreign currency exchange translation risk transaction risk amounts invested companys foreign operations translated us dollars exchange rates effect balance sheet date resulting translation adjustments recorded component accumulated comprehensive income loss stockholders equity deficit section consolidated balance sheets companys foreign subsidiaries generally collect revenues pay expenses currencies united states dollar since functional currency companys foreign operations generally local currency foreign currency translation adjustments reflected component stockholders equity impact operating results revenues expenses foreign currencies translate higher lower revenues expenses us dollars us dollar weakens strengthens currencies therefore changes exchange rates may negatively affect companys consolidated revenues expenses expressed us dollars foreign operations currency transaction gains losses arising transactions currencies functional currency included results operations company generally entered foreign currency forward exchange contracts derivative financial instruments hedge effects adverse fluctuations foreign currency exchange rates september 30 2001 company one outstanding foreign currency forward contract outstanding contract requires company sell us dollars purchase japanese yen contract amount 10 million one year term expiring september 25 2002 contains forward exchange rate 11426 japanese yen foreign currency forward contract entered offset foreign exchange effects companys japanese yen intercompany payable value september 30 2001 10 million forward contract intercompany payable reflected fair value gains losses recorded currently earnings item 8item 7a quantitative qualitative disclosures market risk interest rate risk september 30 2002 exposure market risk changes interest rates primarily borrowings longterm debt consists 2000 million unsecured senior revolving credit facility jpmorgan chase bank 3463 million 6 convertible subordinated notes see note 10debt notes consolidated financial statements september 30 2002 amounts outstanding revolving credit facility revolving credit facility interest rate borrowings libor plus additional 100 200 basis points based debttoebitda ratio believe increase decrease 10 effective interest rate available borrowings senior revolving credit facility fully utilized would material effect future results operations markets decline could required accrue interest 6 convertible debt would exceed based current market rates 25 basis point decrease interest would associated annual opportunity cost approximately 09 million based september 30 2002 balance 25 basis point increase decrease interest rates would approximate 05 million annual effect revolving credit facility fully utilized forward purchase agreements beginning 1997 entered series forward purchase agreements extended may 2003 offset dilutive effect stockbased employee compensation plans agreements settled quarterly net basis either shares class common stock cash companys option year ended september 30 2001 two settlements resulted issuance 491789 shares class common stock payment approximately 64000 cash quarter ended june 30 2001 reacquired 1164154 shares class common stock approximately 97 million early termination remaining forward purchase agreements september 30 2001 remaining commitments forward purchase agreements investment risk exposed market risk relates changes market value equity investments invest equity securities public private companies directly si whollyowned affiliate si ii 34 si ii engaged making venture capital investments early midstage itbased internetenabled companies see note 5 investments notes consolidated financial statements september 30 2002 investments equity securities totaling 127 million unrealized losses 945000 recorded net deferred taxes 630000 separate component accumulated comprehensive income stockholders equity section consolidated balance sheets investments inherently risky businesses typically early development stages may never develop certain investments publicly traded companies whose shares subject significant market price volatility adverse changes market conditions poor operating results underlying investments may result us incurring additional losses inability recover original carrying value investments 100 adverse change value equity portfolio september 30 2002 would result noncash impairment charge 127 million intend sell investments owned si ii foreign currency exchange risk face two risks related foreign currency exchange translation risk transaction risk amounts invested foreign operations translated us dollars exchange rates effect balance sheet date resulting translation adjustments recorded component accumulated comprehensive income loss stockholders equity deficit section consolidated balance sheets foreign subsidiaries generally collect revenues pay expenses currencies united states dollar since functional currency foreign operations generally denominated local currency subsidiaries foreign currency translation adjustments reflected component stockholders equity impact operating results revenues expenses foreign currencies translate higher lower revenues expenses us dollars us dollar weakens strengthens currencies therefore changes exchange rates may negatively affect consolidated revenues expenses expressed us dollars foreign operations currency transaction gains losses arising transactions currencies functional currency included results operations time enter foreign currency forward exchange contracts derivative financial instruments hedge effects adverse fluctuations foreign currency exchange rates fiscal 2002 contract requiring us sell us dollars purchase japanese yen contract 10 million oneyear term expired september 27 2002 contained forward exchange rate 11426 japanese yen foreign currency forward contract entered offset foreign exchange effects japanese yen intercompany payable value 10 million september 27 2002 settled contract paying 50000 september 30 2002 two foreign currency forward contracts outstanding foreign exchange forward contracts reflected fair value gains losses recorded currently earnings following table presents information foreign currency forward contracts outstanding september 30 2002 expressed us dollar equivalents item 8item 7a quantitative qualitative disclosures market risk interest rate risk december 31 2003 limited exposure market risk changes interest rates since longterm debt converted equity fourth quarter calendar 2003 additionally borrowings 2000 million unsecured senior revolving credit facility jpmorgan chase bank revolving credit facility interest rate borrowings libor plus additional 100 200 basis points based debttoebitda ratio believe increase decrease 10 effective interest rate available borrowings senior revolving credit facility fully utilized would material effect future results operations 25 basis point increase decrease interest rates would approximate 05 million annual effect revolving credit facility fully utilized investment risk exposed market risk relates changes market value equity investments invest equity securities public private companies directly si whollyowned affiliate si ii 34 si ii engaged making venture capital investments early midstage itbased internetenabled companies see note 4 investments notes consolidated financial statements december 31 2003 investments equity securities totaling 109 million unrealized gains losses insignificant investments inherently risky businesses typically early development stages may never develop certain investments publicly traded companies whose shares subject significant market price volatility adverse changes market conditions poor operating results underlying investments may result us incurring additional losses inability recover original carrying value investments 100 adverse change value equity portfolio december 31 2003 would result noncash impairment charge 109 million additionally commitment fund additional 40 million investments si ii foreign currency exchange risk face two risks related foreign currency exchange translation risk transaction risk amounts invested foreign operations translated us dollars exchange rates effect balance sheet date resulting translation adjustments recorded component accumulated comprehensive income loss stockholders equity deficit section consolidated balance sheets foreign subsidiaries generally collect revenues pay expenses currencies united states dollar since functional currencies foreign operations generally denominated local currency subsidiaries foreign currency translation adjustments reflected component stockholders equity impact operating results revenues expenses foreign currencies translate higher lower revenues expenses us dollars us dollar weakens strengthens currencies therefore changes exchange rates may negatively affect consolidated revenues expenses expressed us dollars foreign operations currency transaction gains losses arising transactions currencies functional currency included within income expense net within consolidated statements operations currency transaction gains losses net 05 million calendar 2003 04 million calendar 2002 01 million transition 2002 08 million fiscal 2002 35 million fiscal 2001 time enter foreign currency forward exchange contracts derivative financial instruments hedge effects adverse fluctuations foreign currency exchange rates december 31 2003 one foreign currency forward contract outstanding foreign exchange forward contracts reflected fair value gains losses recorded currently earnings following table presents information foreign currency forward contract outstanding december 31 2003 expressed us dollar equivalents 10k27 item 8item 7a quantitative qualitative disclosures market risk interest rate risk december 31 2004 exposure market risk changes interest rates since 1900 million drawn unsecured senior revolving credit facility jpmorgan chase bank revolving credit facility interest rate borrowings libor plus additional 100 150 basis points based debttoebitda ratio however believe increase decrease 10 effective interest rate available borrowings senior revolving credit facility would material effect future results operations 25 basis point increase decrease interest rates would approximate 05 million annual effect revolving credit facility fully utilized investment risk exposed market risk relates changes market value equity investments invest equity securities public private companies directly si ii 22 december 31 2004 si ii engaged making venture capital investments early midstage itbased internetenabled companies see note 5 investments notes consolidated financial statements december 31 2004 investments equity securities totaling 70 million investments inherently risky businesses typically early development stages may never develop certain investments publicly traded companies whose shares subject significant market price volatility adverse changes market conditions poor operating results underlying investments may result us incurring additional losses inability recover original carrying value investments 100 adverse change value equity portfolio december 31 2004 would result noncash impairment charge 70 million additional commitments fund si ii december 31 2004 foreign currency exchange risk face two risks related foreign currency exchange translation risk transaction risk amounts invested foreign operations translated us dollars exchange rates effect balance sheet date resulting translation adjustments recorded component accumulated comprehensive income loss stockholders’ equity section consolidated balance sheets foreign subsidiaries generally collect revenues pay expenses currencies united states dollar since functional currencies foreign operations generally denominated local currency subsidiaries foreign currency translation adjustments reflected component stockholders’ equity impact operating results revenues expenses foreign currencies translate higher lower revenues expenses us dollars us dollar weakens strengthens currencies therefore changes exchange rates may negatively affect consolidated revenues expenses expressed us dollars foreign operations currency transaction gains losses arising transactions currencies functional currency included within income expense net within consolidated statements operations currency transaction gains losses net 31 million calendar 2004 05 million calendar 2003 04 million calendar 2002 01 million transition 2002 08 million fiscal 2002 time enter foreign currency forward exchange contracts derivative financial instruments hedge effects adverse fluctuations foreign currency exchange rates foreign exchange forward contracts reflected fair value gains losses recorded earnings december 31 2004 foreign currency forward contracts derivative financial instruments outstanding item 8item 7a quantitative qualitative disclosures market risk interest rate risk december 31 2005 exposure changes interest rates since 2467 million outstanding unsecured credit agreement jpmorgan chase bank 1967 million outstanding term loan 500 million outstanding revolver credit agreement interest rate borrowings libor plus additional 100 150 basis points based debttoebitda ratio fourth quarter calendar 2005 entered interest rate swap contract effectively converts floating base interest rate term loan fixed rate accordingly base interest rate risk term loan eliminated still exposed interest rate risk revolver however 25 basis point increase decrease interest rates would approximate 03 million pretax annual effect revolver fully utilized investment risk exposed market risk relates changes market value equity investments december 31 2005 investments equity securities totaling 03 million see note 3 investments notes consolidated financial statements 100 adverse change value equity portfolio december 31 2005 would result noncash impairment charge approximately 03 million foreign currency exchange risk face two risks related foreign currency exchange translation risk transaction risk amounts invested foreign operations translated us dollars exchange rates effect balance sheet date resulting translation adjustments recorded component accumulated comprehensive income loss stockholders’ equity section consolidated balance sheets foreign subsidiaries generally collect revenues pay expenses currencies united states dollar since functional currencies foreign operations generally denominated local currency subsidiaries foreign currency translation adjustments reflected component stockholders’ equity impact operating results revenues expenses foreign currencies translate higher lower revenues expenses us dollars us dollar weakens strengthens currencies therefore changes exchange rates may negatively affect consolidated revenues expenses expressed us dollars foreign operations currency transaction gains losses arising transactions currencies functional currency included within income expense net within consolidated statements operations currency transaction gains losses net 28 million 31 million 05 million 2005 2004 2003 respectively time enter foreign currency forward exchange contracts derivative financial instruments offset effects adverse fluctuations foreign currency exchange rates foreign exchange forward contracts reflected fair value unrealized realized gains losses recorded earnings following table presents information foreign currency forward contracts outstanding december 31 2005 expressed us dollar equivalents item 8item 7a quantitative qualitative disclosures market risk interest rate risk january 31 2007 company refinanced existing borrowing arrangements entering new credit agreement “2007 credit agreement” several lenders 2007 credit agreement provides fiveyear 1800 million term loan 3000 million revolving credit facility term loan repaid 18 consecutive quarterly installments commencing september 30 2007 plus final payment due january 31 2012 may prepaid time without penalty premium option gartner revolving loans may borrowed repaid reborrowed january 31 2012 time amounts borrowed must repaid loans 2007 credit agreement bear interest rate equal gartner’s option either greatest administrative agent’s prime rate administrative agent’s rate threemonth certificates deposit adjusted statutory reserves plus 1 average rate overnight federal funds plus 12 1 plus margin equal 000 025 depending gartner’s leverage ratio end four consecutive fiscal quarters recently ended ii eurodollar rate adjusted statutory reserves plus margin equal 625 125 depending gartner’s leverage ratio end four consecutive fiscal quarters recently ended midfebruary 2007 1800 million outstanding term loan 1900 million revolver annualized interest rate 63 assuming revolver fully utilized 25 basis point increase decrease interest rates would increase annual pretax interest expense approximately 12 million investment risk december 31 2006 investment equity security totaling 03 million 100 adverse change value equity investment would result noncash impairment charge approximately 03 million foreign currency exchange risk face two risks related foreign currency exchange translation risk transaction risk amounts invested foreign operations translated us dollars exchange rates effect balance sheet date resulting translation adjustments recorded component accumulated comprehensive income loss stockholders’ equity section consolidated balance sheets foreign subsidiaries generally collect revenues pay expenses currencies united states dollar since functional currencies foreign operations generally denominated local currency subsidiaries foreign currency translation adjustments reflected component stockholders’ equity impact operating results revenues expenses foreign currencies translate higher lower revenues expenses us dollars us dollar weakens strengthens currencies therefore changes exchange rates may negatively affect consolidated revenues expenses expressed us dollars foreign operations exposed foreign currency transaction risk since enter foreign currency forward exchange contracts offset effects adverse fluctuations foreign currency exchange rates instruments typically short term reflected fair value unrealized realized gains losses recorded earnings december 31 2006 15 foreign currency forward contracts outstanding total notional amount 640 million immaterial net unrealized loss contracts matured january 2007 currency transaction gains losses arising transactions currencies functional currency included within income expense net within consolidated statements operations currency transaction gains losses net 05 million 28 million 31 million 2006 2005 2004 respectively item 8item 7a quantitative qualitative disclosures market risk interest rate risk december 31 2007 exposure changes interest rates resulting 1740 million outstanding term loan 2200 million outstanding revolver floating rate borrowings may either primebased liborbased interest rates borrowings include base rate plus margin 000 025 prime borrowings 625 125 libor borrowings december 31 2007 annualized interest rates term loan revolver 571 577 respectively consist threemonth libor base rate onemonth libor base rate respectively plus margin 0875 interest rate swap contract effectively converts base floating interest rate term loan fixed rate accordingly base interest rate term loan effectively capped 506 however still exposed interest rate risk revolver 25 basis point increase decrease interest rates would change pretax annual interest expense 3000 million revolver approximately 07 million fully utilized investment risk none foreign currency exchange risk face two risks related foreign currency exchange translation risk transaction risk amounts invested foreign operations translated us dollars exchange rates effect balance sheet date resulting translation adjustments recorded component accumulated comprehensive income loss stockholders’ equity section consolidated balance sheets foreign subsidiaries generally collect revenues pay expenses currencies united states dollar since functional currencies foreign operations generally denominated local currency subsidiaries foreign currency translation adjustments reflected component stockholders’ equity impact operating results revenues expenses foreign currencies translate higher lower revenues expenses us dollars us dollar weakens strengthens currencies therefore changes exchange rates may negatively affect consolidated revenues expenses expressed us dollars foreign operations exposed foreign currency transaction risk since enter foreign currency forward exchange contracts offset effects adverse fluctuations foreign currency exchange rates instruments typically short term reflected fair value unrealized realized gains losses recorded earnings december 31 2007 35 foreign currency forward contracts outstanding total notional amount 2260 million immaterial net unrealized loss contracts matured january 2008 currency transaction gains losses arising transactions currencies functional currency included within income expense net within consolidated statements operations currency transaction gains losses net 11 million 05 million 28 million 2007 2006 2005 respectively item 8item 7a quantitative qualitative disclosures market risk interest rate risk exposure changes interest rates arising borrowings 2010 credit agreement december 31 2010 2000 million outstanding term loan 200 million outstanding revolver borrowings facility floating rate may either primebased eurodollarbased interest rates borrowings include base rate plus margin 050 125 prime borrowings 150 225 eurodollarbased borrowings december 31 2010 annualized interest rate term loan 230 consisted 03 threemonth eurodollar base rate plus margin 20 226 revolver consisted 026 onemonth eurodollar base rate plus margin 20 interest rate swap contract effectively converts floating base rate first 2000 million borrowings 226 fixed rate company hedges base interest rate risk first 2000 million outstanding borrowings accordingly exposed interest rate risk borrowings excess 2000 million 25 basis point increase decrease interest rates would change pretax annual interest expense additional 4000 million borrowing capacity 2010 credit agreement approximately 10 million foreign currency exchange risk customers 85 countries 44 45 revenues 2010 2009 respectively derived sales outside us result conduct business numerous currencies us dollar among major foreign currencies conduct business euro british pound japanese yen australian dollar canadian dollar foreign currency exposure results translation risk transaction risk translation risk exposed foreign currency translation risk since functional currencies foreign operations generally denominated local currency translation risk arises since assets liabilities report foreign subsidiaries translated us dollars exchange rates effect balance sheet dates exchange rates fluctuate time foreign currency translation adjustments deferred recorded component stockholders’ equity impact operating results measure potential impact foreign currency translation condensed consolidated balance sheets determined sensitivity analysis cash equivalents december 31 2010 1200 million cash equivalents substantial portion denominated foreign currencies foreign exchange rates major currencies operate changed comparison us dollar 10 amount cash equivalents would reported december 31 2010 would increased decreased approximately 50 million foreign subsidiaries generally operate local functional currency differs us dollar revenues expenses foreign currencies translate higher lower revenues expenses us dollars us dollar continuously weakens strengthens currencies therefore changes exchange rates may affect consolidated revenues expenses expressed us dollars foreign operations historically impact consolidated earnings material since foreign currency movements major currencies operate tend impact revenues expenses fairly equally transaction risk also foreign exchange transaction risk since typically enter transactions normal course business denominated foreign currencies differ local functional currency foreign subsidiary operates typically enter foreign currency forward exchange contracts offset effects foreign currency transaction risk contracts normally short term duration unrealized realized gains losses recognized current period earnings december 31 2010 63 outstanding foreign currency forward contracts total notional amount 2502 million net unrealized gain 06 million contracts matured end january 2011 concentration credit risk financial instruments potentially subject company concentration credit risk consist primarily shortterm highly liquid investments classified cash equivalents accounts receivable interest rate swap contracts majority company’s cash equivalents interest rate swap contract investment grade commercial banks participants company’s 2010 credit agreement accounts receivable balances deemed collectible customers limited concentration credit risk due diverse customer base geographic dispersion item 8item 7a quantitative qualitative disclosures market risk interest rate risk exposure changes interest rates arising borrowings 2010 credit agreement december 31 2011 1800 million outstanding term loan 200 million outstanding revolver borrowings facility floating rate may either primebased eurodollarbased rate paid borrowings includes base floating rate plus margin 050 125 prime borrowings 150 225 eurodollarbased borrowings interest rate swap contract effectively converts floating base rate first 2000 million borrowings 226 fixed rate company hedges base interest rate risk first 2000 million outstanding borrowings accordingly exposed interest rate risk borrowings excess 2000 million 25 basis point increase decrease interest rates would change pretax annual interest expense additional revolver borrowing capacity 2010 credit agreement including expansion feature approximately 09 million foreign currency risk customers numerous countries 46 44 revenues fiscal years ended december 31 2011 2010 respectively derived sales outside us result conduct business numerous currencies us dollar among major foreign currencies conduct business euro british pound japanese yen australian dollar canadian dollar foreign currency exposure results translation risk transaction risk translation risk exposed foreign currency translation risk since functional currencies foreign operations generally denominated local currency translation risk arises since assets liabilities report foreign subsidiaries translated us dollars exchange rates effect balance sheet dates exchange rates fluctuate time foreign currency translation adjustments deferred recorded component stockholders’ equity impact operating results measure potential impact foreign currency translation condensed consolidated balance sheets determined sensitivity analysis cash equivalents december 31 2011 1427 million cash equivalents substantial portion denominated foreign currencies foreign exchange rates major currencies operate changed comparison us dollar 10 amount cash equivalents would reported december 31 2011 would increased decreased approximately 90 million foreign subsidiaries generally operate local functional currency differs us dollar revenues expenses foreign currencies translate higher lower revenues expenses us dollars us dollar continuously weakens strengthens currencies therefore changes exchange rates may affect consolidated revenues expenses expressed us dollars foreign operations historically impact consolidated earnings material since foreign currency movements major currencies operate tend impact revenues expenses fairly equally transaction risk also foreign exchange transaction risk since typically enter transactions normal course business denominated foreign currencies differ local functional currency foreign subsidiary operates typically enter foreign currency forward exchange contracts offset effects foreign currency transaction risk contracts normally short term duration unrealized realized gains losses recognized current period earnings december 31 2011 60 outstanding foreign currency forward contracts total notional amount 996 million immaterial net unrealized gain contracts matured end january 2012 credit risk financial instruments potentially subject company concentration credit risk consist primarily shortterm highly liquid investments classified cash equivalents accounts receivable interest rate swap contracts majority company’s cash equivalents interest rate swap contracts large investment grade commercial banks participants company’s 2010 credit agreement accounts receivable balances deemed collectible customers limited concentration credit risk due diverse customer base geographic dispersion item 8item 7a quantitative qualitative disclosures market risk interest rate risk exposure changes interest rates arising borrowings 2010 credit agreement december 31 2012 1500 million outstanding term loan 500 million outstanding revolver borrowings facility floating rate may either primebased eurodollarbased rate paid borrowings includes base floating rate plus margin 050 125 prime borrowings 150 225 eurodollarbased borrowings interest rate swap contract effectively converts floating base rate first 2000 million borrowings 226 fixed rate company hedges base interest rate risk first 2000 million outstanding borrowings accordingly exposed interest rate risk borrowings excess 2000 million 25 basis point increase decrease interest rates could change pretax annual interest expense additional revolver borrowing capacity 2010 credit agreement including expansion feature approximately 09 million foreign currency risk approximately 46 revenues fiscal years ended december 31 2012 2011 derived sales outside us result conduct business numerous currencies us dollar among major foreign currencies conduct business eurodollar british pound japanese yen australian dollar canadian dollar foreign currency exposure results translation risk transaction risk translation risk exposed foreign currency translation risk since functional currencies foreign operations generally denominated local currency translation risk arises since assets liabilities report foreign subsidiaries translated us dollars exchange rates effect balance sheet dates exchange rates fluctuate time foreign currency translation adjustments deferred recorded component stockholders’ equity impact operating results measure potential impact foreign currency translation condensed consolidated balance sheets determined sensitivity analysis cash equivalents december 31 2012 almost 3000 million cash equivalents approximately half denominated foreign currencies foreign exchange rates major currencies operate changed comparison us dollar 10 amount cash equivalents would reported december 31 2012 would increased decreased approximately 120 million foreign subsidiaries generally operate local functional currency differs us dollar revenues expenses foreign currencies translate higher lower revenues expenses us dollars us dollar continuously weakens strengthens currencies therefore changes exchange rates may affect consolidated revenues expenses expressed us dollars foreign operations historically impact consolidated earnings material since foreign currency movements major currencies operate tend impact revenues expenses fairly equally transaction risk also foreign exchange transaction risk since foreign subsidiaries typically enter transactions normal course business denominated foreign currencies differ local functional currency foreign subsidiary operates may enter foreign currency forward exchange contracts mitigate effects foreign currency transaction risk contracts normally short term duration unrealized realized gains losses recognized current period earnings december 31 2012 68 outstanding foreign currency forward contracts total notional amount 761 million immaterial net unrealized gain contracts matured end january 2013 credit risk financial instruments potentially subject company concentration credit risk consist primarily shortterm highly liquid investments classified cash equivalents accounts receivable interest rate swap contracts majority company’s cash equivalents interest rate swap contracts large investment grade commercial banks participants company’s 2010 credit agreement accounts receivable balances deemed collectible customers limited concentration credit risk due diverse customer base geographic dispersion item 8item 7a quantitative qualitative disclosures market risk interest rate risk exposure changes interest rates arising borrowings 2013 credit agreement december 31 2013 2000 million outstanding 2013 credit agreement consisted 1444 million outstanding term loan 556 million outstanding revolver amounts borrowed 2013 credit agreement bear interest rate equal gartner’s option either 1 greatest administrative agent’s prime rate average rate overnight federal funds plus 12 1 eurodollar rate adjusted statutory reserves plus 1 case plus margin equal 025 075 depending gartner’s leverage ratio end four consecutive fiscal quarters recently ended 2 eurodollar rate adjusted statutory reserves plus margin equal 125 175 depending gartner’s leverage ratio end four consecutive fiscal quarters recently ended interest rate swap contract effectively converts floating base rate first 2000 million borrowings 226 fixed rate company hedges base interest rate risk first 2000 million outstanding borrowings accordingly exposed interest rate risk borrowings excess 2000 million 25 basis point increase decrease interest rates could change pretax annual interest expense additional revolver borrowing capacity 2013 credit agreement including expansion feature approximately 09 million foreign currency risk fiscal years ended december 31 2013 2012 approximately 45 46 revenues respectively derived sales outside us result conduct business numerous currencies us dollar among major foreign currencies conduct business euro british pound japanese yen australian dollar canadian dollar foreign currency exposure results translation risk transaction risk translation risk exposed foreign currency translation risk since functional currencies foreign operations generally denominated local currency translation risk arises since assets liabilities report foreign subsidiaries translated us dollars exchange rates effect balance sheet dates exchange rates fluctuate time foreign currency translation adjustments deferred recorded component stockholders’ equity impact operating results measure potential impact foreign currency translation condensed consolidated balance sheets determined sensitivity analysis cash equivalents december 31 2013 almost 4240 million cash equivalents approximately 58 denominated foreign currencies foreign exchange rates major currencies operate changed comparison us dollar 10 amount cash equivalents would reported december 31 2013 would increased decreased approximately 200 million foreign subsidiaries generally operate local functional currency differs us dollar revenues expenses foreign currencies translate higher lower revenues expenses us dollars us dollar continuously weakens strengthens currencies therefore changes exchange rates may affect consolidated revenues expenses expressed us dollars foreign operations historically impact consolidated earnings material since foreign currency movements major currencies operate tend impact revenues expenses fairly equally transaction risk also foreign exchange transaction risk since foreign subsidiaries typically enter transactions normal course business denominated foreign currencies differ local functional currency foreign subsidiary operates may enter foreign currency forward exchange contracts mitigate effects foreign currency transaction risk contracts normally short term duration unrealized realized gains losses recognized current period earnings december 31 2013 89 outstanding foreign currency forward contracts total notional amount approximately 610 million immaterial net unrealized loss substantially contracts matured end january 2014 credit risk financial instruments potentially subject company concentration credit risk consist primarily shortterm highly liquid investments classified cash equivalents accounts receivable interest rate swap contract majority company’s cash equivalents interest rate swap contract large investment grade commercial banks participants company’s 2013 credit agreement accounts receivable balances deemed collectible customers limited concentration credit risk due diverse customer base geographic dispersion item 8item 7a quantitative qualitative disclosures market risk interest rate risk companys 2014 credit agreement provides fiveyear 4000 million term loan 11 billion revolving credit facility exposure changes interest rates arising borrowings 2014 credit agreement since amounts borrowed based floating base rate interest december 31 2014 4000 million outstanding term portion 2014 credit agreement zero revolver interest rate swap contract effectively converts floating base rate first 2000 million borrowings 226 fixed rate since company hedges base interest rate risk first 2000 million outstanding borrowings exposed interest rate risk floating rate borrowings excess 2000 million assuming company borrowed entire 15 billion 2014 credit agreement december 31 2014 25 basis point increase decrease interest rates could change pretax annual interest expense approximately 33 million foreign currency risk fiscal years ended december 31 2014 2013 approximately 45 revenues derived sales outside us result conduct business numerous currencies us dollar among major foreign currencies conduct business euro british pound japanese yen australian dollar canadian dollar foreign currency exposure results translation risk transaction risk translation risk exposed foreign currency translation risk since functional currencies foreign operations generally denominated local currency translation risk arises since assets liabilities report foreign subsidiaries translated us dollars exchange rates effect balance sheet dates exchange rates fluctuate time accounting purposes foreign currency translation adjustments deferred recorded component stockholders’ equity impact operating results measure potential impact foreign currency translation consolidated balance sheets determined sensitivity analysis cash equivalents december 31 2014 3650 million cash equivalents substantial portion denominated foreign currencies foreign exchange rates five major foreign currencies operate changed comparison us dollar 10 amount cash equivalents would reported december 31 2014 could increased decreased approximately 240 million foreign subsidiaries generally operate local functional currency differs us dollar revenues expenses foreign currencies translate higher lower revenues expenses us dollars us dollar continuously weakens strengthens currencies therefore changes exchange rates may affect consolidated revenues expenses expressed us dollars foreign operations historically impact consolidated earnings material since foreign currency movements major currencies operate tend impact revenues expenses fairly equally transaction risk also foreign exchange transaction risk since foreign subsidiaries typically enter transactions normal course business denominated foreign currencies differ local functional currency foreign subsidiary operates may enter foreign currency forward exchange contracts mitigate effects foreign currency transaction risk contracts normally short term duration realized unrealized gains losses recognized current period earnings december 31 2014 77 outstanding foreign currency forward contracts total notional amount approximately 456 million immaterial net unrealized gain substantially contracts matured end january 2015 credit risk financial instruments potentially subject company concentration credit risk consist primarily shortterm highly liquid investments classified cash equivalents accounts receivable interest rate swap contract majority company’s cash equivalents interest rate swap contract large investment grade commercial banks accounts receivable balances collectible customers limited concentration credit risk due diverse customer base geographic dispersion item 8item 7a quantitative qualitative disclosures market risk interest rate risk companys 2016 credit agreement provides fiveyear 6000 million term loan 12 billion revolving credit facility december 31 2016 7000 million outstanding 2016 credit agreement included 5850 million outstanding term loan 1150 million revolver 2016 credit agreement amended january 20 2017 permit acquisition ceb incurrence additional 1375 billion senior secured term loan b facility 3000 million 364day senior unsecured bridge facility senior unsecured highyield bridge facility 6000 million issuance corresponding amount debt securities finance part acquisition repay certain debt ceb modify certain covenants addition connection financing ceb acquisition company received commitment respect 6000 million senior unsecured bridge facilities cash flow exposure changes interest rates since amounts currently borrowed 2016 credit agreement based floating base rate interest however reduce exposure changes interest rates interest rate swap contracts effectively convert floating base interest rate first 7000 million variable rate borrowings fixed rates thus exposed interest rate risk borrowings 2016 credit agreement borrowings exceed 7000 million december 31 2016 amount unhedged borrowings 2016 credit agreement zero foreign currency risk fiscal years ended december 31 2016 2015 42 41 respectively revenues derived sales outside united states conduct business numerous currencies us dollar among major foreign currencies conduct business euro british pound japanese yen australian dollar canadian dollar reporting currency consolidated financial statements us dollar values foreign currencies operate fluctuate time relative us dollar company exposed foreign currency translation transaction risk translation risk arises foreign currency assets liabilities translated us dollars since functional currencies foreign operations generally denominated local currency adjustments resulting translation assets liabilities deferred recorded component stockholders’ equity deficit measure potential impact foreign currency translation determined sensitivity analysis cash equivalents december 31 2016 4742 million cash equivalents substantial portion denominated foreign currencies exchange rates foreign currencies hold changed comparison us dollar 10 amount cash equivalents would reported december 31 2016 would increased decreased approximately 210 million translation foreign currency revenues expenses historically material impact consolidated earnings since movements among major currencies operate tend impact revenues expenses fairly equally however earnings could impacted periods significant exchange rate volatility major currencies operate move direction us dollar transaction risk arises foreign subsidiaries enter transactions denominated currency may differ local functional currency transactions translated local functional currency gain loss may result recorded current period earnings typically enter foreign currency forward exchange contracts mitigate effects foreign currency transaction risk outstanding currency contracts december 31 2016 immaterial net unrealized loss credit risk financial instruments potentially subject company concentration credit risk consist primarily shortterm highly liquid investments classified cash equivalents accounts receivable interest rate swap contracts foreign exchange contracts majority company’s cash equivalents interest rate swap contracts foreign exchange contracts large investment grade commercial banks accounts receivable balances deemed collectible customers limited concentration credit risk due diverse customer base geographic dispersion item 8item 7a quantitative qualitative disclosures market risk interest rate risk december 31 2017 company 33 billion outstanding debt approximately 25 billion companys total debt outstanding december 31 2017 based floating base rate interest potentially exposes company increases interest rates however partially reduce overall exposure changes interest rates interest rate swap contracts effectively converts floating base interest rate portion variable rate borrowings fixed rates thus exposed base interest rate risk floating rate borrowings excess amounts hedged december 31 2017 unhedged interest rate risk approximately 11 billion borrowings indication potential exposure changes interest rates hypothetical 25 basis point increase decrease interest rates could change annual pretax interest expense approximately 28 million foreign currency risk years ended december 31 2017 2016 42 revenues derived sales outside united states among major foreign currencies conduct business euro british pound japanese yen australian dollar canadian dollar reporting currency consolidated financial statements us dollar values foreign currencies operate fluctuate time relative us dollar company exposed foreign currency translation transaction risk translation risk arises foreign currency assets liabilities translated us dollars since functional currencies foreign operations generally denominated local currency adjustments resulting translation assets liabilities deferred recorded component stockholders’ equity deficit measure potential impact foreign currency translation determined sensitivity analysis cash equivalents december 31 2017 5389 million cash equivalents excluding cash heldforsale substantial portion denominated foreign currencies exchange rates foreign currencies hold changed comparison us dollar 10 amount cash equivalents would reported december 31 2017 would increased decreased approximately 280 million translation foreign currency revenues expenses historically material impact consolidated earnings since movements among major currencies operate tend impact revenues expenses fairly equally however earnings could impacted periods significant exchange rate volatility major currencies operate move direction us dollar transaction risk arises foreign subsidiaries enter transactions denominated currency may differ local functional currency transactions translated local functional currency gain loss may result recorded current period earnings typically enter foreign currency forward exchange contracts mitigate effects foreign currency transaction risk outstanding currency contracts december 31 2017 immaterial net unrealized loss credit risk financial instruments potentially subject company concentration credit risk consist primarily shortterm highly liquid investments classified cash equivalents accounts receivable interest rate swap contracts foreign exchange contracts majority company’s cash equivalents interest rate swap contracts foreign exchange contracts large investment grade commercial banks accounts receivable balances deemed collectible customers limited concentration credit risk due diverse customer base geographic dispersion item 8item 7a quantitative qualitative disclosures market risk interest rate risk december 31 2018 company 23 billion outstanding debt approximately 15 billion companys total debt outstanding december 31 2018 based floating base rate interest potentially exposes company increases interest rates however partially reduce overall exposure changes interest rates interest rate swap contracts effectively converts floating base interest rate portion variable rate borrowings fixed rates thus exposed base interest rate risk floating rate borrowings excess amounts hedged december 31 2018 unhedged interest rate risk approximately 1100 million borrowings indication potential exposure changes interest rates hypothetical 25 basis point increase decrease interest rates could change annual pretax interest expense approximately 03 million foreign currency risk years ended december 31 2018 2017 significant portion revenues derived sales outside united states among major foreign currencies conduct business euro british pound japanese yen australian dollar canadian dollar reporting currency consolidated financial statements us dollar values foreign currencies operate fluctuate time relative us dollar company exposed foreign currency translation transaction risk translation risk arises foreign currency assets liabilities translated us dollars since functional currencies foreign operations generally denominated local currency adjustments resulting translation assets liabilities deferred recorded component stockholders’ equity deficit measure potential impact foreign currency translation determined sensitivity analysis cash equivalents december 31 2018 1564 million cash equivalents substantial portion denominated foreign currencies exchange rates foreign currencies hold changed comparison us dollar 10 amount cash equivalents would reported december 31 2018 would increased decreased approximately 120 million translation foreign currency revenues expenses historically material impact consolidated earnings since movements among major currencies operate tend impact revenues expenses fairly equally however earnings could impacted periods significant exchange rate volatility major currencies operate move direction us dollar transaction risk arises enter transaction denominated currency may differ local functional currency transactions translated local functional currency gain loss may result recorded current period earnings typically enter foreign currency forward exchange contracts mitigate effects foreign currency transaction risk outstanding currency contracts december 31 2018 immaterial net unrealized loss credit risk financial instruments potentially subject company concentration credit risk consist primarily shortterm highly liquid investments classified cash equivalents accounts receivable interest rate swap contracts foreign exchange contracts majority company’s cash equivalents interest rate swap contracts foreign exchange contracts large investment grade commercial banks accounts receivable balances deemed collectible customers limited concentration credit risk due diverse customer base geographic dispersion item 8item 7a quantitative qualitative disclosures market risk interest rate risk december 31 2019 company 22 billion total debt principal outstanding note 6 debt notes consolidated financial statements provides additional information regarding companys outstanding debt obligations approximately 14 billion companys total debt outstanding december 31 2019 based floating base rate interest potentially exposes company increases interest rates however reduce overall exposure interest rate increases interest rate swap contracts effectively convert floating base interest rates borrowings fixed rates thus exposed base interest rate risk floating rate borrowings excess amounts hedged december 31 2019 company effectively fully hedged base interest rate risk floating rate borrowings foreign currency risk significant portion revenues typically derived sales outside united states among major foreign currencies conduct business euro british pound japanese yen australian dollar canadian dollar reporting currency consolidated financial statements us dollar values foreign currencies operate fluctuate time relative us dollar company exposed foreign currency translation transaction risk translation risk arises foreign currency assets liabilities translated us dollars functional currencies foreign operations generally denominated local currency adjustments resulting translation assets liabilities deferred recorded component stockholders’ equity measure potential impact foreign currency translation determined sensitivity analysis cash equivalents december 31 2019 2808 million cash equivalents substantial portion denominated foreign currencies exchange rates foreign currencies hold changed comparison us dollar 10 amount cash equivalents would reported december 31 2019 could increased decreased approximately 260 million translation foreign currency revenues expenses historically material impact consolidated earnings movements among major currencies operate tend impact revenues expenses fairly equally however earnings could impacted periods significant exchange rate volatility major currencies operate move direction us dollar transaction risk arises enter transaction denominated currency may differ local functional currency transactions translated local functional currency gain loss may result recorded current period earnings typically enter foreign currency forward exchange contracts mitigate effects foreign currency transaction risk outstanding foreign currency forward exchange contracts december 31 2019 immaterial net unrealized gain credit risk financial instruments potentially subject company concentration credit risk consist primarily shortterm highly liquid investments classified cash equivalents fees receivable interest rate swap contracts foreign currency forward exchange contracts majority company’s cash equivalents interest rate swap contracts foreign currency forward exchange contracts large investment grade commercial banks fees receivable balances deemed collectible customers limited concentration credit risk due diverse customer base geographic dispersion item 8item 7a quantitative qualitative disclosures market risk interest rate risk december 31 2020 company 20 billion total debt principal outstanding note 6 debt notes consolidated financial statements provides additional information regarding company’s outstanding debt obligations approximately 04 billion company’s total debt outstanding december 31 2020 based floating base rate interest potentially exposes company increases interest rates however reduce overall exposure interest rate increases interest rate swap contracts effectively convert floating base interest rates variable rate borrowings fixed rates foreign currency risk significant portion revenues typically derived sales outside united states among major foreign currencies conduct business euro british pound japanese yen australian dollar canadian dollar reporting currency consolidated financial statements us dollar values foreign currencies operate fluctuate time relative us dollar company exposed foreign currency translation transaction risk translation risk arises foreign currency assets liabilities translated us dollars functional currencies foreign operations generally denominated local currency adjustments resulting translation assets liabilities deferred recorded component stockholders’ equity measure potential impact foreign currency translation determined sensitivity analysis cash equivalents december 31 2020 7126 million cash equivalents substantial portion denominated foreign currencies exchange rates foreign currencies hold changed comparison us dollar 10 amount cash equivalents would reported december 31 2020 could increased decreased approximately 54 million translation foreign currency revenues expenses historically material impact consolidated earnings movements among major currencies operate tend impact revenues expenses fairly equally however earnings could impacted periods significant exchange rate volatility major currencies operate move direction us dollar transaction risk arises enter transaction denominated currency may differ local functional currency transactions translated local functional currency gain loss may result recorded current period earnings typically enter foreign currency forward exchange contracts mitigate effects foreign currency transaction risk outstanding foreign currency forward exchange contracts december 31 2020 immaterial net unrealized loss credit risk financial instruments potentially subject company concentration credit risk consist primarily shortterm highly liquid investments classified cash equivalents fees receivable interest rate swap contracts foreign currency forward exchange contracts majority company’s cash equivalents interest rate swap contracts foreign currency forward exchange contracts large investment grade commercial banks fees receivable balances deemed collectible customers limited concentration credit risk due diverse customer base geographic dispersion item 8nanitem 7a quantitative qualitative disclosures market risk quantitative qualitative disclosures market risk contained page 35 2000 annual report stockholders company incorporated herein reference item 8item 7a quantitative qualitative disclosures market risk interest rate risk companys 2014 credit agreement provides fiveyear 4000 million term loan 11 billion revolving credit facility december 31 2015 8200 million outstanding 2014 credit agreement included 3800 million outstanding term loan 4400 million revolver exposure changes interest rates arising borrowings 2014 credit agreement since amounts borrowed based floating base rate interest however reduce exposure changes interest rates interest rate swap contracts effectively convert floating base interest rate first 7000 million variable rate borrowings fixed rates thus exposed interest rate risk borrowings excess 7000 million equaled 1200 million december 31 2015 indication exposure changes interest rates hypothetical 25 basis point increase decrease interest rates could changed 2015 pretax annual interest expense 1200 million unhedged borrowings december 31 2015 approximately 03 million foreign currency risk fiscal years ended december 31 2015 2014 approximately 41 45 respectively companys revenues derived sales outside us result conduct business numerous currencies us dollar among major foreign currencies conduct business euro british pound japanese yen australian dollar canadian dollar reporting currency financial statements us dollar values foreign currencies operate fluctuate time relative us dollar company exposed foreign currency translation transaction risk translation risk arises foreign currency assets liabilities translated us dollars since functional currencies foreign operations generally denominated local currency adjustments resulting translation assets liabilities deferred recorded component stockholders’ deficit equity measure potential impact foreign currency translation determined sensitivity analysis cash equivalents december 31 2015 approximately half 3730 million cash equivalents denominated foreign currencies exchange rates foreign currencies hold changed comparison us dollar 10 amount cash equivalents would reported december 31 2015 would increased decreased approximately 190 million translation foreign currency revenues expenses historically material impact consolidated earnings since movements among major currencies operate tend impact revenues expenses fairly equally however earnings could impacted periods significant exchange rate volatility major currencies operate move direction us dollar transaction risk arises foreign subsidiaries enter transactions denominated currency may differ local functional currency transactions translated local functional currency gain loss may result recorded current period earnings typically enter foreign currency forward exchange contracts mitigate effects foreign currency transaction risk outstanding currency contracts december 31 2015 immaterial net unrealized gain credit risk financial instruments potentially subject company concentration credit risk consist primarily shortterm highly liquid investments classified cash equivalents accounts receivable interest rate swap contracts majority company’s cash equivalents interest rate swap contracts foreign exchange contracts large investment grade commercial banks accounts receivable balances deemed collectible customers limited concentration credit risk due diverse customer base geographic dispersion item 8item 7a quantitative qualitative disclosures market risk interest rate risk exposure changes interest rates resulting 2963 million outstanding two term loans 1200 million outstanding revolver floating rate borrowings may either primebased liborbased interest rates borrowings include base rate plus margin 000 075 prime borrowings 625 175 libor borrowings december 31 2008 annualized interest rates original 2007 term loan 2008 term loan revolver 246 296 147 respectively rates original new term loans consisted threemonth libor base rate plus margins 100 150 original term loan 2008 term loan respectively rate revolver consisted onemonth libor base rate plus margin 100 two interest rate swap contracts effectively convert floating base rates term loans fixed rates including effect interest rate swaps annualized interest rates original term loan 2008 term loan 606 442 respectively december 31 2008 company hedge interest rate risk revolver accordingly still exposed interest rate risk revolver 25 basis point increase decrease interest rates would change pretax annual interest expense 3000 million revolver approximately 07 million fully utilized foreign currency exchange risk face two risks related foreign currency exchange translation risk transaction risk amounts invested foreign operations translated us dollars exchange rates effect balance sheet date resulting translation adjustments recorded component accumulated comprehensive income loss stockholders’ equity section consolidated balance sheets foreign subsidiaries generally collect revenues pay expenses currencies united states dollar since functional currencies foreign operations generally denominated local currency subsidiaries foreign currency translation adjustments reflected component stockholders’ equity impact operating results revenues expenses foreign currencies translate higher lower revenues expenses us dollars us dollar weakens strengthens currencies therefore changes exchange rates may affect consolidated revenues expenses expressed us dollars foreign operations exposed foreign currency transaction risk since enter foreign currency forward exchange contracts offset effects adverse fluctuations foreign currency exchange rates instruments typically short term reflected fair value unrealized realized gains losses recorded earnings december 31 2008 15 foreign currency forward contracts outstanding total notional amount 734 million net unrealized loss 25 million contracts matured january 2009 concentration credit risk financial instruments potentially subject company concentration credit risk consist primarily shortterm highly liquid investments classified cash equivalents accounts receivable interest rate swap contracts majority company’s cash equivalent investments two interest rate swap contracts investment grade commercial banks participants company’s credit agreement accounts receivable balances deemed collectible customers limited concentration credit risk due diverse customer base geographic dispersion item 8item 7a quantitative qualitative disclosures market risk interest rate risk exposure changes interest rates resulting 2010 million outstanding two term loans 1280 million outstanding revolver december 31 2009 borrowings floating rate may either primebased liborbased interest rates borrowings include base rate plus margin currently 000 075 prime borrowings 625 175 liborbased borrowings december 31 2009 annualized interest rates original term loan 2008 term loan revolver 10 126 10 respectively rates original 2008 term loans consisted threemonth libor base rate plus margins 075 100 respectively rate revolver consisted onemonth libor base rate plus margin 075 interest rate swap contract effectively converts floating base rate original term loan fixed rate result exposure interest rate risk original term loan capped including effect interest rate swap annualized interest rate original term loan 581 december 31 2009 company hedge interest rate risk 2008 term loan revolver accordingly exposed interest rate risk debt 25 basis point increase decrease interest rates would change pretax annual interest expense 3000 million revolver 800 million outstanding 2008 term loan approximately 10 million foreign currency exchange risk clients 80 countries result conduct business numerous currencies us dollar among major foreign currencies conduct business euro british pound japanese yen australian dollar canadian dollar foreign currency exposure results translation risk transaction risk translation risk exposed foreign currency translation risk since functional currencies foreign operations generally denominated local currency translation risk arises since assets liabilities report foreign subsidiaries translated us dollars exchange rates effect balance sheet dates exchange rates fluctuate time foreign currency translation adjustments deferred recorded component stockholders’ equity impact operating results measure potential impact foreign currency translation consolidated balance sheets determined sensitivity analysis cash equivalents december 31 2009 1166 million cash equivalents approximately 700 million denominated foreign currencies foreign exchange rates comparison us dollar changed 10 amount cash equivalents would reported december 31 2009 would increased decreased approximately 40 million foreign subsidiaries generally operate local functional currency differs us dollar revenues expenses foreign currencies translate higher lower revenues expenses us dollars us dollar continuously weakens strengthens currencies therefore changes exchange rates may affect consolidated revenues expenses expressed us dollars foreign operations historically impact consolidated earnings material since foreign currency movements major currencies operate tend impact revenues expenses fairly equally transaction risk also foreign exchange transaction risk since typically enter transactions normal course business denominated foreign currencies differ local functional currencies foreign subsidiaries operate typically enter foreign currency forward exchange contracts offset effects foreign currency transaction risk contracts normally short term duration unrealized realized gains losses recognized earnings december 31 2009 19 foreign currency forward contracts outstanding total notional amount 1173 million net unrealized gain approximately 07 million contracts matured end january 2010 concentration credit risk financial instruments potentially subject company concentration credit risk consist primarily shortterm highly liquid investments classified cash equivalents accounts receivable interest rate swap contracts majority company’s cash equivalent investments two interest rate swap contracts investment grade commercial banks participants company’s credit agreement accounts receivable balances deemed collectible customers limited concentration credit risk due diverse customer base geographic dispersion item 8 item 8 consolidated financial statements supplementary data consolidated financial statements companys consolidated financial statements fiscal years ended september 30 1997 1996 together report thereon kpmg peat marwick llp independent auditors dated october 31 1997 page 35 1997 annual report stockholders registrant incorporated herein reference companys consolidated financial statements fiscal year ended september 30 1995 together report thereon price waterhouse llp independent accountants dated november 1 1995 except dataquest acquisition discussed note 3 january 25 1996 stock split discussed note 10 march 29 1996 included exhibit 234 report form 10k item 9item 8 consolidated financial statements supplementary data consolidated financial statements companys consolidated financial statements fiscal years ended september 30 1998 1997 together reports thereon kpmg peat marwick llp independent auditors dated october 30 1998 except note 18 november 12 1998 eighth paragraph note 3 interpose acquisition december 10 1998 included report beginning page item 9item 8 consolidated financial statements supplementary data consolidated financial statements supplementary data contained pages 26 46 1999 annual report stockholders registrant incorporated herein reference item 9item 8 consolidated financial statements supplementary data companys consolidated financial statements september 30 2001 2000 years threeyear period ended september 30 2001 together reports kpmg llp independent auditors dated october 29 2001 included annual report beginning page item 9item 8 consolidated financial statements supplementary data consolidated financial statements schedule supporting consolidated financial statements september 30 2002 2001 years threeyear period ended september 30 2002 together reports kpmg llp independent auditors dated october 29 2002 included annual report beginning page 25 item 9item 8 consolidated financial statements supplementary data consolidated financial statements schedule supporting consolidated financial statements calendar 2003 transition 2002 fiscal years twoyear period ended september 30 2002 together reports kpmg llp independent auditors dated february 5 2004 included annual report form 10k beginning page 31 item 9item 8 consolidated financial statements supplementary data consolidated financial statements calendar 2004 calendar 2003 transition 2002 fiscal year ended september 30 2002 together reports kpmg llp independent registered public accounting firm dated march 16 2005 included annual report form 10k beginning page 40 item 9item 8 consolidated financial statements supplementary data consolidated financial statements 2005 2004 2003 together reports kpmg llp independent registered public accounting firm dated march 10 2006 included annual report form 10k beginning page 32 item 9item 8 consolidated financial statements supplementary data consolidated financial statements 2006 2005 2004 together reports kpmg llp independent registered public accounting firm dated march 1 2007 included annual report form 10k beginning page 32 item 9item 8 consolidated financial statements supplementary data consolidated financial statements 2007 2006 2005 together reports kpmg llp independent registered public accounting firm dated february 28 2008 included annual report form 10k beginning page 31 item 9item 8 financial statements supplementary data consolidated financial statements 2010 2009 2008 together reports kpmg llp independent registered public accounting firm included herein annual report form 10k item 9item 8 financial statements supplementary data consolidated financial statements 2011 2010 2009 together reports kpmg llp independent registered public accounting firm included herein annual report form 10k item 9item 8 financial statements supplementary data consolidated financial statements 2012 2011 2010 together reports kpmg llp independent registered public accounting firm included herein annual report form 10k item 9item 8 financial statements supplementary data consolidated financial statements 2013 2012 2011 together reports kpmg llp independent registered public accounting firm included herein annual report form 10k item 9item 8 financial statements supplementary data consolidated financial statements 2014 2013 2012 together reports kpmg llp independent registered public accounting firm included herein annual report form 10k item 9item 8 financial statements supplementary data consolidated financial statements 2016 2015 2014 together reports kpmg llp independent registered public accounting firm included herein annual report form 10k item 9item 8 financial statements supplementary data consolidated financial statements 2017 2016 2015 together reports kpmg llp independent registered public accounting firm included herein annual report form 10k item 9item 8 financial statements supplementary data consolidated financial statements 2018 2017 2016 together reports kpmg llp independent registered public accounting firm included herein annual report form 10k item 9item 8 financial statements supplementary data financial statements 2019 2018 2017 together reports kpmg llp independent registered public accounting firm included herein annual report form 10k item 9item 8 financial statements supplementary data financial statements 2020 2019 2018 together reports kpmg llp independent registered public accounting firm included herein annual report form 10k item 9item 8 consolidated financial statements supplementary data see exhibit 13 item 9item 8 financial statements supplementary data consolidated financial statements selected consolidated financial data contained pages 36 55 2000 annual report stockholders company incorporated herein reference item 9item 8 financial statements supplementary data consolidated financial statements 2015 2014 2013 together reports kpmg llp independent registered public accounting firm included herein annual report form 10k item 9item 8 consolidated financial statements supplementary data consolidated financial statements 2008 2007 2006 together reports kpmg llp independent registered public accounting firm dated february 20 2009 included herein annual report form 10k item 9item 8 consolidated financial statements supplementary data consolidated financial statements 2009 2008 2007 together reports kpmg llp independent registered public accounting firm included herein annual report form 10k item 9 nannannannanitem 15 exhibits consolidated financial statement schedules reports form 8k 1 2 consolidated financial statements schedules independent auditors report consolidated financial statements financial statement schedule listed index consolidated financial statements schedule page 25 hereof filed part report beginning page 26 hereof financial statement schedules listed index omitted information required applicable shown financial statements notes thereto 3 exhibits exhibit number description document 31a6 amended restated certificate incorporationjuly 16 1999 31b7 certificate amendment restated certificate incorporationfebruary 1 2001 31c4 certificate designation preferences rights series junior participating preferred stock series b junior participating preferred stock companymarch 1 2000 326 amended bylaws amended april 14 2000 417 form certificate common stock class aas february 2001 427 form certificate common stock class bas february 2001 43 amended restated rights agreement dated august 31 2002 company mellon investor services llc rights agent related exhibits 44a7 amended restated credit agreement dated july 17 2000 among company certain financial institutions including chase manhattan bank capacity lender agent lenders 44b amendment 3 amended restated credit agreement dated may 30 2002 1011 form indemnification agreement 102a5 securities purchase agreement dated march 21 2000 company silver lake partners lp silver lake technology investors llc parties thereto 102b5 amendment securities purchase agreement dated april 17 2000 company silver lake partners lp silver lake technology investors parties thereto 102c7 letter agreement dated september 6 2001 relating securities purchase agreement 6 convertible junior subordinated promissory notes 102d form amended restated 6 convertible junior subordinated promissory note due april 17 2005 102e amended restated securityholders agreement dated july 12 2002 among company silver lake partners lp parties thereto 103a2 lease dated december 29 1994 soundview farms company premises 56 top gallant road 70 gatehouse road 88 gatehouse road stamford connecticut 103b3 lease dated may 16 1997 soundview farms company premises 56 top gallant road 70 gatehouse road 88 gatehouse road 10 signal road stamford connecticut amendment lease dated december 29 1994 see exhibit 103a 1046 1993 director stock option plan amended restated april 14 2000 1059 2002 employee stock purchase plan 1063 1994 long term stock option plan amended restated october 12 1999 1073 1998 long term stock option plan amended restated october 12 1999 1083 1996 long term stock option plan amended restated october 12 1999 109 employment agreement michael fleisher company october 1 2002 10106 employment agreement regina paolillo company july 1 2000 1011 employment agreement maureen oconnell company dated october 15 2002 effective september 23 2002 1012a6 employment agreement robert e knapp company dated august 7 2000 1012b7 addendum 1 employment agreement robert e knapp company february 1 2001 10138 employment agreement steven tait company dated june 15 2001 211 subsidiaries registrant 231 independent auditors consent 241 power attorney see signature page filed document management compensation plan arrangement 1 incorporated reference companys registration statement form s1 file 3367576 amended effective october 4 1993 2 incorporated reference companys annual report form 10k filed december 21 1995 3 incorporated reference companys annual report form 10k filed december 22 1999 4 incorporated reference companys form 8k dated march 1 2000 filed march 7 2000 5 incorporated reference companys form 8k dated april 17 2000 filed april 25 2000 6 incorporated reference companys annual report form 10k filed december 29 2000 7 incorporated reference companys annual report form 10k filed december 28 2001 8 incorporated reference companys form 10q filed february 13 2002 9 incorporated reference companys form s8 dated filed june 26 2002 b reports form 8k company filed reports form 8k fiscal quarter ended september 30 2002 index consolidated financial statements schedule gartner inc consolidated financial statements report management managements responsibility financial reporting management prepared responsible integrity objectivity consolidated financial statements related information included annual report consolidated financial statements include amounts based managements best judgments estimates prepared conformity generally accepted accounting principles financial information elsewhere annual report consistent consolidated financial statements company maintains system internal controls designed provide reasonable assurance reasonable cost assets safeguarded transactions properly executed recorded preparation reliable financial information internal control system augmented written policies procedures organizational structure providing division responsibilities careful selection training qualified financial people program periodic audits performed internal auditors independent public accountants audit committee board directors composed solely nonemployee directors meets regularly management internal auditors independent accountants ensure meeting responsibilities discuss matters concerning internal controls financial reporting independent internal auditors unrestricted access audit committee michael fleisher michael fleisher chairman board chief executive officer maureen e oconnell maureen e oconnell chief financial officer independent auditors report board directors stockholders gartner inc audited accompanying consolidated balance sheets gartner inc subsidiaries september 30 2002 2001 related consolidated statements operations stockholders equity deficit comprehensive income loss cash flows years threeyear period ended september 30 2002 consolidated financial statements responsibility companys management responsibility express opinion consolidated financial statements based audits conducted audits accordance auditing standards generally accepted united states america standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements referred present fairly material respects financial position gartner inc subsidiaries september 30 2002 2001 results operations cash flows years threeyear period ended september 30 2002 conformity accounting principles generally accepted united states america discussed notes 1 8 company adopted statement financial accounting standards 142 goodwill intangible assets year ended september 30 2002 kpmg llp new york new york october 29 2002 gartner inc consolidated balance sheets thousands except share data see notes consolidated financial statements gartner inc consolidated statements operations thousands except per share data see notes consolidated financial statements gartner inc consolidated statements stockholders equity deficit comprehensive income loss thousands except share data see notes consolidated financial statements gartner inc consolidated statements cash flows thousands see notes consolidated financial statements gartner inc notes consolidated financial statements 1summary significant accounting policies basis presentation fiscal year gartner inc company represents period october 1 september 30 references 2002 2001 2000 unless otherwise indicated respective fiscal year certain prior year amounts reclassified conform current year presentation principles consolidation consolidated financial statements include accounts company majorityowned subsidiaries significant intercompany transactions balances eliminated investments companies company owns less 50 ability exercise significant influence operating financial policies accounted using equity method investments company ability exercise significant influence accounted cost method accounting results operations acquisitions companies accounted using purchase method included consolidated statements operations beginning closing date acquisition revenue commission expense recognition company typically enters annually renewable subscription contracts research products revenue research products deferred recognized ratably applicable contract terms majority research contracts billable upon signing absent special terms granted limited basis time research contracts noncancelable nonrefundable except government contracts 30day cancellation clause produced material cancelations date exception certain government contracts permit termination contracts special billing terms companys policy record entire amount contract billable fee receivable time contract signed represents legally enforceable claim corresponding amount deferred revenue government contracts permit termination company bills client full amount billable contract records receivable equal earned portion contract addition company records deferred revenue government contracts cash received deferred revenue attributable government contracts 289 million 245 million september 30 2002 2001 respectively addition september 30 2002 2001 company recognized receivables deferred revenues relating government contracts permit termination 77 million 133 million respectively billed yet collected company records commission obligation related research contracts upon signing contract amortizes corresponding deferred commission expense contract period related revenues earned consulting revenues primarily derived consulting measurement strategic advisory services paid oneday analyst engagements recognized primarily percentage completion basis time materials basis work performed services provided contract basis events revenue deferred recognized upon completion related symposium conference exhibition addition company defers certain costs directly related events expenses costs period related symposium conference exhibition occurs companys policy defer costs primarily prepaid site production services costs incremental directly attributable specific event costs organizing producing companys events primarily company personnel nonevent specific expenses expensed period incurred end fiscal quarter management assesses eventbyevent basis whether expected direct costs producing scheduled event exceed expected revenues costs expected exceed revenues company records expected loss period determined revenues includes software licensing fees recognized signed noncancelable software license exists delivery occurred collection probable companys fees fixed determinable revenue software maintenance deferred recognized ratably term maintenance agreement typically twelve months cash equivalents highly liquid investments original maturities three months less classified cash equivalents carrying value investments approximates fair value based upon shortterm maturity investments maturities three months classified marketable securities investments equity securities company accounts investments publicly traded equity securities statement financial accounting standards sfas 115 accounting certain investments debt equity securities investments meet criteria classification available sale recorded fair value included marketable equity securities consolidated balance sheets given companys ability intent sell investments within one year period unrealized gains losses marketable investments recorded net tax component accumulated comprehensive income loss net within stockholders equity deficit section consolidated balance sheets realized gains losses recorded net gain loss sale investments within consolidated statements operations cost equity securities sold based specific identification company assesses need record impairment losses investments records losses impairment investment determined temporary nature making assessment company considers significance duration decline value valuation comparable companies operating internet technology sectors impairment factors company evaluates may change subsequent periods since entities underlying investments operate volatile business environment addition entities may require additional financing meet cash operational needs however assurance funds available extent needed terms acceptable entities impairment losses reflected net loss minorityowned investments within consolidated statements operations investments company ability exercise significant influence accounted cost method accounting accordingly investments carried lower cost net realizable value included assets consolidated balance sheets see note 5 investments equity method used account investments entities majorityowned company control ability exercise significant influence property equipment leasehold improvements property equipment leasehold improvements stated cost less accumulated depreciation amortization property equipment depreciated using straightline method estimated useful lives assets leasehold improvements amortized using straightline method shorter estimated useful lives assets remaining term related leases software development costs company capitalizes certain computer software development costs enhancements establishment technological feasibility limited net realizable value software product ceases capitalization software product available general release clients products reach technological feasibility costs related development efforts charged expense technological feasibility determined additional costs incurred development including coding testing documentation capitalized amortization software development costs provided productbyproduct basis estimated economic life software generally two years using straightline method amortization capitalized computer software development costs begins products available general release customers additionally company capitalizes certain costs incurred purchase create implement internal use software periodic reviews performed ensure unamortized capitalized software development costs remain recoverable future revenue goodwill intangible assets intangible assets include noncompete agreements trademarks tradenames goodwill represents excess purchase price acquired businesses estimated fair value tangible identifiable intangible net assets acquired effective october 1 2001 company adopted early sfas 142 goodwill intangible assets sfas 142 eliminates goodwill amortization upon adoption requires initial assessment goodwill impairment within six months initial adoption least annually thereafter goodwill amortization recognized year ended september 30 2002 company completed initial transitional goodwill impairment assessment second fiscal quarter 2002 determined impairment goodwill impairment charge recorded cumulative effect change accounting principle accordance sfas 142 noncompete agreements amortized straightline basis period agreement ranging two five years tradenames amortized straightline basis estimated useful lives ranging nine twelve years addition impairment recognized result companys annual evaluation impairment longlived assets intangible assets company reviews longlived assets intangible assets goodwill impairment whenever events changes circumstances indicate carrying amount respective asset may recoverable evaluation may based number factors including current projected operating results cash flows changes managements strategic direction well economic market variables managements policy regarding longlived assets intangible assets goodwill evaluate recoverability assets determining whether balance recovered undiscounted future operating cash flows events circumstances indicate carrying value might recoverable based undiscounted future operating cash flows impairment loss would recognized amount impairment measured based difference projected discounted future operating cash flows using discount rate reflecting companys average cost funds carrying value asset see note 6 charges foreign currency translation assets liabilities foreign subsidiaries translated us dollars fiscal yearend exchange rates resulting translation adjustments recorded foreign currency translation adjustments component accumulated comprehensive income loss within stockholders equity deficit section consolidated balance sheets income expense items translated average exchange rates year currency transaction gains losses arising transactions denominated currencies functional currency included results operations within expense net within consolidated statements operations income taxes deferred tax assets liabilities recognized based differences book tax basis assets liabilities using presently enacted tax rates provision income taxes sum amount income tax paid payable year determined applying provisions enacted tax laws taxable income year net changes year deferred tax assets liabilities undistributed earnings subsidiaries outside us amounted approximately 400 million september 30 2002 either indefinitely reinvested remitted substantially free us tax accordingly material provision made taxes may payable upon remittance earnings practicable determine amount liability company credits additional paidin capital realized tax benefits arising stock transactions employees tax benefit nonqualified stock option equal tax effect difference market price companys common stock date exercise price fair value financial instruments companys financial instruments include cash equivalents fees receivable accounts payable accruals shortterm nature carrying amounts financial instruments approximate fair value investments publicly traded equity securities valued based quoted market prices investments equity securities publicly traded valued lower cost net realizable value approximates fair market value longterm convertible debt consists 6 convertible subordinated notes see note 10debt although amounts outstanding september 30 2002 senior revolving credit facility carrying amount borrowings would approximate fair value rates interest revolving credit facility approximate current market rates interest similar instruments comparable maturities concentrations credit risk financial instruments potentially subject company concentrations credit risk consist primarily cash equivalents marketable equity securities fees receivable concentrations credit risk respect fees receivable limited due large number clients comprising client base dispersion across many different industries geographic regions use estimates preparation consolidated financial statements conformity generally accepted accounting principles united states america requires management make estimates assumptions affect reported amounts assets liabilities disclosures contingent assets liabilities dates financial statements reported amounts revenues expenses reporting periods actual results could differ estimates used accounting items allowance doubtful accounts investments depreciation amortization income taxes certain accrued liabilities recently issued accounting standards november 2001 emerging issues task force reached consensus issue 0114 income statement characterization reimbursements received outofpocket expenses incurred consensus requires reimbursements received outofpocket expenses incurred characterized revenue statements operations outofpocket expenses incidental expenses incurred part ongoing operations include limited expenses related airfare mileage hotel stays outoftown meals photocopies telecommunication facsimile charges consensus must applied financial reporting periods beginning december 15 2001 reclassification prior periods comparability company adopted consensus beginning second quarter fiscal 2002 accordance consensus reclassified prior periods years ended september 30 2002 2001 2000 adoption consensus caused revenues cost services product development consulting segment increase 100 million 108 million 79 million respectively april 2002 statement financial accounting standards 145 rescission fasb statements 4 44 64 amendment fasb statement 13 technical corrections sfas 145 issued fasb statement 4 required gains losses extinguishment debt reported extraordinary items statement 64 related matter fas 145 requires gains losses certain debt extinguishment reported extraordinary items use debt extinguishment part risk management strategy statement 44 issued establish transitional requirements motor carriers relative intangible assets since transitions completed statement 44 longer applicable sfas 145 also amends statement 13 requiring saleleaseback accounting certain lease modifications sfas 145 effective fiscal years beginning may 15 2002 fiscal 2003 gartner provisions relating saleleaseback effective transactions may 15 2002 adoption sfas 145 expected material impact companys financial position results operations upon adoption 2003 extraordinary loss extinguishment debt net taxes 18 million 002 per share fiscal 2000 reclassified continuing operations july 2002 statement financial accounting standards 146 accounting costs associated exit disposal activities sfas 146 issued statement addresses financial accounting reporting costs associated exit disposal activities nullifies emerging issues task force issue eitf 943 liability recognition certain employee termination benefits costs exit activity including certain costs incurred restructuring principle difference sfas 146 eitf 943 relates timing liability recognition sfas 146 liability cost associated exit disposal activity recognized liability incurred eitf 943 liability exit cost recognized date entitys commitment exit plan provisions sfas 146 effective exit disposal activities initiated december 31 2002 adoption statement expected material impact companys financial position results operations approval companys workforce facility reductions announced october 30 2002 initiated prior sfas 146 effective date see note 18 subsequent events unaudited 2business acquisitions fiscal 2002 june 10 2002 company acquired remaining 499 people3 inc leading authority human capital people3 integrated companys consulting segment prior acquisition company owned 501 people3 consolidated assets liabilities results operations company revenues fiscal 2002 approximately 69 million purchase price 39 million 02 million allocated noncompete agreements 03 million allocated databaserelated assets 34 million allocated goodwill noncompete agreements amortized threeyear noncompete agreement databaserelated assets amortized estimated useful life five years fiscal 2002 company completed additional acquisitions total consideration approximately 07 million 01 million allocated tangible assets 08 million allocated goodwill 02 million allocated noncompete agreements 04 million allocated liabilities assumed noncompete agreements amortized fiveyear noncompete agreement fiscal 2001 october 2 2000 company acquired assets assumed liabilities solista global llc solista approximately 90 million cash solista provider strategic consulting services merge technology business expertise help clients build strategies digital world acquisition accounted purchase method purchase price allocated assets acquired liabilities assumed based upon estimated fair values date acquisition excess purchase price fair value amounts assigned net tangible assets acquired approximately 65 million 60 million allocated goodwill addition 05 million purchase price allocated noncompete agreements amortized three years see note 6 charges fiscal 2001 company completed additional acquisitions consideration 30 million cash largest acquisition events business approximately 26 million fiscal 2000 december 10 1999 company acquired assets assumed liabilities rendall associates inc rendall 120 million cash rendall provides strategic planning advice feasibility competitive analysis research telecommunications market technologies regulation public policies additionally rendall provides technical expertise broadband technologies acquisition accounted purchase method purchase price allocated assets acquired liabilities assumed based upon estimated fair values date acquisition excess purchase price fair value amounts assigned net tangible assets acquired approximately 111 million 99 million allocated goodwill addition 12 million purchase price allocated noncompete agreement amortized 5 years november 30 1999 company acquired outstanding shares computer financial consultants limited cfc 160 million cash cfc provides senior executives purchasing assistance intended enhance procurement related products services acquisition accounted purchase method purchase price allocated assets acquired liabilities assumed based upon estimated fair values date acquisition excess purchase price fair value amounts assigned net tangible assets acquired approximately 116 million 110 million allocated goodwill addition 06 million purchase price allocated noncompete agreement amortized 5 years fiscal 2000 company completed additional acquisitions consideration 871 million cash 10 million note payable including acquisition techrepublic 758 million see note 3 discontinued operation 3discontinued operation july 2 2001 company sold subsidiary techrepublic cnet approximately 235 million cash common stock cnet reduction certain termination benefits 39 million gross proceeds 143 million cash 755058 shares cnet common stock fair market value 1221 per share july 2 2001 consolidated financial statements company restated reflect disposition techrepublic segment discontinued operation accordance apb opinion 30 accordingly revenues costs expenses assets liabilities cash flows techrepublic excluded respective captions consolidated statements operations consolidated balance sheets consolidated statements cash flows reported date disposition loss discontinued operation net assets discontinued operation net cash used discontinued operation periods presented 2001 company recorded pretax loss 664 million 399 million tax recognize loss sale pretax loss includes writedown 424 million assets primarily goodwill net realizable value operating losses date sale 65 million severance related benefits 83 million salerelated costs expenses including costs associated closure facilities 92 million summarized financial information discontinued operation follows thousands statements operations data 4net gain loss sale investments year ended september 30 2002 company sold 748118 shares cnet 60 million resulting pretax gain 08 million year ended september 30 2001 company sold remaining 1922795 shares jupiter media metrix jupiter net cash proceeds 75 million average price 391 per share pretax loss 56 million addition company received additional stock distributions investment si venture associates llc si venture fund ii lp si ii year ended september 30 2001 company sold portion shares received si ii securities net cash proceeds 69 million pretax gain 50 million june 30 2000 company sold 8 investment netg inc netg 360 million cash affiliate harcourt inc resulting pretax loss approximately 66 million company received cash proceeds july 7 2000 addition company recorded additional loss connection negotiated settlement joint venture agreement associated sale gartnerlearning approximately 67 million october 7 1999 jupiter completed initial public offering 2100 per share common stock upon completion jupiters initial public offering company owned 4028503 shares jupiters outstanding common stock change companys proportionate share jupiters equity resulted companys writeup investment approximately 154 million increases deferred tax liability additional paidin capital approximately 71 million 83 million respectively fiscal 2000 companys ownership interest decreased 20 jupiters outstanding common stock company concluded longer exercised significant influence jupiter changed method accounting investment equity method cost method year ended september 30 2000 company sold 1995950 shares net cash proceeds 555 million average price 2781 per share pretax gain 429 million september 2000 jupiter merged media metrix inc creating jupiter shareholders received 0946 shares jupiter share jupiter owned date merger company owned 2032553 shares former jupiter exchanged shares jupiter 5investments summary companys investments marketable equity securities investments september 30 2002 2001 follows thousands cnet shares september 30 2001 marketable equity securities comprised 755058 shares cnet received connection sale techrepublic fair value 1221 per share 92 million july 2 2001 closing date subsequent closing market value cnet shares declined substantially accordingly fourth quarter fiscal 2001 company recorded 39 million impairment charge net loss minorityowned investments representing temporary decline market value cnet common stock september 30 2001 shares reflected consolidated balance sheets fair market value 33 million giving effect additional 20 million unrealized losses fiscal 2002 748118 shares cnet sold 60 million average price per share 805 resulting pretax gain 08 million remaining 6940 cnet shares written loss 49 thousand si investments related party addition equity securities owned directly company si wholly owned affiliate company also owns 34 si ii entities venture capital funds engaged making investments early midstage itbased internetenabled companies entities managed si services company llc entity controlled companys former chairman board continues employee chairman emeritus company certain companys former officers employees management fees paid si services company llc approximately 12 million per year addition company provides access research use certain office space cost si services company llc company total original investment commitment si ii 100 million 300 million respectively commitment si fully funded prior years 300 million commitment si ii 74 million remained unfunded september 30 2001 july 1 2002 15 million remaining commitment funded 59 million commitment remaining september 30 2002 may called si time investments comprised investments si ii costbased investments carrying value companys investments held si ii 25 million 55 million respectively september 30 2002 carrying value costbased investments 47 million september 30 2002 costbased investments represent companys 9 investment trusecure corporation company provides internet security assurance awareness continuous certification products systems trusecures revenues 29 million year ended december 31 2001 company sells certain trusecure services value trusecure services sold company 37 million 12 million 02 million fiscal 2002 2001 2000 respectively companys share equity gains si ii 02 million year ended september 30 2002 loss 03 million 05 million years ended september 30 2001 2000 respectively year ended september 30 2002 company recognized impairment losses 25 million connection companys decision actively pursue sale investments held si funds year ended september 30 2001 company recognized impairment losses 265 million impairment losses related equity securities owned si ii temporary declines value certain investments reflected net loss minorityowned investments consolidated statements operations company made assessment carrying value investments determined certain investments excess fair value due significance duration decline due valuation comparable companies operating internet technology sectors impairment factors company evaluated may change subsequent periods since entities underlying investments operate volatile business environment addition entities may require additional financing meet cash operational needs however assurance funds available extent needed terms acceptable entities could result additional material noncash impairment charges future 6other charges 2002 company recorded charges 172 million charges 100 million relates costs losses associated elimination excess facilities principally leased facilities ongoing lease costs losses associated sublease arrangements addition approximately 58 million charges associated companys workforce reduction announced january 2002 employee termination severance payments related benefits workforce reduction resulted elimination approximately 100 positions approximately 2 companys workforce payment 53 million termination benefits fiscal year ended september 30 2002 remaining 14 million relates impairment certain databaserelated assets 2001 company recorded charges 466 million charges 248 million associated companys workforce reduction announced april 2001 workforce reduction resulted elimination 383 positions approximately 8 companys workforce payment 64 million 182 million termination severance payments related benefits fiscal years ended september 30 2002 2001 respectively approximately 143 million charges associated writedown goodwill longlived assets net realizable value result companys decision discontinue certain unprofitable products 75 million charge associated primarily writeoff internally developed systems connection launch gartnercom seatbased pricing september 30 2002 06 million aggregate termination benefits relating workforce reduction remain paid primarily quarters ended december 31 2002 march 31 2003 company funding costs operating cash flows following reconciliation charges recorded fiscal 2002 2001 thousands 1 noncash charges 2002 workforce reductions result establishment new measurement date certain stock options upon modification exercise term 7property equipment leasehold improvements net property equipment leasehold improvements less accumulated depreciation amortization consist following thousands september 30 2002 2001 capitalized development costs internal use software 156 million 273 million respectively net accumulated amortization 274 million 247 million respectively amortization capitalized internal software development costs totaled 157 million 143 million 72 million fiscal 2002 2001 2000 respectively 8intangible assets net effective october 1 2001 company adopted early sfas 142 goodwill intangible assets sfas 142 eliminates goodwill amortization upon adoption requires initial assessment goodwill impairment within six months initial adoption least annually thereafter accordingly goodwill amortization recognized fiscal year ended september 30 2002 company completed initial transitional goodwill impairment assessment second fiscal quarter 2002 determined impairment goodwill impairment charge recorded cumulative effect change accounting principle accordance sfas 142 following table reconciles reported net income loss income loss per share continuing operations respective pro forma amount adjusted exclude goodwill amortization included companys balance sheet september 30 2002 2001 following categories acquired intangible assets thousands september 30 2002 september 30 2001 amortization related intangible assets finite lives 19 million 28 million 34 million fiscal years ended september 30 2002 2001 2000 respectively accordance sfas 142 company reassessed useful lives intangible assets changes lives expected residual values associated intangible assets noncompete agreements amortized term individual contracts generally two five years trademarks tradenames amortized period nine twelve years estimated future amortization expense next five years follows thousands 9accounts payable accrued liabilities accounts payable accrued liabilities consist following thousands 10debt july 16 1999 company entered unsecured credit agreement jpmorgan chase bank administrative agent participating financial institutions thereunder providing maximum 5000 million credit facilities consisting 3500 million term loan 1500 million senior revolving credit facility february 25 2000 company modified certain financial covenants permit issuance convertible debt loans revolving facility available five years maturing july 16 2004 subject certain customary conditions date loan july 17 2000 company entered second amendment credit agreement amendment company agreed refinance existing indebtedness repay full terminate term loans drawn existing credit agreement september 30 2002 company senior revolving credit facility amended totaling maximum aggregate principal amount 2000 million connection extinguishment 3500 million term loan company wrote 17 million net related tax benefit 12 million deferred debt issuance costs fourth quarter fiscal 2000 charge recorded extraordinary loss debt extinguishment september 30 2002 amounts outstanding revolving credit facility september 30 2001 150 million outstanding revolving credit facility commitment fee 030 050 paid unused revolving credit amount pursuant certain financial covenants revolving credit facility company 1189 million available borrowings september 30 2002 weighted average interest rate borrowings outstanding october november 2001 36 year ended september 30 2002 weighted average interest rate borrowings 68 year ended september 30 2001 april 17 2000 company issued private placement transaction 3000 million 6 convertible subordinated notes convertible notes silver lake partners lp silver lake certain silver lakes affiliates convertible notes mature april 2005 accrue interest 6 per annum interest accrues semiannually corresponding increase face amount convertible notes commencing september 15 2000 accordingly 463 million added face amount convertible notes balance outstanding september 30 2002 part transaction two silver lake representatives elected companys tenmember board directors company also granted silver lake right acquire 5 company subsidiary spun 80 initial public offering price company valued option 10 million recorded discount convertible notes amortized interest expense fiveyear term april 18 2000 million proceeds used pay term loan borrowings credit agreement jpmorgan chase bank company incurred 79 million transaction advisory fees related transaction fees accounted debt issuance costs amortized fiveyear term debt using effective interest method convertible notes originally convertible shares companys class common stock commencing april 17 2003 initial price 1587 per share accordance original terms note first anniversary date issuance convertible notes april 17 2001 conversion price adjusted reset equal lower initial conversion price 1587 per share average closing price thirty trading day period ending april 17 2001 less 1443 price equal 10 premium average closing price period april 17 2001 conversion price reduced 745 per share number shares class common stock issuable upon conversion notes september 30 2002 466 million shares total market value 3771 million using companys september 30 2002 market price 810 per share april 17 2003 subject satisfaction certain customary conditions company may redeem convertible notes cash provided 1 average closing price class common stock twenty consecutive trading days immediately preceding date redemption notice given equals exceeds 150 adjusted conversion price 745 per share 2 closing price class common stock trading day immediately preceding date redemption notice given also equals exceeds 150 adjusted conversion price redemption price face amount notes plus accrued interest company initiates redemption silver lake option receiving payment cash stock combination cash stock commencing april 18 2003 silver lake may elect convert portion notes stock silver lake initiates conversion company option redeeming notes cash price based number shares notes would converted market price date notice conversion given maturity date april 17 2005 company must satisfy remaining notes cash company issues letters credit ordinary course business september 30 2002 company outstanding letters credit jpmorgan chase bank 37 million bank new york 20 million others 01 million 11commitments contingencies company leases various facilities furniture computer equipment operating lease arrangements expiring 2002 2025 future minimum annual payments noncancelable operating lease agreements september 30 2002 follows thousands rental expense operating leases 276 million 269 million 224 million years ended september 30 2002 2001 2000 respectively company commitments two facilities management companies printing copying mailroom related services expires 2003 minimum obligation service agreements 16 million aggregate 2003 company involved legal proceedings litigation arising ordinary course business company believes outcome current proceedings claims litigation material effect companys financial position results operations resolved future period 12stockholders equity deficit capital stock class common stock class b common stock stockholders entitled one vote per share matters voted stockholders vote together single class respect election directors class common stock stockholders entitled one vote per share election class directors constitute 20 directors class b common stock stockholders entitled one vote per share election class b directors constitute least 80 directors stock option plans companys 1991 stock option plan expired april 25 2001 result september 30 2002 2001 options available future grant plan january 1993 company adopted 1993 director option plan stock option plan directors reserved aggregate 1200000 shares class common stock issuance plan currently provides automatic grant 15000 options purchase shares class common stock nonemployee director upon first becoming outside director automatic grant option purchase additional 7000 shares class common stock annually based continuous service outside director exercise price option granted plan equal fair market value class common stock date grant options granted subject yearly vesting threeyear period date grant nonemployee directors also compensated common stock equivalents payable plan september 30 2002 2001 384995 420738 options available grant respectively october 1994 board directors stockholders company approved adoption longterm stock option plan reservation aggregate 6560000 shares class common stock issuance thereunder purpose plan intended provide senior personnel longterm equity participation company incentive promote longterm success company exercise price option granted plan equal fair market value class common stock date grant prior 2001 options granted plan vest become fully exercisable five years following date grant based continued employment term ten years date grant assuming continued employment vesting exercisability accelerates upon achievement certain financial performance targets determined board directors financial performance targets met year grant accordance parameters set board sole discretion 25 shares granted become exercisable first anniversary date following date grant cumulative financial performance targets met first second years following date grant second 25 become exercisable three years following date grant cumulative financial performance targets met three years following date grant third 25 become exercisable fourth anniversary date following date grant final 25 become exercisable fifth anniversary following date grant based cumulative performance 2002 1186000 shares exercisable september 30 2002 additional 62500 shares subject accelerated vesting exercisable september 30 2002 options granted 2001 2002 1994 plan vest four years 25 vesting one year remaining 75 vesting monthly next three years september 30 2002 2001 30250 419250 options available grant respectively october 1996 company adopted 1996 long term stock option plan terms plan board directors may grant nonqualified incentive options entitling employees purchase shares companys common stock fair market value date option grant total 1800000 shares class common stock reserved issuance plan options granted plan vest become fully exercisable six years following date grant based continued employment term ten years date grant assuming continued employment prior 2002 vesting exercisability accelerates upon achievement certain financial performance targets determined board directors financial performance targets met year grant accordance parameters set board sole discretion 25 shares granted become exercisable third anniversary date following date grant cumulative financial performance targets met first second years following date grant second 25 become exercisable three years following date grant financial performance targets met cumulatively three years following date grant third 25 become exercisable fourth anniversary date following date grant final 25 become exercisable fifth anniversary following date grant based cumulative performance 1997 1999 697000 options exercisable september 30 2002 additional acceleration vesting possible options granted 2002 1996 plan vest four years 25 vesting one year remaining 75 vesting monthly next three years september 30 2002 2001 568458 952125 options purchase common stock available grant respectively october 1998 company adopted 1998 long term stock option plan terms plan board directors may grant nonqualified incentive options entitling employees purchase shares companys common stock fair market value date option restricted stock grant total 2500000 shares class common stock reserved issuance plan options currently granted plan generally vest become fully exercisable six years following date grant based continued employment term ten years date grant assuming continued employment vesting exercisability accelerates upon achievement certain financial performance targets determined board directors financial performance targets met year grant accordance parameters set board sole discretion 25 shares granted become exercisable third anniversary date following date grant cumulative financial performance targets met first second years following date grant second 25 become exercisable three years following date grant financial performance targets met cumulatively three years following date grant third 25 become exercisable fourth anniversary date following date grant final 25 become exercisable fifth anniversary following date grant based cumulative 2002 performance vesting accelerated september 30 2002 2001 1024344 838509 options purchase common stock available grant respectively november 1999 company adopted 1999 stock option plan terms plan board directors may grant nonqualified incentive stock options awards eligible employees consultants companys directors highly compensated executive officers eligible awards plan total 20000000 shares class common stock reserved issuance plan substantially options currently granted plan vest become fully exercisable year three years equal installments following date grant based continued employment term ten years date grant assuming continued employment july 25 2002 board directors approved amendment plan increasing shares reserved 3500000 23500000 september 30 2002 2001 3990266 2767349 options purchase common stock available grant respectively summary stock option activity plans agreement september 30 2002 follows options purchase 17590919 12935484 shares class common stock exercisable september 30 2002 2001 respectively following table summarizes information stock options outstanding september 30 2002 employee stock purchase plans january 1993 company adopted employee stock purchase plan reserved aggregate 4000000 shares class common stock issuance plan march 2002 shareholders approved 2002 employee stock purchase plan substantially identical terms eligible employees permitted purchase class common stock payroll deductions may exceed 10 employees compensation 21250 calendar year price equal 85 class common stock price reported nyse beginning end offering period whichever lower eligible international employees purchase shares price calculated monthly corresponding discount years ended september 30 2002 2001 560861 769085 shares issued treasury stock average purchase price 790 701 per share respectively conjunction plans september 2002 3722256 shares available purchase 2002 plan september 30 2002 2001 403629 676994 shares also available purchase 1993 plan restricted stock awards beginning 1998 company granted restricted stock awards 1991 stock option plan 1998 long term stock option plan restricted stock awards vest six equal installments first installment vesting two years grant annually thereafter five years recipients required provide consideration company rendering service right vote shares receive dividends restricted stock may sold employee vesting period 1999 company also awarded 40500 stock options 1998 long term stock option plan exercise price 100 per share vest basis restricted stock awards certain international employees stock options weighted average fair market value 2281 per stock option date grant september 30 2002 total 178167 restricted shares class common stock outstanding weighted average market value original award date 2331 per share september 30 2001 total 271666 restricted shares class common stock outstanding weighted average market value original award date 2314 per share awards restricted stock 2002 2001 2000 company awarded restricted stock 50000 shares fair market value 1300 per share 2002 forfeitures acceleration awards 11836 shares 9335 shares respectively september 30 2002 aggregate unamortized compensation expense restricted stock awards 1 stock option grants 35 million included unearned compensation consolidated balance sheets 2001 forfeitures acceleration awards 64593 shares 9581 shares respectively total compensation expense recognized restricted stock awards option grants 13 million 11 million 11 million 2002 2001 2000 respectively deferred compensation employee stock trust company supplemental deferred compensation arrangements benefit certain officers managers key employees arrangements funded life insurance contracts purchased company plan permits participants diversify investments value assets held managed invested pursuant agreement 81 million 78 million september 30 2002 2001 respectively included assets corresponding deferred compensation liability 96 million 88 million september 30 2002 2001 recorded fair market value shares held rabbi trust adjusted corresponding charge credit compensation cost reflect fair value amount owed employee total compensation expense recognized plan fiscal 2002 06 million compared 01 million income 2001 forward purchase agreements beginning 1997 company entered series forward purchase agreements effect repurchase 1800000 class common stock agreements settled quarterly companys option net basis either shares class common stock cash extent market price companys class common stock settlement date higher lower forward purchase price net differential received paid company year ended september 30 2000 four settlements resulted company receiving 155792 shares class common stock paying approximately 82 million cash year ended september 30 2001 two settlements resulted company delivering 491789 shares class common stock paying approximately 64000 cash june 2001 company terminated forward purchase agreement reacquiring 1164154 shares class common stock approximately 97 million forward purchase agreements outstanding september 30 2002 stock repurchases july 19 2001 companys board directors approved repurchase 750 million class b common stock july 25 2002 companys board directors increased authorized stock repurchase program previously approved 75 million 125 million class b common stock repurchases summarized september 30 2002 company repurchased 6791209 shares outstanding common stock cost approximately 698 million average price 1028 per share stock based compensation company applies provisions apb opinion 25 accounting stock issued employees related interpretations accounting stockbased compensation plans accordingly compensation cost recognized companys fixed stock option plans pursuant requirements statement financial accounting standards 123 accounting stockbased compensation following pro forma net income loss net income loss per share years ended september 30 2001 2000 1999 compensation cost companys stockbased compensation plans determined based fair value grant date grants plans thousands except per share data fair value companys stock plans used compute pro forma net income loss diluted per share disclosures estimated fair value grant date using blackscholes option pricing model following weightedaverage assumptions utilized stock options granted modified weighted average fair values companys stock options granted years ended september 30 2002 2001 2000 367 377 663 respectively 13computation earnings per share continuing operations basic earnings per share eps computed dividing income loss continuing operations weighted average number common shares outstanding period diluted eps reflects potential dilution securities could share earnings exercise stock options antidilutive excluded calculation following table sets forth reconciliation basic diluted earnings per share computations thousands except per share year ended september 30 2002 options purchase 145 million shares class common stock company exercise prices greater average fair market value 1057 included computation diluted income per share effect would antidilutive year ended september 30 2001 options purchase 350 million shares class common stock company included computation diluted loss per share effect would antidilutive year ended september 30 2000 options purchase 143 million shares class common stock company exercise prices greater average fair market value 1378 included computation diluted income loss per share effect would antidilutive years ended september 30 2002 2001 2000 unvested restricted stock awards included computation diluted income loss per share effect would antidilutive additionally convertible notes outstanding year ended september 30 2001 2000 representing 305 million 88 million common shares converted related interest expense 188 million 82 million respectively included computation diluted income loss per share effect would antidilutive 14income taxes following summary components income loss provision benefit income taxes loss discontinued operations extraordinary loss thousands provision benefit income taxes income consists following components thousands current longterm deferred tax assets liabilities comprised following thousands current longterm net deferred tax assets 37 million 311 million september 30 2002 99 million 294 million september 30 2001 respectively included prepaid expenses current assets consolidated balance sheets valuation allowance relates domestic state local foreign tax net operating loss capital loss carryforwards likely expire unutilized net increase valuation allowance approximately 31 million current year results primarily net increase state local net operating losses approximately 24 million valuation allowance reduce additional paidincapital upon subsequent recognition related tax benefits related stock options differences us federal statutory income tax rate companys effective tax rate income loss continuing operations september 30 2002 company us federal capital loss carryforwards 219 million 192 million expire four years remaining 27 million expire five years foreign tax credit carryforwards 88 million expire four years federal tax credit carryforwards 18 million carried forward indefinitely company state local tax net operating loss carryforwards 1212 million 261 million expire within one five years 223 million expire within six fifteen years 728 million expire within sixteen twenty years company also 723 million state local capital loss carryforwards expire four years lastly company foreign tax loss carryforwards 51 million 14 million expire one five years 37 million carried forward indefinitely 15employee benefits company savings investment plan covering substantially domestic employees company contributes amounts plan based upon level employee contributions addition company also contributes fixed discretionary amounts based employee participation attainment operating margins set board directors amounts expensed connection plan totaled 95 million 105 million 85 million years ended september 30 2002 2001 2000 respectively 16segment information company previously managed business four reportable segments organized basis differences related products services discontinuance sale techrepublic see note 3discontinued operation three reportable segments remain research consulting events research consists primarily subscriptionbased research products consulting consists primarily consulting measurement engagements strategic advisory services events consists various symposia conferences exhibitions company evaluates reportable segment performance allocates resources based gross contribution margin gross contribution presented defined operating income excluding certain selling general administrative expenses depreciation amortization intangibles charges accounting policies used reportable segments used company earns revenue clients many countries united states companys country domicile individual country revenues external clients represent 10 companys consolidated revenues additionally single client accounted 10 total revenue loss single client managements opinion would material adverse effect revenues company identify allocate assets including capital expenditures operating segment accordingly assets reported segment information available segment reviewed evaluation performance making decisions allocation resources following tables present information reportable segments thousands column includes certain revenues corporate expenses primarily selling general administrative unallocated reportable segments expenses allocated operations meet segment reporting quantitative threshold charges intersegment revenues companys consolidated revenues generated primarily direct sales clients domestic international sales forces network independent international distributors company defines europe revenues attributable clients located england european region international revenues attributable areas located outside united states canada europe products services company provided integrated worldwide basis integration products services delivery practical separate precisely revenues operating income loss company geographic location accordingly separation set forth table based upon internal allocations involve certain management estimates judgments european identifiable tangible assets consist primarily assets european subsidiaries include accounts receivable balances carried directly subsidiaries located england france germany european customer receivables maintained therefore included identifiable assets united states operations summarized information geographic location follows thousands 17quarterly financial data unaudited thousands except per share data 1 includes charges 172 million quarter ended march 31 2002 311 million quarter ended march 31 2001 155 million quarter ended september 30 2001 2 includes net losses minorityowned investments 25 million quarter ended june 30 2002 17 million 34 million 66 million 151 million four quarters fiscal year ended september 30 2001 also includes benefits income taxes utilization foreign tax credits 29 million quarter ended june 30 2001 116 million quarter ended september 30 2001 3 aggregate four quarters diluted earnings per common share total reported full fiscal year amount due effect dilutive securities rounding 18subsequent events unaudited october 30 2002 company announced expected incur charge 25 million quarter ending december 31 2002 reductions facilities workforce company continues align business resources revenue expectations october 30 2002 company announced board directors approved change companys fiscal year september 30 december 31 change fiscal yearend better align overall operations sales organization already operating december 31 yearend correspond majority clients well competitors company intends file audited form 10k transition report threemonth period ended december 31 2002 signatures pursuant requirements securities exchange act 1934 registrant caused report form 10k signed behalf undersigned duly authorized stamford connecticut december 27 2002 gartner inc date december 27 2002 michael fleisher michael fleisher chairman board chief executive officer president power attorney person whose signature appears appoints michael fleisher maureen e oconnell acting individually attorneyinfact full power substitution capacities sign amendments report form 10k file appropriate exhibits related documents securities exchange commission undersigned ratifies confirms signatures may signed attorneyinfact amendments report pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated certification pursuant rule 13a14 securities exchange act 1934 adopted pursuant section 302 sarbanesoxley act 2002 1 reviewed annual report form 10k gartner inc 2 based knowledge annual report contain untrue statement material fact omit state material fact necessary make statements made light circumstances statements made misleading respect period covered annual report 3 based knowledge financial statements financial information included annual report fairly present material respects financial condition results operations cash flows registrant periods presented annual report 4 registrants certifying officer responsible establishing maintaining disclosure controls procedures defined exchange act rules 13a14 15d14 registrant designed disclosure controls procedures ensure material information relating registrant including consolidated subsidiaries made known us others within entities particularly period annual report prepared b evaluated effectiveness registrants disclosure controls procedures date within 90 days prior filing date annual report evaluation date c presented annual report conclusions effectiveness disclosure controls procedures based evaluation date 5 registrants certifying officers disclosed based recent evaluation registrants auditors audit committee registrants board directors significant deficiencies design operation internal controls could adversely affect registrants ability record process summarize report financial data identified registrants auditors material weaknesses internal controls b fraud whether material involves management employees significant role registrants internal controls 6 registrants certifying officers indicated annual report whether significant changes internal controls factors could significantly affect internal controls subsequent date recent evaluation including corrective actions regard significant deficiencies material weaknesses michael fleisher michael fleisher chief executive officer december 27 2002 certification pursuant rule 13a14 securities exchange act 1934 adopted pursuant section 302 sarbanesoxley act 2002 1 reviewed annual report form 10k gartner inc 2 based knowledge annual report contain untrue statement material fact omit state material fact necessary make statements made light circumstances statements made misleading respect period covered annual report 3 based knowledge financial statements financial information included annual report fairly present material respects financial condition results operations cash flows registrant periods presented annual report 4 registrants certifying officer responsible establishing maintaining disclosure controls procedures defined exchange act rules 13a14 15d14 registrant designed disclosure controls procedures ensure material information relating registrant including consolidated subsidiaries made known us others within entities particularly period annual report prepared b evaluated effectiveness registrant disclosure controls procedures date within 90 days prior filing date annual report evaluation date c presented annual report conclusions effectiveness disclosure controls procedures based evaluation date 5 registrants certified officers disclosed based recent evaluation registrants auditors audit committee registrants board directors significant deficiencies design operation internal controls could adversely affect registrants ability record process summarize report financial data identified registrants auditors material weaknesses internal controls b fraud whether material involves management employees significant role registrants internal controls 6 registrants certifying officers indicated annual report whether significant changes internal controls factors could significantly affect internal controls subsequent date recent evaluation including corrective actions regard significant deficiencies material weaknesses maureen e oconnell maureen e oconnell chief financial officer december 27 2002item 15 exhibits consolidated financial statement schedule reports form 8k 1 2 consolidated financial statements schedules independent auditors report consolidated financial statements financial statement schedule listed index consolidated financial statements schedule page 31 hereof filed part report financial statement schedules listed index omitted information required applicable shown financial statements notes thereto 3 exhibits filed document management compensation plan arrangement 1 incorporated reference companys registration statement form s1 file 3367576 amended effective october 4 1993 2 incorporated reference companys annual report form 10k filed december 21 1995 sec file 00015144 3 incorporated reference companys annual report form 10k filed december 22 1999 4 incorporated reference companys form 8k dated march 1 2000 filed march 7 2000 5 incorporated reference companys annual report form 10k filed december 29 2000 10k30 6 incorporated reference companys annual report form 10k filed december 28 2001 7 incorporated reference companys form 10q filed february 13 2002 8 incorporated reference companys annual report form 10k filed december 29 2002 9 incorporated reference companys proxy statement annual meeting dated february 13 2003 10 incorporated reference companys form s8 filed february 16 2002 11 incorporated reference companys transition report form 10kt filed march 31 2003 12 incorporated reference companys form 10q filed may 15 2003 13 incorporated reference companys form 10q filed august 14 2003 b reports form 8k company filed following reports form 8k last quarter year ended december 31 2003 1 report form 8k dated october 1 2003 regarding appointments maureen oconnell president chief operating officer chris lafond executive vice president chief financial officer 2 report form 8k dated october 9 2003 regarding conversion 300 million original aggregate principal amount 6 convertible subordinated notes approximately 494 million shares class common stock 3 report form 8k dated october 30 2003 furnish companys press release issued october 30 2003 respect financial results gartner inc quarter ended september 30 2003 4 report form 8k dated december 5 2003 regarding staff reduction related accounting charge 10k31 index consolidated financial statements schedule gartner inc consolidated financial statements 10k32 report management managements responsibility financial reporting management prepared responsible integrity objectivity consolidated financial statements related information included annual report consolidated financial statements include amounts based managements best judgments estimates prepared conformity accounting principles generally accepted united states america financial information elsewhere annual report consistent consolidated financial statements company maintains system internal controls designed provide reasonable assurance reasonable cost assets safeguarded transactions properly executed recorded preparation reliable financial information internal control system augmented written policies procedures organizational structure providing division responsibilities careful selection training qualified financial people program periodic audits performed internal audit department independent auditors audit committee board directors composed solely nonemployee directors meets regularly management internal auditors independent accountants ensure meeting responsibilities discuss matters concerning internal controls financial reporting independent internal auditors unrestricted access audit committee michael fleisher michael fleisher chairman board chief executive officer christopher lafond christopher lafond chief financial officer 10k33 independent auditors report board directors stockholders gartner inc audited consolidated financial statements gartner inc subsidiaries listed accompanying index connection audits consolidated financial statements also audited financial statement schedule listed accompanying index consolidated financial statements financial statement schedule responsibility companys management responsibility express opinion consolidated financial statements financial statement schedule based audits conducted audits accordance auditing standards generally accepted united states america standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements referred present fairly material respects financial position gartner inc subsidiaries december 31 2003 2002 september 30 2002 results operations cash flows year ended december 31 2003 threemonth period ended december 31 2002 years twoyear period ended september 30 2002 conformity accounting principles generally accepted united states america also opinion related financial statement schedule considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein discussed note 1 company adopted statement financial accounting standards 142 goodwill intangible assets year ended september 30 2002 kpmg llp new york new york february 5 2004 10k34 gartner inc consolidated balance sheets thousands except share data see notes consolidated financial statements 10k35 gartner inc consolidated statements operations thousands except per share data see notes consolidated financial statements 10k36 gartner inc consolidated statements stockholders equity deficit comprehensive income loss thousands except share data see notes consolidated financial statements 10k37 gartner inc consolidated statements cash flows thousands see notes consolidated financial statements 10k38 gartner inc notes consolidated financial statements 1summary significant accounting policies basis presentation october 30 2002 announced board directors approved change fiscal year end september 30 december 31 effective january 1 2003 change resulted threemonth transitional period ending december 31 2002 references transition 2002 unless otherwise indicated refer threemonth transitional period ended december 31 2002 references fiscal 2002 fiscal 2001 unless otherwise indicated respective fiscal year period october 1 september 30 references calendar 2003 calendar 2002 unless otherwise indicated respective twelvemonth period january 1 december 31 unaudited financial information twelve months ended december 31 2002 presented comparative purposes certain prior year amounts reclassified conform current year presentation used notes terms company us mean gartner inc subsidiaries principles consolidation consolidated financial statements include accounts company majorityowned subsidiaries significant intercompany transactions balances eliminated investments companies less 50 ability exercise significant influence operating financial policies accounted using equity method investments ability exercise significant influence accounted cost method accounting results operations acquisitions companies accounted using purchase method included consolidated statements operations beginning closing date acquisition revenues commission expense recognition typically enter annually renewable subscription contracts research products revenues research products deferred recognized ratably applicable contract terms majority research contracts billable upon signing absent special terms granted limited basis time research contracts noncancelable nonrefundable except government contracts 30day cancellation clause produced material cancellations date exception certain government contracts permit termination contracts special billing terms policy record entire amount contract billable fee receivable time contract signed represents legally enforceable claim corresponding amount deferred revenue government contracts permit termination bill client full amount billable contract record receivable equal earned portion contract addition record deferred revenue government contracts cash received deferred revenue attributable government contracts 386 million 293 million 289 million december 31 2003 december 31 2002 september 30 2002 respectively addition december 31 2003 december 31 2002 september 30 2002 recognized receivables deferred revenues relating government contracts permit termination 66 million 47 million 77 million respectively billed yet collected record commission obligation related research contracts upon signing contract amortize corresponding deferred commission expense contract period related revenues earned consulting revenues primarily derived consulting measurement strategic advisory services paid oneday analyst engagements based primarily fixed fees time materials discrete projects revenues recognized work delivered services provided evaluated contract basis unbilled fees receivables associated consulting engagements 243 million december 31 2003 335 million december 31 2002 322 million september 30 2002 events revenues deferred recognized upon completion related symposium conference exhibition addition defer certain costs directly related events expense costs period related symposium conference exhibition occurs policy defer costs primarily prepaid site production services costs incremental directly attributable specific event costs organizing producing events primarily company personnel nonevent specific expenses expensed period incurred end fiscal quarter assess eventbyevent basis whether expected direct costs producing scheduled event exceed expected revenues costs expected exceed revenues record expected loss period determined 10k39 revenues includes software licensing fees recognized signed noncancelable software license exists delivery occurred collection probable fees fixed determinable revenues software maintenance deferred recognized ratably term maintenance agreement typically twelve months cash equivalents highly liquid investments original maturities three months less classified cash equivalents carrying value investments approximates fair value based upon shortterm maturity investments maturities three months classified marketable securities investments equity securities account investments publicly traded equity securities statement financial accounting standards sfas 115 accounting certain investments debt equity securities investments meet criteria classification available sale given ability intent sell investments recorded fair value included assets consolidated balance sheets unrealized gains losses marketable investments recorded net tax component accumulated comprehensive income loss net within stockholders equity deficit section consolidated balance sheets realized gains losses recorded gain loss investments net within consolidated statements operations cost equity securities sold based specific identification assess need record impairment losses investments record losses impairment investment determined temporary nature making assessment consider significance duration decline value valuation comparable companies operating internet technology sectors impairment factors evaluate may change subsequent periods since entities underlying investments operate volatile business environment addition entities may require additional financing meet cash operational needs however assurance funds available extent needed terms acceptable entities impairment losses reflected gain loss investments net within consolidated statements operations account investments ability exercise significant influence using cost method accounting accordingly investments carried lower cost net realizable value included assets consolidated balance sheets see note 4 investments equity method used account investments entities majorityowned control ability exercise significant influence property equipment leasehold improvements property equipment leasehold improvements stated cost less accumulated depreciation amortization property equipment depreciated using straightline method estimated useful lives assets leasehold improvements amortized using straightline method shorter estimated useful lives assets remaining term related leases property equipment leasehold improvements less accumulated depreciation amortization consist following thousands december 31 2003 2002 september 30 2002 capitalized development costs internal use software 131 million 151 million 156 million respectively net accumulated amortization 325 million 279 million 274 million respectively amortization capitalized internal software development costs totaled 106 million 152 million unaudited calendar 2003 2002 respectively 44 million transition 2002 157 million 143 million fiscal 2002 2001 respectively 10k40 software development costs capitalize certain computer software development costs enhancements software sold customers establishment technological feasibility limited net realizable value software product cease capitalization software product available general release clients products reach technological feasibility costs related development efforts charged expense technological feasibility determined additional costs incurred development including coding testing documentation capitalized amortization software development costs provided productbyproduct basis estimated economic life software generally two years using straightline method recorded within depreciation amortization capitalized computer software development costs begins products available general release customers periodic reviews performed ensure unamortized capitalized software development costs remain recoverable future revenue capitalized software costs net accumulated amortization 11 million 17 million december 31 2003 2002 respectively 17 million september 30 2002 amortization expense 16 million 15 million unaudited calendar 2003 2002 respectively 04 million transition 2002 14 million 10 million fiscal 2002 2001 respectively intangible assets intangible assets amortized using straightline method expected useful lives intangible assets subject amortization included following thousands aggregate amortization expense related intangible assets 13 million 19 million unaudited calendar 2003 calendar 2002 respectively 05 million transition 2002 19 million 28 million fiscal 2002 2001 respectively estimated aggregate amortization expense next five calendar years intangible assets recorded consolidated balance sheet december 31 2003 follows thousands year ended december 31 2004 710 2005 182 2006 69 2007 24 2008 total 985 goodwill represents excess purchase price acquired businesses estimated fair value tangible identifiable intangible net assets acquired effective october 1 2001 company adopted sfas 142 goodwill intangible assets adoption sfas 142 eliminated goodwill amortization instead goodwill tested impairment reporting unit level least annually reporting unit operating segment business discrete financial information prepared reviewed management impairment test reporting units carrying amount exceeds estimated fair value goodwill impairment recognized extent reporting units carrying amount goodwill exceeds implied fair value goodwill fair value reporting units estimated using discounted cash flows market multiples valuation techniques 10k41 carrying amount goodwill allocated companys segments follows thousands december 31 september 30 2003 2002 research 128896 123761 122567 consulting 68803 67411 67081 events 30606 30698 2082 2081 total goodwill 230387 223860 222427 changes goodwill table result currency translation following selected pro forma information fiscal 2001 assumes provisions sfas 142 applied beginning fiscal year thousands except per share income loss continuing operations reported loss continuing operations 220 add back goodwill amortization net taxes 8396 adjusted income continuing operations 8176 basic income loss per share continuing operations reported basic loss per share continuing operations 000 effect goodwill amortization loss per share 010 adjusted basic income per share continuing operations 010 diluted income loss per share continuing operations reported diluted loss per share continuing operations 000 effect goodwill amortization loss per share 009 adjusted diluted income per share continuing operations 009 impairment longlived assets intangible assets review longlived assets intangible assets goodwill impairment whenever events changes circumstances indicate carrying amount respective asset may recoverable evaluation may based number factors including current projected operating results cash flows changes managements strategic direction well economic market variables policy regarding longlived assets intangible assets goodwill evaluate recoverability assets determining whether balance recovered undiscounted future operating cash flows events circumstances indicate carrying value might recoverable based undiscounted future operating cash flows impairment loss would recognized amount impairment measured based difference projected discounted future operating cash flows using discount rate reflecting average cost funds carrying value asset see note 5 charges foreign currency translation assets liabilities foreign subsidiaries translated us dollars exchange rates effect balance sheet date resulting translation adjustments recorded foreign currency translation adjustments component accumulated comprehensive income loss net within stockholders equity deficit section consolidated balance sheets income expense items translated average exchange rates year currency transaction gains losses arising transactions denominated currencies functional currency subsidiary included results operations within income expense net within consolidated statements operations currency transaction gains losses net 05 million calendar 2003 04 million unaudited calendar 2002 01 million transition 2002 08 million fiscal 2002 35 million fiscal 2001 income taxes deferred tax assets liabilities recognized based differences book tax basis assets liabilities using presently enacted tax rates provision income taxes sum amount income tax paid payable year determined applying provisions enacted tax laws taxable income year net changes year deferred tax assets liabilities undistributed earnings subsidiaries outside us amounted approximately 80 million december 31 2003 indefinitely reinvested accordingly material provision made taxes may payable upon remittance earnings practicable determine amount 10k42 liability credit additional paidin capital realized tax benefits arising stock transactions employees tax benefit nonqualified stock option equal tax effect difference market price common stock date exercise price fair value financial instruments financial instruments include cash equivalents fees receivable accounts payable accruals shortterm nature carrying amounts financial instruments approximate fair value investments publicly traded equity securities valued based quoted market prices investments equity securities publicly traded valued lower cost net realizable value approximates fair market value although amounts outstanding december 31 2003 senior revolving credit facility carrying amount borrowings would approximate fair value rates interest revolving credit facility approximate current market rates interest similar instruments comparable maturities concentrations credit risk financial instruments potentially subject us concentrations credit risk consist primarily cash equivalents marketable equity securities fees receivable concentrations credit risk respect fees receivable limited due large number clients comprising client base dispersion across many different industries geographic regions use estimates make estimates assumptions affect reported amounts assets liabilities disclosures contingent assets liabilities dates financial statements reported amounts revenues expenses reporting periods estimates required generally accepted accounting principles united states america preparation consolidated financial statements actual results could differ estimates used accounting items allowance doubtful accounts investments depreciation amortization income taxes certain accrued liabilities accounting stockbased compensation several stockbased compensation plans apply accounting principles board opinion 25 accounting stock issued employees apb 25 accounting employee stock options purchase rights apply statement financial accounting standards 123 accounting stock issued employees sfas 123 disclosure purposes apb 25 intrinsic value method used account stockbased employee compensation plans sfas 123 disclosures include pro forma net income earnings per share fair valuebased method accounting used compensation employee options determined based sfas 123 pro forma net income pro forma income per share would follows thousands except per share data fair value stock plans used compute pro forma net income loss diluted per share disclosures estimated fair value grant date using blackscholes option pricing model following weightedaverage assumptions utilized stock options granted modified 10k43 weighted average fair values stock options granted calendar 2003 transition 2002 fiscal 2002 2001 310 293 367 377 respectively recently issued accounting standards january 2003 financial accounting standards board fasb issued financial interpretation fin 46 consolidation variable interest entities interpretation arb 51 fin 46 provides guidance identification entities control achieved means voting rights called variable interest entities vies determine business enterprise consolidate vie primary beneficiary new model consolidation applies entity either 1 equity investors controlling financial interest 2 equity investment risk insufficient finance entitys activities without receiving additional subordinated financial support parties addition fin 46 requires primary beneficiary enterprises significant variable interest vie make additional disclosures interests would change current reporting entity require additional disclosure outlined fin 46 april 2003 fasb issued sfas 149 amendment statement 133 derivative instruments hedging activities statement amends clarifies accounting derivative instruments including certain derivative instruments embedded contracts hedging activities sfas 133 sfas 149 effective contracts entered modified june 30 2003 hedging relationships designated june 30 2003 certain preexisting contracts adoption sfas 149 impact financial position cash flows results operations may 2003 fasb issued sfas 150 accounting certain financial instruments characteristics liabilities equity sfas 150 sfas 150 changes accounting certain financial instruments previous guidance issuers could account equity requires instruments classified liabilities balance sheets guidance sfas 150 generally effective financial instruments entered modified may 31 2003 otherwise effective july 1 2003 adoption sfas 150 impact financial position cash flows results operations december 2003 staff securities exchange commission sec issued staff accounting bulletin 104 sab 104 revenue recognition supersedes sab 101 revenue recognition financial statements sab 104s primary purpose rescind accounting guidance contained sab 101 related multipleelement revenue arrangements superseded result issuance emerging issues task force eitf 0021 accounting revenue arrangements multiple deliverables additionally sab 104 rescinds secs related revenue recognition financial statements frequently asked questions answers issued sab 101 codified sec topic 13 revenue recognition wording sab 104 changed reflect issuance eitf 0021 revenue recognition principles sab 101 remain largely unchanged issuance sab 104 effective upon issuance adoption sab 104 impact financial position cash flows results operations 2business acquisitions fiscal 2002 june 10 2002 acquired remaining 499 people3 inc authority human capital people3 integrated consulting segment prior acquisition owned 501 people3 consolidated assets liabilities results operations revenues fiscal 2002 approximately 69 million purchase price 39 million 02 million allocated noncompete agreements 03 million allocated databaserelated assets 34 million allocated goodwill noncompete agreements amortized life agreements threeyears databaserelated assets amortized estimated useful life five years fiscal 2002 completed additional acquisitions total consideration approximately 07 million 01 million allocated tangible assets 08 million allocated goodwill 02 million allocated noncompete agreements 04 million allocated liabilities assumed noncompete agreements amortized fiveyear term agreement 10k44 fiscal 2001 october 2 2000 acquired assets assumed liabilities solista global llc solista approximately 90 million cash solista provider strategic consulting services merge technology business expertise help clients build strategies digital world accounted acquisition using purchase method allocated purchase price assets acquired liabilities assumed based upon estimated fair values date acquisition excess purchase price fair value amounts assigned net tangible assets acquired approximately 65 million 60 million allocated goodwill 05 million allocated noncompete agreements amortized three years fiscal 2001 completed additional acquisitions consideration 30 million cash largest acquisition events business approximately 26 million 3discontinued operation july 2 2001 sold subsidiary techrepublic cnet approximately 235 million cash common stock cnet reduction certain termination benefits 39 million gross proceeds 143 million cash 755058 shares cnet common stock fair market value 1221 per share july 2 2001 consolidated financial statements restated reflect disposition techrepublic segment discontinued operation accordance apb 30 accordingly revenues costs expenses cash flows techrepublic excluded respective captions consolidated statements operations consolidated statements cash flows reported date disposition loss discontinued operation net cash used discontinued operation periods presented fiscal 2001 recorded pretax loss 664 million 399 million tax recognize loss sale pretax loss includes writedown 424 million assets primarily goodwill net realizable value operating losses date sale 65 million severance related benefits 83 million salerelated costs expenses including costs associated closure facilities 92 million summarized financial information discontinued operation fiscal 2001 follows thousands statements operations data revenues 12368 loss income taxes 32574 benefit income taxes 6515 loss discontinued operation net 26059 loss disposal income taxes 66436 benefit income taxes 26512 loss disposal discontinued operation net 39924 4investments december 31 2003 investments marketable equity securities investments cost basis fair value 109 million included assets consolidated balance sheet unrealized gains losses december 31 2003 individually insignificant calendar 2003 received proceeds approximately 55 million recorded gain investments insurance proceeds received associated negotiated settlement regarding claim occurred fiscal 2000 arising sale gartnerlearning september 1 1998 sold gartnerlearning division provided technology based training services professionals netg inc netg subsidiary harcourt inc formerly harcourt brace company recorded pretax loss approximately 20 million addition recorded additional loss investments 67 million fiscal 2000 connection negotiated settlement claim arising sale gartnerlearning claim asserted breached contractual commitment joint venture agreement coproduce product gartnerlearning sold 10k45 calendar 2003 recorded impairment loss 09 million minorityowned investment publicly traded evaluated investment impairment investees recapitalization due lack capital resources redeem mandatorily redeemable equity result holders mandatorily redeemable shares agreed recapitalization entity december 31 2003 wrote investment estimate fair value estimate fair value based upon combination valuation techniques including discounted cash flow analysis future projections operating performance market comparables available information transition 2002 recognized impairment losses 17 million associated investment si venture associates llc si venture fund ii lp si ii collectively si investments described si investments related party fiscal 2002 sold 748118 shares cnet 60 million resulting pretax gain 08 million also fiscal 2002 recognized impairment losses related si investments 25 million fiscal 2001 sold shares investment held minority interest net cash proceeds 75 million pretax loss 56 million addition received additional stock distributions investment si investments fiscal 2001 sold portion shares received si ii securities net cash proceeds 69 million pretax gain 50 million fiscal 2001 recognized impairment losses 265 million associated si investments si investments related party addition equity securities owned directly si wholly owned affiliate also 34 si ii entities venture capital funds engaged making investments early midstage itbased internetenabled companies entities managed si services company llc entity controlled former chairman board continues employee chairman emeritus company certain former officers employees management fees incurred si services company llc approximately 12 million per year addition provide access research use certain office space cost si services company llc total original investment commitment si ii 100 million 300 million respectively commitment si fully funded prior years made contributions si investments 20 million 15 million calendar 2003 fiscal 2002 respectively made contributions transition 2002 fiscal 2001 300 million commitment si ii 40 million remained unfunded december 31 2003 may called si time carrying value investments held si ii 19 million 48 million respectively december 31 2003 share equity gains si ii 01 million calendar 2003 001 million transition 2002 02 million fiscal 2002 fiscal 2001 share equity losses si ii 03 million transition 2002 recognized impairment losses 17 million impairment losses related equity securities owned si ii temporary declines value certain investments reflected gain loss investments net consolidated statements operations fiscal 2002 recognized impairment losses 25 million connection decision actively pursue sale investments held si funds fiscal 2001 made assessment carrying value investments determined carrying value certain investments excess fair value based valuations comparable companies operating internet technology sectors result valuations due significance duration decline value recognized impairment losses 265 million fiscal 2001 impairment factors evaluated may change subsequent periods since entities underlying investments operate volatile business environment addition entities may require additional financing meet cash operational needs however assurance funds available extent needed terms acceptable entities could result additional material noncash impairment charges future 10k46 5other charges calendar 2003 recorded charges 297 million charges 200 million associated workforce reductions 54 million associated workforce reduction announced february 2003 146 million associated workforce reduction announced december 2003 workforce reductions resulted termination 222 employees payment 76 million calendar 2003 connection workforce reduction announced december 2003 expect incur additional severance charges first quarter 2004 addition approximately 97 million charges relate additional estimated costs losses associated excess facilities previously reserved charges fiscal 2002 transition 2002 increase estimated costs losses facilities result continued decline market rents associated facility well changes estimates timing sublease income transition 2002 recorded charges 322 million charges 133 million relates costs losses associated elimination reduction excess facilities principally leased facilities ongoing lease costs losses associated sublease arrangements addition approximately 189 million charges associated workforce reduction employee termination severance payments related benefits workforce reduction resulted elimination 175 positions approximately 4 workforce time payment 110 million termination benefits calendar 2003 fiscal 2002 recorded charges 172 million charges 100 million relates costs losses associated elimination excess facilities principally leased facilities ongoing lease costs losses associated sublease arrangements addition approximately 58 million charges associated workforce reduction announced january 2002 employee termination severance payments related benefits workforce reduction resulted elimination approximately 100 positions approximately 2 workforce time remaining 14 million relates impairment certain databaserelated assets fiscal 2001 recorded charges 466 million charges 248 million associated workforce reduction announced april 2001 workforce reduction resulted elimination 383 positions approximately 8 workforce time approximately 143 million charges associated writedown goodwill longlived assets net realizable value result decision discontinue certain unprofitable products 75 million charge associated primarily writeoff internally developed systems connection launch gartnercom seatbased pricing december 31 2003 128 million aggregate termination benefits relating workforce reductions remain paid primarily quarters ended march 31 june 30 2004 fund costs existing cash 10k47 following table summarizes activity related liability restructuring programs recorded charges thousands 6accounts payable accrued liabilities accounts payable accrued liabilities consist following thousands 7debt maintain unsecured credit agreement jpmorgan chase bank administrative agent participating financial institutions thereunder providing maximum 200 million borrowings senior revolving credit facility revolving credit facility expires july 16 2004 borrowings facility maturing date subject certain customary conditions date loan amounts outstanding december 31 2003 2002 september 30 2002 pay commitment fee 030 050 unused revolving credit amount pursuant certain financial covenants revolving credit facility 184 million available borrowings december 31 2003 covenants primarily based financial results measures contract value fiscal 2002 weighted average interest rate borrowings outstanding october november 2001 36 april 17 2000 issued private placement transaction 3000 million 6 convertible subordinated notes convertible notes silver lake partners lp silver lake noteholders convertible notes scheduled mature april 2005 accruing interest 6 per annum interest accrued semiannually corresponding increase face amount convertible notes commencing september 15 2000 october 2003 notes converted 49441122 shares gartner class common stock accordance original terms notes determination number shares issued upon conversion based upon 745 conversion price convertible note 3683 million consisting original face amount 300 million plus accrued interest 683 million unamortized balances debt issue costs 28 million debt discount 03 million conversion date netted outstanding principal interest balances resulting 3652 million increase stockholders equity additionally certain costs directly associated conversion regulatory filing banking legal fees totaling 06 million charged equity 10k48 part original private placement transaction two silver lake representatives elected tenmember board directors also granted silver lake right acquire 5 company subsidiary spun 80 initial public offering price issue letters credit ordinary course business december 31 2003 outstanding letters credit jpmorgan chase bank 34 million bank new york 20 million others 09 million 8commitments contingencies lease various facilities furniture computer equipment operating lease arrangements expiring 2004 2025 future minimum annual payments noncancelable operating lease agreements december 31 2003 follows thousands year ended december 31 2004 29026 2005 25513 2006 20234 2007 18655 2008 16862 thereafter 102515 total minimum lease payments 212805 rental expense operating leases 255 million calendar 2003 70 million transition 2002 276 million 269 million fiscal 2002 2001 respectively also commitments office services printing copying shipping mail services expire various dates 2005 2006 minimum obligation agreements approximately 57 million aggregate involved legal proceedings litigation arising ordinary course business believe outcome current proceedings claims litigation material effect financial position results operations resolved future period various agreements may obligate us indemnify party respect certain matters generally indemnification clauses included contracts arising normal course business customarily agree hold party harmless losses arising breach representations related matters title assets sold licensed certain intellectual property rights possible predict maximum potential amount future payments indemnification agreements due conditional nature obligations unique facts particular agreement historically payments made us agreements material december 31 2003 aware indemnification agreements would require material payments 9stockholders equity deficit capital stock holders class common stock class b common stock entitled one vote per share matters voted stockholders vote together single class respect election directors class common stock stockholders entitled one vote per share election class directors constitute 20 directors class b common stock stockholders entitled one vote per share election class b directors constitute least 80 directors addition class b common stock holder owns 15 outstanding class b common stock able vote class b common stock election directors unless holder owns equivalent percentage class common stock 10k49 following table provides transactions relating common stocks stock repurchase program july 2001 board directors approved repurchase 75 million class b common stock board directors subsequently increased authorized stock repurchase program total authorization repurchase 200 million cumulative basis december 31 2003 purchased 1271 million stock repurchase program forward purchase agreements beginning 1997 company entered series forward purchase agreements effect repurchase 1800000 class common stock agreements settled quarterly companys option net basis either shares class common stock cash extent market price companys class common stock settlement date higher lower forward purchase price net differential received paid company fiscal 2001 two settlements resulted company delivering 491789 shares class common stock paying approximately 64000 cash june 2001 company terminated forward purchase agreement reacquiring 1164154 shares class common stock approximately 97 million forward purchase agreements outstanding december 31 2003 10stock plans stock option plans stock option plans grant stock options employees allow purchase shares class common stock grant options incentive employees contribute longterm success also grant options members board directors certain consultants generally issue stock options fair market value date grant options vest either annually threeyear service period b fouryear vesting period 25 vesting end first year remaining 75 vesting monthly next three years options generally expire ten years grant date december 31 2003 75 million shares class common stock authorized grants options february 2003 stockholders approved 2003 longterm incentive plan 2003 plan replaced 1993 director stock option plan 1994 long term option plan 1996 long term stock option plan 1998 long term stock option plan 1999 stock option plan collectively previous plans 2003 plan 9928000 shares class common stock initially available grant upon approval 2003 plan grants awards allowable previous plans however outstanding options awards previous plans remain outstanding earlier exercise forfeiture expiry date 10k50 summary stock option activity plans agreement december 31 2003 follows class common stock weighted average option exercise price outstanding september 30 2000 30566726 1467 granted 10339620 821 exercised 592832 616 canceled 5330390 1386 outstanding september 30 2001 34983124 1303 granted 5629441 942 exercised 1989049 892 canceled 4617199 1412 outstanding september 30 2002 34006317 1252 granted 3601127 813 exercised 131343 791 canceled 1012162 1286 outstanding december 31 2002 36463939 1210 granted 2598070 903 exercised 4278704 882 canceled 3257098 1282 outstanding december 31 2003 31526207 1221 options purchase 231 million 219 million 176 million shares class common stock exercisable december 31 2003 2002 september 30 2002 respectively following table summarizes information stock options outstanding december 31 2003 employee stock purchase plans january 1993 company adopted employee stock purchase plan reserved aggregate 4000000 shares class common stock issuance plan 1993 plan expired 2003 march 2002 shareholders approved 2002 employee stock purchase plan substantially identical terms eligible employees permitted purchase class common stock payroll deductions may exceed 10 employees compensation 21250 calendar year price equal 85 class common stock price reported nyse beginning end offering period whichever lower shares issued transition 2002 calendar 2003 fiscal 2002 551388 560861 shares issued treasury stock average purchase price 725 790 per share respectively plans december 31 2002 september 30 2002 37 million shares available purchase 2002 plan december 31 2003 32 million shares available purchase plan restricted stock awards beginning 1998 granted restricted stock awards 1991 stock option plan 1998 long term stock option plan restricted stock awards vest six equal installments first installment vesting two years grant annually thereafter five years recipients required provide consideration company rendering service right vote shares receive dividends restricted stock may sold employee vesting period 1999 also awarded 40500 stock options exercise price 100 per share vest basis restricted stock awards certain international employees stock options weighted 10k51 average fair market value 2281 per stock option date grant total 99024 restricted shares class common stock outstanding december 31 2003 155993 178167 restricted shares class common stock outstanding december 31 2002 september 30 2002 respectively awards restricted stock calendar 2003 transition 2002 fiscal 2002 2001 december 31 2003 aggregate unamortized compensation expense restricted stock awards 1 stock option grants 18 million included unearned compensation net consolidated balance sheets total compensation expense recognized restricted stock awards stock options granted exercise price 100 per share 09 million 03 million 13 million 11 million calendar 2003 transition 2002 fiscal 2002 2001 respectively 11computation earnings loss per share continuing operations basic earnings per share eps computed dividing income loss continuing operations weighted average number common shares outstanding period diluted eps reflects potential dilution securities could share earnings exercise stock options conversion convertible debt antidilutive excluded calculation following table sets forth reconciliation basic diluted earnings per share computations thousands except per share following table presents number options purchase shares millions class common stock included computation diluted eps effect would antidilutive periods reported income options antidilutive exercise prices greater average market value share class common stock period periods reported loss options outstanding antidilutive effect periods shown unvested restricted stock awards included computation diluted income loss per share effect would antidilutive additionally convertible notes periods outstanding calendar 2003 2002 transition 2002 fiscal 2001 included eps calculation using converted method effect would antidilutive 10k52 following table provides information aftertax interest expense added back numerator eps calculation weighted average number shares associated convertible debt included denominator eps calculation effect would antidilutive thousands 12income taxes following summary components income loss provision benefit income taxes loss discontinued operation thousands provision benefit income taxes income consists following components thousands current longterm deferred tax assets liabilities comprised following thousands 10k53 current longterm net deferred tax assets 89 million 377 million december 31 2003 60 million 356 million december 31 2002 37 million 311 million september 30 2002 respectively included prepaid expenses current assets consolidated balance sheets valuation allowance relates domestic state local foreign tax net operating loss capital loss carryforwards likely expire unutilized net increase valuation allowance approximately 36 million calendar 2003 primarily due increases state local net operating losses approximately 19 million valuation allowance reduce additional paidincapital upon subsequent recognition related tax benefits related stock options differences us federal statutory income tax rate companys effective tax rate income loss continuing operations december 31 2003 us federal capital loss carryforwards 243 million 192 million expire three years 36 million expire within four years remaining 15 million expire five six years foreign tax credit carryforwards 88 million expire three four years federal tax credit carryforwards 18 million carried forward indefinitely federal net operating loss carryforward 67 million majority expire 19 years state local tax net operating loss carryforwards 1725 million 435 million expire within one five years 282 million expire within six fifteen years 1008 million expire within sixteen twenty years also 738 million state local capital loss carryforwards 696 million expire three years 36 million expire four years remaining 06 million expire five six years lastly foreign tax loss carryforwards 142 million 42 million expire one ten years 100 million carried forward indefinitely 13employee benefits savings investment plan covering substantially domestic employees contribute amounts plan based upon level employee contributions addition also contribute fixed discretionary profit sharing contributions set board directors amounts expensed connection plan totaled 93 million 19 million 95 million 105 million calendar 2003 transition 2002 fiscal 2002 2001 respectively deferred compensation employee stock trust supplemental deferred compensation arrangements benefit certain officers managers key employees arrangements partially funded life insurance contracts purchased us plan permits participants diversify investments value assets held managed invested pursuant agreement 116 million 93 million 81 million december 31 2003 december 31 2002 september 30 2002 respectively included assets corresponding deferred compensation liability 134 million 108 million 96 million december 31 2003 december 31 2002 september 30 2002 respectively recorded fair market value assets held rabbi trust adjusted corresponding charge credit compensation cost reflect fair value amount owed employee included liabilities total compensation expense recognized plan 03 million 01 million 06 million calendar 2003 transition 2002 fiscal 2002 respectively compared 01 million income fiscal 2001 10k54 14segment information manage business three reportable segments research consulting events research consists primarily subscriptionbased research products consulting consists primarily consulting measurement engagements strategic advisory services events consists various symposia conferences exhibitions evaluate reportable segment performance allocate resources based gross contribution margin gross contribution presented defined operating income excluding certain selling general administrative expenses depreciation amortization intangibles charges accounting policies used reportable segments used company earn revenue clients many countries united states individual country revenues external clients represent 10 consolidated revenues additionally single client accounted 10 total revenue loss single client managements opinion would material adverse effect revenues identify allocate assets including capital expenditures operating segment accordingly assets reported segment information available segment reviewed evaluation performance making decisions allocation resources following tables present information reportable segments thousands column includes certain revenues corporate expenses primarily selling general administrative unallocated reportable segments expenses allocated operations meet segment reporting quantitative threshold charges intersegment revenues consolidated revenues generated primarily direct sales clients domestic international sales forces network independent international sales agents define international revenues attributable areas located outside united states canada europe products services provided integrated worldwide basis integration products services delivery practical separate precisely revenues geographic location longlived assets exclude goodwill intangible assets accordingly separation set forth table based upon internal allocations involve certain management estimates judgments 10k55 summarized information geographic location follows thousands 15quarterly financial data unaudited thousands except per share data 1 includes charges 54 million first quarter calendar 2003 243 million fourth quarter calendar 2003 172 million second quarter fiscal 2002 2 includes gains losses investments 00 million 55 million 01 million 09 million first second third fourth quarters calendar 2003 respectively 09 million 01 million 25 million 00 million first second third fourth quarters fiscal 2002 respectively 3 aggregate four quarters basic earnings per common share total reported full fiscal year amount due effect rounding 4 aggregate four quarters diluted earnings per common share total reported full calendar fiscal year amounts due effect dilutive securities rounding 5 fourth quarter calendar 2003 recorded adjustments certain incentive compensation accruals including bonuses provided benefit operating income quarter approximately 32 million aggregate 10k56 signatures pursuant requirements securities exchange act 1934 registrant caused report form 10k signed behalf undersigned duly authorized stamford connecticut march 12 2004 gartner inc michael fleisher date march 12 2004 michael fleisher chairman board chief executive officer power attorney person whose signature appears appoints michael fleisher christopher lafond acting individually attorneyinfact full power substitution capacities sign amendments report form 10k file appropriate exhibits related documents securities exchange commission undersigned ratifies confirms signatures may signed attorneyinfact amendments report pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated 10k57 gartner inc schedule ii valuation qualifying accounts thousands 1 amounts charged revenuesitem 15 exhibits financial statement schedules 1 2 consolidated financial statements schedules reports independent registered public accounting firm consolidated financial statements listed index consolidated financial statements page 39 hereof filed part report financial statement schedules listed index omitted information required applicable shown consolidated financial statements notes thereto 3 exhibits 101110ª 1999 stock option plan 10129ª 2003 longterm incentive plan 1013 15ª employment agreement eugene hall company dated october 15 2004 101415ª restricted stock agreement eugene hall company dated october 15 2004 1015ª employment agreement gartner group uk limited alister christopher dated september 23 2003 1016ª employment agreement gartner group uk limited clive taylor dated december 21 2004 211 subsidiaries registrant 231 consent independent registered public accounting firm 241 power attorney see signature page 311 certification chief executive officer section 302 sarbanesoxley act 2002 312 certification chief financial officer section 302 sarbanesoxley act 2002 32 certification section 906 sarbanesoxley act 2002 filed document ª management compensation plan arrangement index consolidated financial statements gartner inc consolidated financial statements report independent registered public accounting firm report independent registered public accounting firm consolidated balance sheets december 31 2004 2003 consolidated statements operations years ended december 31 2004 2003 2002 unaudited three month period ended december 31 2002 year ended september 30 consolidated statements stockholders’ equity deficit comprehensive income loss years ended december 31 2004 2003 three month period ended december 31 2002 year ended september 30 2002 consolidated statements cash flows years ended december 31 2004 2003 2002 unaudited three month period ended december 31 2002 year ended september 30 notes consolidated financial statements financial statement schedules omitted information required applicable shown consolidated financial statements notes thereto report independent registered public accounting firm board directors stockholders gartner inc audited accompanying consolidated balance sheets gartner inc subsidiaries december 31 2004 2003 related consolidated statements operations stockholders’ equity deficit comprehensive income loss cash flows years twoyear period ended december 31 2004 threemonth period ended december 31 2002 year ended september 30 2002 consolidated financial statements responsibility company’s management responsibility express opinion consolidated financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements referred present fairly material respects financial position gartner inc subsidiaries december 31 2004 2003 results operations cash flows years twoyear period ended december 31 2004 threemonth period ended december 31 2002 year ended september 30 2002 conformity us generally accepted accounting principles also audited accordance standards public company accounting oversight board united states effectiveness gartner inc’s internal control financial reporting december 31 2004 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission coso report dated march 16 2005 expressed unqualified opinion management’s assessment effective operation internal control financial reporting kpmg llp new york new york march 16 2005 report independent registered public accounting firm board directors stockholders gartner inc audited management’s assessment included accompanying management’s report internal control financial reporting item 9a gartner inc “company” maintained effective internal control financial reporting december 31 2004 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission coso company’s management responsible maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting responsibility express opinion management’s assessment opinion effectiveness company’s internal control financial reporting based audit conducted audit accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether effective internal control financial reporting maintained material respects audit included obtaining understanding internal control financial reporting evaluating management’s assessment testing evaluating design operating effectiveness internal control performing procedures considered necessary circumstances believe audit provides reasonable basis opinion company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate opinion management’s assessment gartner inc maintained effective internal control financial reporting december 31 2004 fairly stated material respects based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission coso also opinion gartner inc maintained material respects effective internal control financial reporting december 31 2004 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission coso also audited accordance standards public company accounting oversight board united states consolidated balance sheets gartner inc subsidiaries december 31 2004 2003 related consolidated statements operations stockholders’ equity deficit comprehensive income loss cash flows years twoyear period ended december 31 2004 threemonth period ended december 31 2002 year ended september 30 2002 report dated march 16 2005 expressed unqualified opinion consolidated financial statements kpmg llp new york new york march 16 2005 gartner inc consolidated balance sheets thousands except share data see notes consolidated financial statements gartner inc consolidated statements operations thousands except per share data see notes consolidated financial statements gartner inc consolidated statements stockholders’ equity deficit comprehensive income loss thousands except share data gartner inc consolidated statements cash flows thousands see notes consolidated financial statements gartner inc notes consolidated financial statements 1summary significant accounting policies basis presentation october 30 2002 company announced board directors approved change company’s fiscal year end september 30 december 31 effective january 1 2003 change resulted threemonth transitional period ending december 31 2002 references transition 2002 unless otherwise indicated refer threemonth transitional period ended december 31 2002 references fiscal 2002 fiscal 2001 unless otherwise indicated respective fiscal year period october 1 september 30 references calendar 2004 calendar 2003 calendar 2002 unless otherwise indicated respective twelvemonth period january 1 december 31 unaudited financial information twelve months ended december 31 2002 presented comparative purposes certain prior year amounts reclassified conform current year presentation used notes terms “company” “we” “us” “our” mean gartner inc subsidiaries principles consolidation consolidated financial statements include accounts company majorityowned subsidiaries significant intercompany transactions balances eliminated investments companies company owns less 50 ability exercise significant influence operating financial policies accounted using equity method investments company ability exercise significant influence accounted cost method accounting results operations acquisitions companies accounted using purchase method included consolidated statements operations beginning closing date acquisition certain amounts prior year presentations reclassified conform current year presentation revenues commission expense recognition company typically enters annually renewable subscription contracts research products revenues research products deferred recognized ratably applicable contract terms majority research contracts billable upon signing absent special terms granted limited basis time research contracts noncancelable nonrefundable except government contracts 30day cancellation clause produced material cancellations date exception certain government contracts permit termination contracts special billing terms company policy record entire amount contract billable fee receivable time contract signed represents legally enforceable claim corresponding amount deferred revenue government contracts permit termination company bills client full amount billable contract records receivable equal earned portion contract addition company records deferred revenue government contracts cash received deferred revenue attributable government contracts 409 million 386 million december 31 2004 2003 respectively addition december 31 2004 2003 company recognized receivables deferred revenues relating government contracts permit termination 42 million 66 million respectively billed yet collected company records commission obligation related research contracts upon signing contract amortizes corresponding deferred commission expense contract period related revenues earned consulting revenues primarily derived consulting measurement strategic advisory services paid oneday analyst engagements based primarily fixed fees time materials discrete projects revenues recognized work delivered services provided evaluated contract basis unbilled fees receivables associated consulting engagements 279 million december 31 2004 243 million december 31 2003 events revenues deferred recognized upon completion related symposium conference exhibition addition company defers certain costs directly related events expenses costs period related symposium conference exhibition occurs company policy defer costs primarily prepaid site production services costs incremental directly attributable specific event costs organizing producing company events primarily personnel nonevent specific expenses expensed period incurred end fiscal quarter company assesses eventbyevent basis whether expected direct costs producing scheduled event exceed expected revenues costs expected exceed revenues company records expected loss period determined revenues includes software licensing fees recognized signed noncancelable software license exists delivery occurred collection probable fees fixed determinable revenues software maintenance deferred recognized ratably term maintenance agreement typically twelve months cash equivalents highly liquid investments original maturities three months less classified cash equivalents carrying value investments approximates fair value based upon shortterm maturity investments maturities three months classified marketable securities investments equity securities company accounts investments publicly traded equity securities statement financial accounting standards “sfas” 115 “accounting certain investments debt equity securities” investments meet criteria classification available sale given company’s ability intent sell investments recorded fair value included assets consolidated balance sheets unrealized gains losses marketable investments recorded net tax component accumulated comprehensive income loss within stockholders’ equity section consolidated balance sheets realized gains losses recorded gain loss investments net within consolidated statements operations cost equity securities sold based specific identification company assesses need record impairment losses investments records losses impairment investment determined temporary nature making assessment company considers significance duration decline value valuation comparable companies operating internet technology sectors impairment factors company evaluates may change subsequent periods since entities underlying investments operate volatile business environment addition entities may require additional financing meet cash operational needs however assurance funds available extent needed terms acceptable entities impairment losses reflected gain loss investments net within consolidated statements operations company accounts investments ability exercise significant influence using cost method accounting accordingly investments carried lower cost net realizable value included assets consolidated balance sheets see note 5 investments equity method used account investments entities majorityowned company control ability exercise significant influence property equipment leasehold improvements property equipment leasehold improvements stated cost less accumulated depreciation amortization property equipment depreciated using straightline method estimated useful lives assets leasehold improvements amortized using straightline method shorter estimated useful lives assets remaining term related leases property equipment leasehold improvements less accumulated depreciation amortization consist following thousands december 31 2004 2003 capitalized development costs internal use software 134 million 131 million respectively net accumulated amortization 174 million 325 million respectively amortization capitalized internal software development costs totaled 77 million 106 million 152 million unaudited calendar 2004 2003 2002 respectively 44 million transition 2002 157 million fiscal 2002 software development costs company capitalizes certain computer software development costs enhancements software sold customers establishment technological feasibility limited net realizable value software product cease capitalization software product available general release clients products reach technological feasibility costs related development efforts charged expense technological feasibility determined additional costs incurred development including coding testing documentation capitalized amortization software development costs provided productbyproduct basis estimated economic life software generally two years using straightline method recorded within depreciation amortization capitalized computer software development costs begins products available general release customers periodic reviews performed ensure unamortized capitalized software development costs remain recoverable future revenue capitalized software costs net accumulated amortization 03 million 11 million december 31 2004 2003 respectively amortization expense 09 million 16 million 15 million unaudited calendar 2004 2003 2002 respectively 04 million transition 2002 14 million fiscal 2002 intangible assets intangible assets amortized using straightline method expected useful lives intangible assets subject amortization included following thousands aggregate amortization expense related intangible assets 07 million 13 million 19 million unaudited calendar 2004 2003 2002 respectively 05 million transition 2002 19 million fiscal 2002 estimated aggregate amortization expense next five calendar years intangible assets recorded consolidated balance sheet december 31 2004 follows thousands goodwill represents excess purchase price acquired businesses estimated fair value tangible identifiable intangible net assets acquired effective october 1 2001 company adopted sfas 142 “goodwill intangible assets” adoption sfas 142 eliminated goodwill amortization instead goodwill tested impairment reporting unit level least annually reporting unit operating segment business discrete financial information prepared reviewed management impairment test reporting unit’s carrying amount exceeds estimated fair value goodwill impairment recognized extent reporting unit’s carrying amount goodwill exceeds implied fair value goodwill fair value reporting units estimated using discounted cash flows market multiples valuation techniques carrying amount goodwill allocated company’s segments follows thousands calendar 2004 company recorded goodwill impairment charges 27 million consulting segment related certain operations south america closed exit noncore operations remaining changes goodwill table result currency translation impairment longlived assets intangible assets company reviews longlived assets intangible assets goodwill impairment whenever events changes circumstances indicate carrying amount respective asset may recoverable evaluation may based number factors including current projected operating results cash flows changes management’s strategic direction well economic market variables company’s policy regarding longlived assets intangible assets goodwill evaluate recoverability assets determining whether balance recovered undiscounted future operating cash flows events circumstances indicate carrying value might recoverable based undiscounted future operating cash flows impairment loss would recognized amount impairment measured based difference projected discounted future operating cash flows using discount rate reflecting company’s average cost funds carrying value asset see note 6 charges foreign currency translation assets liabilities foreign subsidiaries translated us dollars exchange rates effect balance sheet date resulting translation adjustments recorded foreign currency translation adjustments component accumulated comprehensive income loss net within stockholders’ equity section consolidated balance sheets income expense items translated average exchange rates year currency transaction gains losses arising transactions denominated currencies functional currency subsidiary included results operations within income expense net within consolidated statements operations currency transaction gains losses net 39 million calendar 2004 05 million calendar 2003 04 million unaudited calendar 2002 01 million transition 2002 08 million fiscal 2002 39 currency transaction loss calendar 2004 includes foreign currency charge 31 million related closing certain operations south america income taxes deferred tax assets liabilities recognized based differences book tax basis assets liabilities using presently enacted tax rates provision income taxes sum amount income tax paid payable year determined applying provisions enacted tax laws taxable income year net changes year deferred tax assets liabilities company credits additional paidin capital realized tax benefits arising stock transactions employees tax benefit nonqualified stock option equal tax effect difference market price company’s common stock date exercise price undistributed earnings subsidiaries outside us amounted approximately 830 million december 31 2004 deferred taxes previously recorded accordance accounting principles board opinion 23 “accounting income taxes special areas” “apb 23” company anticipates repatriating approximately 520 million amount early 2005 pursuant american jobs creation act 2004 deferred tax charge 50 million included tax expense 2004 charge company’s best current estimate tax cost related dividend repatriation estimate may revised result additional guidance clarifying language may issued congress andor department treasury changes company’s factual assumptions may occur fair value financial instruments company’s financial instruments include cash equivalents fees receivable accounts payable accruals shortterm nature carrying amounts financial instruments approximate fair value investments publicly traded equity securities valued based quoted market prices investments equity securities publicly traded valued lower cost net realizable value approximates fair market value december 31 2004 company 1900 million outstanding senior revolving credit facility carrying amount borrowings approximates fair value rate interest revolving credit facility approximates current market rates interest similar instruments comparable maturities concentrations credit risk financial instruments potentially subject company concentrations credit risk consist primarily cash equivalents marketable equity securities fees receivable concentrations credit risk respect fees receivable limited due large number clients comprising client base dispersion across many different industries geographic regions use estimates company makes estimates assumptions affect reported amounts assets liabilities disclosures contingent assets liabilities dates financial statements reported amounts revenues expenses reporting periods estimates required generally accepted accounting principles united states america company’s preparation consolidated financial statements actual results could differ estimates used accounting items allowance doubtful accounts investments depreciation amortization income taxes certain accrued liabilities accounting stockbased compensation company several stockbased compensation plans company applies apb opinion 25 “accounting stock issued employees” “apb 25” accounting employee stock options purchase rights apply statement financial accounting standards 123 “accounting stock issued employees” “sfas 123” disclosure purposes apb 25 intrinsic value method used account stockbased employee compensation plans sfas 123 disclosures include pro forma net income earnings per share fair valuebased method accounting used compensation employee stock compensation determined based sfas 123 company’s pro forma net income pro forma income per share would follows thousands except per share data fair value company’s stock plans used compute pro forma net income loss diluted per share disclosures estimated fair value grant date using blackscholes option pricing model following weightedaverage assumptions utilized stock options granted modified weighted average fair values company’s stock options granted calendar 2004 calendar 2003 transition 2002 fiscal 2002 420 310 293 367 respectively recently issued accounting standards december 2004 financial accounting standards board issued statement financial accounting standards 123r sharebased payments “sfas 123r” rule replaces sfas 123 apb 25 require recognition expense sharebased payments include value stock options granted employees revised rule effective periods beginning june 15 2005 early adoption permitted company plans adopt new rule july 1 2005 company currently assessing impact revised rule financial position cash flows results operations believe may material effect company’s results operations december 2003 fasb issued sfas 132 revised “employer’s disclosures pensions postretirement benefits” “sfas 132r” sfas 132r requires additional disclosures relating assets obligations cash flows net periodic pension cost sfas 132r effective fiscal years ending december 31 2003 company’s required sfas 132r disclosure included note 14 employee benefits 2announced acquisition meta december 27 2004 company meta announced agreement company acquire meta allcash transaction 1000 per share approximately 1620 million excluding transaction costs meta publicly owned premier information technology research firm based stamford connecticut 715 employees 2004 meta generated 1415 million revenue 52 worldwide locations 908 million assets december 31 2004 meta trades nasdaq national market symbol “metg” boards directors firms approved agreement january 31 2004 company announced notice received federal trade commission early termination waiting period hartscottrodino antitrust improvements act concerning planned acquisition meta filed definitive proxy statement sec february 17 2005 scheduled hold special meeting stockholders approve transaction march 23 2005 closing transaction subject customary closing conditions including approval meta’s stockholders expected effective april 1 2005 see note 9 commitments contingencies additional information 3correction sfas 87 accounting treatment prior calendar 2004 company apply requirements sfas 87 “employers’ accounting pensions” sfas 87 definedbenefit pension plan one international locations plan statutory nature covers approximately 85 individuals company determined approximately 07 million pension expense net tax plan recorded period 1994 calendar 2003 accordance requirements sfas 87 although impact additional expense immaterial company restated financial statements calendar 2003 fiscal 2002 record pension expense correction error prior periods effect adjustments previously reported operating results earnings per share summarized impact adjustments reduced total assets 32 million total liabilities 24 million december 31 2003 impact adjustments prior fiscal 2002 reduced retained earnings approximately 05 million effect previously reported liquidity net operating cash flows either calendar 2003 fiscal 2002 calendar 2004 company recording pension expense accordance sfas 87 following table sets forth impact restatement prior periods thousands except per share data effect restatement company’s previously reported annual financial statements material 4business acquisitions fiscal 2002 june 10 2002 company acquired remaining 499 people3 inc authority human capital people3 integrated company’s consulting segment prior acquisition company owned 501 people3 consolidated assets liabilities results operations revenues fiscal 2002 approximately 69 million purchase price 39 million 02 million allocated noncompete agreements 03 million allocated databaserelated assets 34 million allocated goodwill noncompete agreements amortized life agreements threeyears databaserelated assets amortized estimated useful life five years december 2004 company decided shutdown operations noncore product line effects immaterial fiscal 2002 company completed additional acquisitions total consideration approximately 07 million 01 million allocated tangible assets 08 million allocated goodwill 02 million allocated noncompete agreements 04 million allocated liabilities assumed noncompete agreements amortized fiveyear term agreement 5investments december 31 2004 company’s investments marketable equity securities investments cost basis fair value 70 million included assets consolidated balance sheet december 31 2004 company unrealized gain 01 million related investments company owns equity securities two limited partnerships si venture associates “si i” si venture fund ii “si ii” venture capital funds engaged making investments early midstage itbased internetenabled companies company owns 100 si 22 si ii december 31 2004 fourth quarter calendar 2004 company made decision liquidate si sell company’s interest si 11 addition fourth quarter calendar 2004 company recorded charge 15 million related liquidation si include 08 million writedown investment 07 million related shutdown charges recorded si ii fourth quarter calendar 2004 related planned sale since carrying value investment approximates net realizable value third quarter calendar 2004 company recorded noncash charge 22 million related transfer investment trusecure si ii well decrease ownership percentage si ii seven hundred basis points result transfer decrease ownership company relieved future capital calls totaled 4 million impairment losses investments reflected gain loss investments net consolidated statements operations carrying value company’s investments held si ii zero 67 million respectively december 31 2004 investment si ii presented separately balance sheet held sale asset amount material december 31 2003 company’s investments marketable equity securities investments cost basis fair value 109 million unrealized gains losses december 31 2003 individually insignificant calendar 2003 company received proceeds approximately 55 million recorded gain investments insurance proceeds received associated negotiated settlement regarding claim occurred fiscal 2000 arising sale gartnerlearning september 1 1998 company sold gartnerlearning division provided technology based training services professionals netg inc “netg” subsidiary harcourt inc formerly harcourt brace company recorded pretax loss approximately 20 million addition company recorded additional loss investments 67 million fiscal 2000 connection negotiated settlement claim arising sale gartnerlearning calendar 2003 company recorded impairment loss 09 million minorityowned investment publicly traded company evaluated investment impairment investee’s recapitalization due lack capital resources redeem mandatorily redeemable equity result holders mandatorily redeemable shares agreed recapitalization entity december 31 2003 company wrote investment estimated fair value estimate fair value based upon combination valuation techniques including discounted cash flow analysis future projections operating performance market comparables available information transition 2002 company recognized impairment losses 17 million associated company’s investment si ii fiscal 2002 company sold 748118 shares cnet 60 million resulting pretax gain 08 million recognized impairment losses related si investments 25 million company’s share equity gains si ii 01 million calendar 2004 2003 001 million transition 2002 02 million fiscal 2002 si investments related party company owns 100 si 22 si ii december 31 2004 entities managed si services company llc entity controlled former ceo chairman board continues paid pursuant terms employment agreement company certain company’s former officers employees management fees incurred si services company llc approximately 12 million per year addition company provides access research use certain office space cost si services company llc company total original investment commitment si ii 100 million 300 million respectively commitment si fully funded prior years company made contributions si investments 20 million 15 million calendar 2003 fiscal 2002 respectively contributions made transition 2002 300 million commitment si ii 40 million remained unfunded december 31 2003 third quarter calendar 2004 company recorded noncash charge 22 million related transfer investment trusecure si ii well decrease ownership percentage si ii seven hundred basis points result transfer decrease ownership company relieved future capital calls si ii 6other charges fourth quarter calendar 2004 company recorded charges 119 million 59 million severance benefits related announced workforce reduction company severed 40 employees expects additional workforce reductions occur first quarter calendar 2005 part effort charges 43 million third quarter calendar 2004 primarily included severance costs associated departure company’s president coo former chairman ceo 31 million 08 million respectively charges 91 million second quarter calendar 2004 included 38 million severance costs associated departure company’s former chairman ceo well 53 million costs associated termination 30 additional employees first quarter calendar 2004 charges 105 million primarily associated realignment workforce realignment continuation action plan initiated fourth quarter calendar 2003 resulted termination 132 employees approximately 4 company’s workforce bringing total terminations 262 employees associated action plan previously announced december 2003 calendar 2004 company recorded total charges 297 million related realignment company’s workforce including costs 77 million related departure company’s president coo former chairman ceo realignment resulted termination 203 employees full year annualized savings termination employees approximately 233 million however company plans reinvest significant portion savings improving products processes infrastructure help drive future growth additionally fourth quarter calendar 2004 company revised estimates previously recorded costs losses associated excess facilities recorded 23 million additional provisions revised estimate due decline market lease rates expected subleases well reduction estimated periods subleases company also recorded charge 19 million fourth quarter calendar 2004 related restructuring certain internal systems 18 million charges related exit certain international noncore operations calendar 2003 company recorded charges 297 million charges 200 million associated company’s workforce reductions 54 million associated workforce reduction announced february 2003 146 million associated workforce reduction announced december 2003 workforce reductions resulted termination 222 employees payment 76 million calendar 2003 addition approximately 97 million charges relate additional estimated costs losses associated excess facilities previously reserved charges fiscal 2002 transition 2002 increase estimated costs losses facilities result continued decline market rents associated facility well changes estimates timing sublease income transition 2002 company recorded charges 322 million charges 133 million relates costs losses associated elimination reduction excess facilities principally leased facilities ongoing lease costs losses associated sublease arrangements addition approximately 189 million charges associated company’s workforce reduction employee termination severance payments related benefits workforce reduction resulted elimination 175 positions approximately 4 company’s workforce time payment 110 million termination benefits calendar 2003 fiscal 2002 company recorded charges 172 million charges 100 million relates costs losses associated elimination excess facilities principally leased facilities ongoing lease costs losses associated sublease arrangements addition approximately 58 million charges associated company’s workforce reduction announced january 2002 employee termination severance payments related benefits workforce reduction resulted elimination approximately 100 positions approximately 2 company’s workforce time december 31 2004 93 million aggregate termination benefits relating workforce reductions remain paid primarily quarters ended march 31 june 30 2005 addition costs excess facilities paid calendar 2011 asset impairments paid first second quarters calendar 2005 company fund costs existing cash following table summarizes activity related liability restructuring programs recorded charges thousands 7accounts payable accrued liabilities assets accounts payable accrued liabilities consist following thousands assets consist following thousands 8debt company unsecured credit agreement jpmorgan chase bank administrative agent participating financial institutions thereunder providing maximum 2000 million borrowings senior term facility five year 1000 million revolving credit facility third quarter 2004 company borrowed 200 million term loan facility receiving net proceeds debt issuance costs 1972 million accordance requirements term loan facility company made loan payment 100 million fourth quarter calendar 2004 december 31 2004 1900 million outstanding term loan facility 35 million letters credit outstanding revolving credit facility facilities bear interest equal libor plus applicable margin varies based specified leverage ratios december 31 2004 current interest rate 359 term loan facility payable equal quarterly installments five year period ending august 12 2009 credit facilities subject mandatory prepayments portion proceeds asset sales proceeds certain future debt issuances credit agreement includes customary affirmative negative financial covenants primarily based company’s financial results measures contract value result covenants borrowing availability december 31 2004 592 million facilities also include commitment fees unused portion revolving credit facility subject letters credit company paid commitment fee 030 050 unused revolving credit amount calendar 2004 weightedaverage interest rate borrowings outstanding third fourth quarter 328 subsequent december 31 2004 company entered amendment credit agreement covenant requirements resulted additional borrowing capacity revolving credit facility result amended borrowing availability revolving credit facility would 965 million december 31 2004 april 17 2000 company issued private placement transaction 3000 million 6 convertible subordinated notes “convertible notes” silver lake partners lp “silver lake” noteholders convertible notes scheduled mature april 2005 accruing interest 6 per annum interest accrued semiannually corresponding increase face amount convertible notes commencing september 15 2000 october 2003 convertible notes converted 49441122 shares gartner class common stock accordance original terms notes determination number shares issued upon conversion based upon 745 conversion price convertible note 3683 million consisting original face amount 300 million plus accrued interest 683 million unamortized balances debt issue costs 28 million debt discount 03 million conversion date netted outstanding principal interest balances resulting 3652 million increase stockholders’ equity additionally certain costs directly associated conversion regulatory filing banking legal fees totaling 06 million charged equity part original private placement transaction two silver lake representatives elected tenmember board directors company also granted silver lake right acquire 5 company subsidiary spun 80 initial public offering price company issues letters credit ordinary course business december 31 2004 company outstanding letters credit jpmorgan chase bank 35 million 9commitments contingencies december 27 2004 company announced would acquire meta allcash transaction valued 1000 per share approximately 1620 million excluding transaction costs subject regulatory shareholder approvals company believes transaction close second quarter calendar 2005 order fund purchase meta company anticipates use combination cash company’s amended fiveyear revolving credit facility connection funding meta transaction company anticipates repatriating 520 million cash earnings nonus subsidiaries early 2005 december 31 2004 company 17 million nonrefundable obligation related meta acquisition company leases various facilities furniture computer equipment operating lease arrangements expiring 2005 2025 future minimum annual payments noncancelable operating lease agreements december 31 2004 follows thousands rental expense operating leases 252 million calendar 2004 255 million calendar 2003 70 million transition 2002 276 million fiscal 2002 company also commitments office services printing copying shipping mail services expire various dates 2005 minimum obligation agreements approximately 18 million aggregate company involved legal proceedings litigation arising ordinary course business company believes outcome current proceedings claims litigation material effect company’s financial position results operations resolved future period company various agreements may obligate indemnify party respect certain matters generally indemnification clauses included contracts arising normal course business customarily agrees hold party harmless losses arising breach representations related matters title assets sold licensed certain intellectual property rights possible predict maximum potential amount future payments indemnification agreements due conditional nature company’s obligations unique facts particular agreement historically payments made company agreements material december 31 2004 company aware indemnification agreements would require material payments 10stockholders’ equity capital stock holders class common stock class b common stock entitled one vote per share matters voted stockholders vote together single class respect election directors class common stock stockholders entitled one vote per share election class directors constitute 20 directors class b common stock stockholders entitled one vote per share election class b directors constitute least 80 directors addition class b common stock holder owns 15 outstanding class b common stock able vote class b common stock election directors unless holder owns equivalent percentage class common stock february 2005 company announced board directors approved elimination classified board structure approved combination company’s class b common shares items subject stockholder approval company’s annual meeting take place late spring early summer 2005 company currently pay cash dividends class b common stock subject periodic review current policy board directors retain earnings primarily provide funds continued growth credit agreement dated august 12 2004 contains negative covenant may limit company’s ability pay dividends addition amended restated security holders agreement silver lake partners lp requires company obtain silver lake’s consent prior declaring paying dividends following table provides transactions relating company’s common stocks tender offer august 10 2004 company announced final results dutch auction tender offer company repurchased 113 million shares class common stock 55 million shares class b common stock purchase price 1330 1250 per share respectively additionally company repurchased 92 million class shares silver lake partners lp certain affiliates “silver lake” purchase price 1330 per share total cost purchases 3462 million including transaction costs 38 million stock repurchase program july 2001 company’s board directors approved repurchase 75 million class b common stock board directors subsequently increased authorized stock repurchase program total authorization repurchase 200 million cumulative basis december 31 2004 company purchased 1332 million stock repurchase program connection tender offer board directors terminated stock repurchase program june 2004 following table provides information related cumulative repurchases program 11stock plans stock option plans company grants stock options employees allow purchase shares class common stock options granted incentive employees contribute company’s longterm success options also granted members board directors certain consultants generally stock options issued fair market value date grant options vest either annually threeyear service period b fouryear vesting period 25 vesting end first year remaining 75 vesting monthly next three years options generally expire ten years grant date december 31 2004 34 million shares class common stock authorized grants options restricted stock 2003 long term incentive plan february 2003 company’s stockholders approved 2003 longterm incentive plan “2003 plan” replaced 1993 director stock option plan 1994 long term option plan 1996 long term stock option plan 1998 long term stock option plan 1999 stock option plan collectively “previous plans” 2003 plan 9928000 shares class common stock initially available grant upon approval 2003 plan grants awards allowable previous plans however outstanding options awards previous plans remain outstanding earlier exercise forfeiture expiry date summary stock option activity plans agreement december 31 2004 follows options purchase 178 million 231 million shares class common stock exercisable december 31 2004 2003 respectively following table summarizes information stock options outstanding december 31 2004 employee stock purchase plans january 1993 company adopted employee stock purchase plan reserved aggregate 4000000 shares class common stock issuance plan 1993 plan expired 2003 march 2002 shareholders approved 2002 employee stock purchase plan substantially identical terms eligible employees permitted purchase class common stock payroll deductions may exceed 10 employee’s compensation 21250 calendar year price equal 85 class common stock price reported nyse beginning end offering period whichever lower shares issued transition 2002 calendar 2004 calendar 2003 fiscal 2002 443959 544883 551109 shares issued treasury stock average purchase price 933 724 786 per share respectively plans december 31 2002 september 30 2002 37 million shares available purchase 2002 plan december 31 2004 2003 company 27 million 32 million shares respectively available purchase plan restricted stock awards beginning 1998 company awarded restricted stock 1991 stock option plan 1998 long term stock option plan restricted stock awards generally vest six equal installments first installment vesting two years award annually thereafter five years 2004 company made two awards restricted stock 33000 shares market values 1196 1278 respectively date grant 2003 plan restrictions lapse three years additional award 175000 shares 2003 plan forfeited 2004 inducement award 500000 shares company’s new ceo subject performance based vesting except awards performance based vesting awardees required provide consideration company rendering service right vote shares receive dividends employee may sell restricted stock vesting period 1999 company also granted 40500 stock options exercise price 100 per share vest basis restricted stock awards certain international employees stock options weightedaverage fair market value 2281 per stock option date grant company total 602236 99024 restricted shares class common stock outstanding december 31 2004 2003 respectively awards restricted stock calendar 2003 december 31 2004 aggregate unamortized compensation expense restricted stock awards 1 stock option grants 76 million included unearned compensation net consolidated balance sheet total compensation expense recognized restricted stock awards stock options granted exercise price 100 per share 09 million 09 million 03 million 13 million calendar 2004 calendar 2003 transition 2002 fiscal 2002 respectively october 15 2004 company announced new ceo eugene hall received inducement grant 500000 shares restricted stock market value date grant 1205 per share long mr hall remains employee restriction 500000 shares restricted stock lapse upon earlier company’s 60 day average stock price meeting certain targets b change control price targets 20 first 300000 shares 25 next 100000 shares 30 remaining 100000 shares accordance apb 25 company’s 60 day average stock price exceeds stipulated per share target 60 day measurement period company required record noncash compensation charge equal closing price company’s stock date target met times number shares associated applicable target example company’s average 60 day stock price 22 per share stock closes 2250 per share first lapse shall result company recording 675 million noncash compensation charge 300000 shares 2250share october 15 2004 mr hall’s restricted stock award probabilityweighted range values zero 160 million mean net present value approximately 37 million mean net present value represents weightedaverage range potential values range values based present value estimated discounted cash flows takes consideration factors historical price volatility company’s class common stock 37 million represents fair value restricted stock amount sfas 123 fair value restricted stock award price target amortized sfas 123 purposes expected vesting term target ranging 21 36 months 12computation earnings loss per share basic earnings per share “eps” computed dividing net income loss weighted average number common shares outstanding period diluted eps reflects potential dilution securities could share earnings exercise stock options conversion convertible debt antidilutive excluded calculation following table sets forth reconciliation basic diluted earnings per share computations thousands except per share company repurchased significant number class b common stock outstanding calendar 2004 first half calendar 2004 company repurchased 413225 shares class common stock 114600 shares class b common stock aggregate cost 61 million stock repurchase program third quarter 2004 company completed “dutch auction tender offer” repurchased 11339019 shares class common stock 5505489 shares class b common stock purchase price 1330 1250 per share respectively additionally company also repurchased 9228938 class shares silver lake partners certain affiliates “silver lake” purchase price 1330 per share total cost purchases 3462 million including transaction costs 38 million conjunction tender offer board directors terminated stock repurchase program june 2004 following table presents number options purchase shares millions class common stock included computation diluted eps effect would antidilutive periods reported income options antidilutive exercise prices greater average market value share class common stock period periods reported loss options outstanding antidilutive effect calendar 2004 2003 2002 transition 2002 fiscal 2002 unvested restricted stock awards included computation diluted income loss per share effect would antidilutive additionally convertible notes calendar 2003 calendar 2002 transition 2002 included eps calculation using “as converted” method effect would antidilutive following table provides information aftertax interest expense added back numerator eps calculation weighted average number shares associated convertible debt included denominator eps calculation effect would antidilutive thousands 13income taxes following summary components income loss income taxes thousands provision benefit income taxes income loss consists following components thousands current longterm deferred tax assets liabilities comprised following thousands current longterm net deferred tax assets 134 million 431 million december 31 2004 89 million 379 million december 31 2003 respectively included prepaid expenses current assets consolidated balance sheets valuation allowance relates primarily domestic state local foreign tax net operating loss capital loss carryforwards likely expire unutilized net increase valuation allowance approximately 51 million calendar 2004 primarily due increases foreign net operating losses state local net operating losses federal capital losses approximately 26 million valuation allowance reduce additional paidincapital upon subsequent recognition related tax benefits related stock options differences us federal statutory income tax rate company’s effective tax rate income loss income taxes higher effective tax rate calendar 2004 primarily attributable repatriation charges offset foreign tax credits nondeductible book writeoffs currency translation goodwill company took 50 million deferred tax charge anticipation repatriating approximately 520 million earnings company’s non us subsidiaries 2005 anticipated repatriation qualifies onetime reduced tax rate pursuant american jobs creation act 2004 charge company’s best current estimate tax cost related dividend repatriation estimate may revised result additional guidance clarifying language may issued congress andor department treasury changes company’s factual assumptions may occur repatriation expense partially offset deferred benefit 35 generation current year foreign tax credits release valuation allowance prior year foreign tax credits used offset foreign source income including repatriated amounts company also recorded charges calendar 2004 writeoff certain goodwill currency translation adjustments charges deductible tax purposes impact items increased tax expense approximately 13 million december 31 2004 company us federal capital loss carryforwards 264 million 192 million expire one year 36 million expire two years 36 million expire five years foreign tax credit carryforwards 127 million 97 million expire six years remaining expire seven nine years federal alternative minimum tax credit carryforwards 18 million carried forward indefinitely company federal net operating loss carryforward 289 million majority expire 20 years state local tax net operating loss carryforwards 2502 million 762 million expire within one five years 402 million expire within six fifteen years 1338 million expire within sixteen twenty years company also 768 million state local capital loss carryforwards 696 million expire december 31 2004 36 million expire calendar 2005 remaining 36 million expire calendar 2008 lastly company foreign tax loss carryforwards 191 million 73 million expire one ten years 118 million carried forward indefinitely 14employee benefits savings investment plan company savings investment plan covering substantially domestic employees company contributions based upon level employee contributions addition company also contributes fixed discretionary profit sharing contributions set board directors amounts expensed connection plan totaled 95 million 93 million 19 million 95 million calendar 2004 calendar 2003 transition 2002 fiscal 2002 respectively deferred compensation employee stock trust company supplemental deferred compensation arrangements benefit certain officers managers key employees arrangements partially funded life insurance contracts purchased company plan permits participants diversify investments value assets held managed invested pursuant agreement 134 million 116 million december 31 2004 2003 respectively included assets corresponding deferred compensation liability 157 million 134 million december 31 2004 2003 respectively recorded fair market value adjusted corresponding charge credit compensation cost reflect fair value amount owed employee included liabilities total compensation expense recognized plan 03 million 03 million 01 million 06 million calendar 2004 calendar 2003 transition 2002 fiscal 2002 respectively defined benefit pension plan company definedbenefit pension plan one international locations plan statutory nature covers approximately 85 individuals accounted accordance requirements sfas 87 benefits paid plan based years service employee compensation employees vest plan five years service benefits paid plan reinsurance contract company maintains thirdparty insurance company pays annual insurance premium coverage accordance requirements sfas 87 reinsurance contract qualify plan asset since maintained outside plan following components net periodic pension expense following table provides information related changes projected benefit obligation following table provides information related changes funded status plan assumptions used computation net periodic pension expense follows assumptions used computation benefit obligation follows 15segment information company manages business three reportable segments research consulting events research consists primarily subscriptionbased research products consulting consists primarily consulting measurement engagements strategic advisory services events consists various symposia conferences exhibitions company evaluates reportable segment performance allocate resources based gross contribution margin gross contribution presented defined operating income excluding certain selling general administrative expenses depreciation amortization intangibles charges accounting policies used reportable segments used company earns revenue clients many countries united states individual country revenues external clients represent 10 company’s consolidated revenues additionally single client accounted 10 total revenue loss single client management’s opinion would material adverse effect revenues company identify allocate assets including capital expenditures operating segment accordingly assets reported segment information available segment reviewed evaluation performance making decisions allocation resources following tables present information reportable segments thousands “other” column includes certain revenues corporate expenses primarily selling general administrative unallocated reportable segments expenses allocated operations meet segment reporting quantitative threshold charges intersegment revenues company’s consolidated revenues generated primarily direct sales clients domestic international sales forces network independent international sales agents company defines “other international revenues” revenues attributable areas located outside united states canada europe company’s products services provided integrated worldwide basis integration products services delivery practical separate precisely company’s revenues geographic location longlived assets exclude goodwill intangible assets accordingly separation set forth table based upon internal allocations involve certain management estimates judgments summarized information geographic location follows thousands longlived assets consists property equipment certain security deposits certain longterm assets 15valuation qualifying accounts following table provides information regarding company’s allowance doubtful accounts returns allowances thousands 1 amounts charged revenues signatures pursuant requirements securities exchange act 1934 registrant caused report form 10k signed behalf undersigned duly authorized stamford connecticut march 16 2005 power attorney person whose signature appears appoints eugene hall christopher lafond acting individually attorneyinfact full power substitution capacities sign amendments report form 10k file appropriate exhibits related documents securities exchange commission undersigned ratifies confirms signatures may signed attorneyinfact amendments report pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicateditem 15 exhibits financial statement schedules 1 2 consolidated financial statements schedules reports independent registered public accounting firm consolidated financial statements listed index consolidated financial statements page 32 hereof filed part report financial statement schedules listed index omitted information required applicable shown consolidated financial statements notes thereto 3 exhibits filed document ª management compensation plan arrangement index consolidated financial statements gartner inc consolidated financial statements report independent registered public accounting firm report independent registered public accounting firm consolidated balance sheets december 31 2005 2004 consolidated statements operations years ended december 31 2005 2004 2003 consolidated statements stockholders’ equity comprehensive income loss years ended december 31 2005 2004 2003 consolidated statements cash flows years ended december 31 2005 2004 2003 notes consolidated financial statements financial statement schedules omitted information required applicable shown consolidated financial statements notes thereto report independent registered public accounting firm board directors stockholders gartner inc audited accompanying consolidated balance sheets gartner inc subsidiaries december 31 2005 2004 related consolidated statements operations stockholders’ equity comprehensive income loss cash flows years threeyear period ended december 31 2005 consolidated financial statements responsibility company’s management responsibility express opinion consolidated financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements referred present fairly material respects financial position gartner inc subsidiaries december 31 2005 2004 results operations cash flows years threeyear period ended december 31 2005 conformity us generally accepted accounting principles also audited accordance standards public company accounting oversight board united states effectiveness gartner inc’s internal control financial reporting december 31 2005 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission coso report dated march 10 2006 expressed unqualified opinion management’s assessment effective operation internal control financial reporting kpmg llp new york new york march 10 2006 report independent registered public accounting firm board directors stockholders gartner inc audited management’s assessment included accompanying management’s report internal control financial reporting item 9a gartner inc “company” maintained effective internal control financial reporting december 31 2005 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission coso company’s management responsible maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting responsibility express opinion management’s assessment opinion effectiveness company’s internal control financial reporting based audit conducted audit accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether effective internal control financial reporting maintained material respects audit included obtaining understanding internal control financial reporting evaluating management’s assessment testing evaluating design operating effectiveness internal control performing procedures considered necessary circumstances believe audit provides reasonable basis opinion company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate opinion management’s assessment gartner inc maintained effective internal control financial reporting december 31 2005 fairly stated material respects based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission coso also opinion gartner inc maintained material respects effective internal control financial reporting december 31 2005 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission coso also audited accordance standards public company accounting oversight board united states consolidated balance sheets gartner inc subsidiaries december 31 2005 2004 related consolidated statements operations stockholders’ equity comprehensive income loss cash flows years threeyear period ended december 31 2005 report dated march 10 2006 expressed unqualified opinion consolidated financial statements kpmg llp new york new york march 10 2006 gartner inc consolidated balance sheets thousands except share data see notes consolidated financial statements gartner inc consolidated statements operations thousands except per share data see notes consolidated financial statements gartner inc consolidated statements stockholders’ equity comprehensive income loss thousands except share data see notes consolidated financial statements gartner inc consolidated statements cash flows thousands see notes consolidated financial statements gartner inc notes consolidated financial statements 1summary significant accounting policies basis presentation fiscal year gartner inc “company” represents period january 1 december 31 certain prior year amounts reclassified conform current year presentation used notes terms “company” “we” “us” “our” mean gartner inc subsidiaries 2005 company combined class b common stock single class common stock accordingly certain share amounts disclosed herein restated reflect stock combination principles consolidation consolidated financial statements include accounts company majorityowned subsidiaries significant intercompany transactions balances eliminated investments companies company owns less 50 ability exercise significant influence operating financial policies accounted using equity method investments company ability exercise significant influence accounted cost method accounting results operations acquisitions companies accounted using purchase method included consolidated statements operations beginning closing date acquisition revenues commission expense recognition company typically enters annually renewable subscription contracts research products revenues research products deferred recognized ratably applicable contract terms majority research contracts billable upon signing absent special terms granted limited basis time research contracts noncancelable nonrefundable except government contracts 30day cancellation clause produced material cancellations date exception certain government contracts permit termination contracts special billing terms company policy record entire amount contract billable fee receivable time contract signed represents legally enforceable claim corresponding amount deferred revenue government contracts permit termination company bills client full amount billable contract records receivable equal earned portion contract addition company records deferred revenue government contracts cash received deferred revenue attributable government contracts 417 million 409 million december 31 2005 2004 respectively addition december 31 2005 2004 company recognized receivables deferred revenues relating government contracts permit termination 71 million 42 million respectively billed yet collected company records commission obligation related research contracts upon signing contract amortizes corresponding deferred commission expense contract period related revenues earned consulting revenues primarily derived consulting measurement strategic advisory services paid oneday analyst engagements generated fixed fee time material engagements revenue fixed fee contracts recognized percentage completion basis revenues time materials engagements recognized work delivered andor services provided unbilled fees receivables associated consulting engagements 319 million december 31 2005 279 million december 31 2004 events revenues deferred recognized upon completion related symposium conference exhibition addition company defers certain costs directly related events expenses costs period related symposium conference exhibition occurs company policy defer costs primarily prepaid site production services costs incremental directly attributable specific event costs organizing producing events primarily company personnel nonevent specific expenses expensed period incurred end fiscal quarter company assesses eventbyevent basis whether expected direct costs producing scheduled event exceed expected revenues costs expected exceed revenues company records expected loss period determined revenues includes reprint software licensing fees miscellaneous revenues revenue reprints recognized reprint shipped software licensing revenue recognized signed noncancelable software license exists delivery occurred collection probable fees fixed determinable cash equivalents highly liquid investments original maturities three months less classified cash equivalents carrying value investments approximates fair value based upon shortterm maturity investments maturities three months classified marketable securities investments equity securities company accounts investments publicly traded equity securities statement financial accounting standards “sfas” 115 “accounting certain investments debt equity securities” investments meet criteria classification available sale given company’s ability intent sell investments recorded fair value included assets consolidated balance sheets unrealized gains losses marketable investments recorded net tax component accumulated comprehensive income loss within stockholders’ equity section consolidated balance sheets realized gains losses recorded loss gain investments net within consolidated statements operations cost equity securities sold based specific identification company assesses need record impairment losses investments records losses impairment investment determined temporary nature making assessment consider significance duration decline value valuation comparable companies operating internet technology sectors impairment factors evaluate may change subsequent periods since entities underlying investments operate volatile business environment addition entities may require additional financing meet cash operational needs however assurance funds available extent needed terms acceptable entities impairment losses reflected gain loss investments net within consolidated statements operations company accounts investments ability exercise significant influence using cost method accounting accordingly investments carried lower cost net realizable value included assets consolidated balance sheets see note 3 investments equity method used account investments entities majorityowned company control ability exercise significant influence property equipment leasehold improvements property equipment leasehold improvements stated cost less accumulated depreciation amortization property equipment depreciated using straightline method estimated useful lives assets leasehold improvements amortized using straightline method shorter estimated useful lives assets remaining term related leases property equipment leasehold improvements less accumulated depreciation amortization consist following thousands december 31 2005 2004 capitalized development costs internal use software 132 million 134 million respectively net accumulated amortization 140 million 174 million respectively amortization capitalized internal software development costs totaled 67 million 77 million 106 million 2005 2004 2003 respectively included depreciation consolidated statements operations depreciation expense 249 million 266 million 344 million 2005 2004 2003 respectively software development costs company capitalizes certain computer software development costs enhancements software sold customers establishment technological feasibility limited net realizable value software product ceases capitalization software product available general release clients products reach technological feasibility costs related development efforts charged expense technological feasibility determined additional costs incurred development including coding testing documentation capitalized amortization software development costs provided productbyproduct basis estimated economic life software generally two years using straightline method recorded within depreciation amortization capitalized computer software development costs begins products available general release customers periodic reviews performed ensure unamortized capitalized software development costs remain recoverable future revenue capitalized software costs net accumulated amortization 01 million 03 million december 31 2005 2004 respectively amortization expense 06 million 09 million 16 million 2005 2004 2003 respectively december 2005 company decided discontinue sale internally created software customers effects immaterial intangible assets intangible assets amortized using straightline method expected useful lives intellectual property databases amortized 18 months customer relationships amortized five years noncompete agreements amortized two five years trademarks amortized nine twelve years acquisition meta resulted recording 256 million intangibles assets composed 144 million intellectual property 77 million customer relationships 35 million customer relationships intangible assets subject amortization include following thousands category includes noncompete agreements trademarks aggregate amortization expense related intangibles assets 102 million 07 million 13 million 2005 2004 2003 respectively estimated future amortization expense year purchased intangibles follows thousands goodwill represents excess purchase price acquired businesses estimated fair value tangible identifiable intangible net assets acquired sfas 142 “goodwill intangible assets” goodwill amortized tested impairment least annually reporting unit level reporting unit operating segment business discrete financial information prepared reviewed management impairment test reporting unit’s carrying amount exceeds estimated fair value goodwill impairment recognized extent reporting unit’s carrying amount goodwill exceeds implied fair value goodwill fair value reporting units estimated using discounted cash flows market multiples valuation techniques acquisition meta resulted recording 1812 million goodwill see note 2 acquisition meta carrying amount goodwill allocated company’s segments follows 2004 company recorded goodwill impairment charges 27 million consulting segment related certain operations south america closed exit noncore operations impairment longlived assets intangible assets company reviews longlived assets intangible assets goodwill impairment whenever events changes circumstances indicate carrying amount respective asset may recoverable evaluation may based number factors including current projected operating results cash flows changes management’s strategic direction well economic market variables company’s policy regarding longlived assets intangible assets goodwill evaluate recoverability assets determining whether balance recovered undiscounted future operating cash flows events circumstances indicate carrying value might recoverable based undiscounted future operating cash flows impairment loss would recognized amount impairment measured based difference projected discounted future operating cash flows using discount rate reflecting company’s average cost funds carrying value asset see note 4 charges foreign currency translation assets liabilities foreign subsidiaries translated us dollars exchange rates effect balance sheet date resulting translation adjustments recorded foreign currency translation adjustments component accumulated comprehensive income loss net within stockholders’ equity section consolidated balance sheets income expense items translated average exchange rates year currency transaction gains losses arising transactions denominated currencies functional currency subsidiary included results operations within income expense net within consolidated statements operations currency transaction gains losses net 28 million 2005 39 million 2004 05 million 2003 39 million currency transaction loss 2004 included foreign currency charge 31 million related closing certain operations south america time enter foreign currency forward exchange contracts derivative financial instruments offset effects adverse fluctuations foreign currency exchange rates contracts short maturity reflected fair value unrealized realized gains losses recorded income expense 2005 net gain loss contracts immaterial december 31 2005 company eleven foreign currency forward contracts outstanding total notional amount approximately 530 million contracts expired january 2006 income taxes deferred tax assets liabilities recognized based differences book tax basis assets liabilities using presently enacted tax rates provision income taxes sum amount income tax paid payable year determined applying provisions enacted tax laws taxable income year net changes year deferred tax assets liabilities credit additional paidin capital realized tax benefits arising stock transactions employees tax benefit nonqualified stock option equal tax effect difference market price company’s common stock date exercise price undistributed earnings subsidiaries outside us amounted approximately 300 million december 31 2005 earnings continue permanently reinvested accordingly provision us federal state income taxes provided thereon company repatriate approximately 520 million foreign earnings 2005 order take advantage beneficial provisions american jobs creation act 2004 ajca pursuant ajca tax charge 50 million included tax expense 2004 tax benefit 36 million included tax expense 2005 net charge 14 million company’s best estimate tax cost related dividend repatriation fair value financial instruments company’s financial instruments include cash equivalents fees receivable accounts payable accruals shortterm nature carrying amounts financial instruments approximate fair value investments publicly traded equity securities valued based quoted market prices investments equity securities publicly traded valued lower cost net realizable value approximates fair market value december 31 2005 company 2467 million borrowings outstanding carrying amount borrowings approximates fair value rate interest term loan revolver approximates current market rates interest similar instruments comparable maturities december 2005 company entered interest rate swap agreement hedge exposure floating base interest rate term loan see note 6 debt interest rate swap negative fair value approximately 07 million december 31 2005 concentrations credit risk financial instruments potentially subject us concentrations credit risk consist primarily cash equivalents marketable equity securities fees receivable concentrations credit risk respect fees receivable limited due large number clients comprising client base dispersion across many different industries geographic regions use estimates company makes estimates assumptions affect reported amounts assets liabilities disclosures contingent assets liabilities dates financial statements reported amounts revenues expenses reporting periods estimates required generally accepted accounting principles united states america company’s preparation consolidated financial statements actual results could differ estimates used accounting items allowance doubtful accounts investments depreciation amortization income taxes certain accrued liabilities accounting stockbased compensation company several stockbased compensation plans company applies accounting principles board opinion 25 “accounting stock issued employees” “apb 25” accounting employee stock options purchase rights apply statement financial accounting standards 123 “accounting stock issued employees” “sfas 123” disclosure purposes apb 25 intrinsic value method used account stockbased employee compensation plans sfas 123 disclosures include pro forma net income earnings per share fair valuebased method accounting used compensation employee options determined based sfas 123 pro forma net loss income pro forma loss income per share would follows thousands except per share data third quarter 2005 company completed offer buy back certain vested outstanding employee stock options cash see note 8 equity stock programs result buy back approximately 262 million additional pro forma employee stock compensation expense included 2005 expense results reversal pro forma deferred tax assets established prior periods realized pro forma purposes options tendered cancelled pro forma expense impact company’s reported tax expense recorded deferred tax assets actual cash income tax payments fair value company’s stock plans used compute pro forma net loss income diluted loss income per share disclosures estimated fair value grant date using blackscholes option pricing model following weightedaverage assumptions utilized stock options granted modified weighted average fair values company’s stock options granted 2005 2004 2003 273 420 310 respectively recently issued accounting standards june 1 2005 financial accounting standards board issued sfas 154 accounting changes error corrections “sfas 154” require entities voluntarily make change accounting principle apply change retrospectively prior periods’ financial statements unless application would impracticable sfas 154 supersedes accounting principles board opinion 20 accounting changes “apb 20” previously required voluntary changes accounting principle recognized including current period’s net income cumulative effect changing new accounting principle sfas 154 also makes distinction “retrospective application” accounting principle “restatement” financial statements reflect correction error another significant change practice sfas 154 entity changes method depreciation amortization depletion longlived nonfinancial assets change must accounted change accounting estimate apb 20 change would reported change accounting principle sfas 154 applies accounting changes error corrections made fiscal years beginning december 15 2005 december 2004 financial accounting standards board issued statement financial accounting standards 123r “sharebased payment” sfas 123r statement replaces sfas 123 apb 25 require recognition expense sharebased payments include value stock options equity awards granted employees revised statement originally effective periods beginning june 15 2005 early adoption permitted april 21 2005 sec issued standard amends date compliance sfas 123r “the sec amendment” sec amendment sfas 123r must adopted beginning first interim annual reporting period registrant’s first fiscal year beginning june 15 2005 gartner adopted sfas 123r january 1 2006 prospective method adoption 2acquisition meta april 1 2005 company completed acquisition meta purchase price approximately 1683 million excluding transaction costs approximately 81 million pursuant agreement plan merger share meta common stock outstanding effective time merger converted right receive 1000 cash company funded purchase meta 670 million borrowed revolving credit facility existing cash meta information technology research firm acquisition intended accelerate revenue growth gartner’s core research business increasing sales coverage addition sales people meta knowledge marketplace existing client relationships increasing company’s presence targeted international markets providing greater coverage several key industries acquisition also intended achieve cost synergies general administrative expenses acquisition accounted purchase business combination consolidated financial statements include results meta date acquisition purchase price allocated net assets liabilities acquired based estimated fair values acquisition date based third party valuation excess purchase price estimated fair value net assets acquired including identifiable intangible assets allocated goodwill final determination purchase price allocation made within one year acquisition date following table represents preliminary allocation purchase price assets acquired liabilities assumed dollars thousands december 31 2005 1546 million 207 million 59 million goodwill recorded research consulting events segments respectively result meta acquisition total 1812 million recorded goodwill related meta december 31 2005 none expected deductible income tax purposes fourth quarter 2005 company reduced recorded goodwill meta acquisition 40 million 1812 million 1852 million september 30 2005 reduction due recording reduction 31 million accrued facility liabilities reduction deferred revenues 09 million december 31 2005 company believes may still record changes purchase price allocation related deferred revenues recording liabilities related meta integration activities emerging issues task force issue 953 see table intangible assets recorded meta acquisition amortized straightline basis estimated remaining lives customer relationships amortized five years content represents research part intellectual property meta amortized 18 months meta databases used generate consulting services specific customers amortized 18 months preliminary purchase price allocation includes estimate fair value cost fulfill deferred revenue obligation assumed meta estimated fair value deferred revenue obligation determined estimating costs provide services plus normal profit margin include costs associated selling efforts result allocating purchase price company recorded adjustments reduce carrying value meta’s march 31 2005 deferred revenue balance approximately 126 million connection meta acquisition company commenced integration activities resulted recording liabilities purchase accounting emerging issues task force issue 953 “recognition liabilities connection purchase combination” “eitf 953” involuntary terminations lease contract terminations liability involuntary termination benefits covers 276 employees december 31 2005 almost employees terminated company expects pay remaining balance severance benefits march 31 2006 majority remaining liabilities contract terminations exit costs paid june 30 2006 lease liabilities paid respective contract periods 2012 following table summarizes initial obligations recorded activity december 31 2005 dollars thousands eitf 953 1 2005 company recorded 26 million additional accruals related meta obligations eitf 953 effect additional accruals increase amount recorded goodwill meta acquisition fourth quarter 2005 company booked additional accrual goodwill approximately 01 million related identification additional tax contingency third quarter 2005 company recorded additional accrual goodwill approximately 04 million related contract settlement meta equipment lease obligation second quarter 2005 company recorded accruals approximately 21 million goodwill additional severance termination two meta contracts various tax contingencies company recorded 07 million severance related identification additional benefits paid severed meta employees addition company recorded 04 million accrual related termination meta sales agent relationship 05 million accrual termination existing agreement former meta employee existing agreement meta former employee entitled annual payments years 2004 2008 included percentage certain meta consulting revenues second quarter 2005 gartner negotiated termination agreement effective april 1 2005 agreeing engage former employee independent contractor basis december 31 2008 buying right receive percentage revenues lumpsum payment tax contingencies accrual approximately 05 million reflected company’s best estimate time taxes due various meta obligations 2 2005 company recorded various adjustments estimated meta liabilities booked april 1 2005 reduced obligation 41 million adjustments recorded information became available regarding obligations permitting company make better estimate amount ultimate settlement obligations actually settled cash amounts different estimated time acquisition adjustment liabilities resulted reduction goodwill recorded meta acquisition among adjustments fourth quarter 2005 adjustment reduce accrued lease terminations 23 million due higher rental revenue related faster subleasing leases originally projected addition company reduced accrued severance approximately 05 million based revised estimates amount would paid reversed 01 million contract termination accrual determining company liability second quarter 2005 adjustment recorded reverse 07 million accrual termination sales agent relationship company believed would settled lesser amount following table summarizes unaudited pro forma financial information acquisition related financing acquisition meta consummated january 1 2005 2004 purchase method accounting dollars thousands except per share amounts unaudited pro forma combined financial information necessarily represent would occurred acquisition taken place dates presented representative company’s future consolidated results future combined company results reflect historical combined company results entities future research revenues expected lower combined company basis result expected customer overlap future consulting revenues expected lower combined company basis result exiting certain practices addition future general administrative expenses expected lower combined company basis result expected cost synergies net financial impact matters reflected pro forma information achievement expected cost savings synergies subject risks uncertainties assurance given cost savings synergies achieved pro forma information include liabilities may result operation meta’s business conjunction gartner’s following acquisition adjustments respect possible settlements outstanding liabilities already included historical financial statements either company presently estimable therefore actual amounts ultimately recorded may differ materially information presented accompanying pro forma information company recognizes revenue associated fulfillment acquired meta contracts consistent company’s standard revenue recognition methodology ratably contract term typically twelve months upon completion related event direct costs associated fulfillment acquired meta contracts expensed period related revenues recognized pro forma information reflects company’s current estimate costs required fulfill deferred obligation related acquired meta contracts 3investments december 31 2005 company’s investments marketable equity securities investments cost basis fair value 03 million included prepaid expenses current assets consolidated balance sheet december 31 2005 company unrealized gain approximately 01 million related investment investments equity securities 70 million december 31 2004 included assets 2005 company recorded noncash charges 51 million 02 million first second quarters respectively primarily related writedowns investment si ii company decided sell fourth quarter 2004 company recorded writedown first quarter 2005 reduce investment estimated net realizable value receiving preliminary indications interest acquire investment less recorded value company took additional writedown second quarter 2005 based preliminary sale agreement proceeds less recorded value impairment losses recorded loss gain investments net consolidated statements operations august 2 2005 company sold investment si ii approximately 13 million resulting gain loss recorded sale since investment already net realizable value fourth quarter 2005 company sold investment common stock acquired meta acquisition 07 million recorded loss 05 million recorded loss gain investments net consolidated statements operations fourth quarter 2004 company made decision liquidate equity investments si venture associates “si i” sell company’s interest sii si ii venture capital funds engaged making investments early midstage itbased internetenabled companies company owned 100 si 22 si ii december 31 2004 fourth quarter 2004 company recorded charge 15 million related liquidation si include 08 million writedown investment 07 million related shutdown charges recorded si ii fourth quarter 2004 related planned sale since management believed carrying value investment approximated net realizable value third quarter 2004 company recorded noncash charge 22 million related transfer investment si ii well decrease company’s ownership percentage si ii seven hundred basis points carrying value company’s investments held si ii zero 67 million respectively december 31 2004 investment si ii presented separately balance sheet held sale asset amount material 2003 company received proceeds approximately 55 million recorded gain investments insurance proceeds received associated negotiated settlement claim arising sale gartnerlearning 1998 also 2003 company recorded impairment loss 09 million minorityowned investment publicly traded 4other charges 2005 company recorded charges 292 million included 107 million related workforce reductions 60 million option buyback 82 million primarily due reduction office space approximately 43 million charges fourth quarter 2005 company recorded charges 15 million costs associated employee termination severance payments related benefits 27 employees addition fourth quarter 2005 company reversed approximately 07 million previously accrued severance benefits amounts paid less accrued third quarter 2005 company recorded charges 60 million related completion one time offer buy back certain vested outstanding stock options cash see note 8 equity stock programs second quarter 2005 company recorded charges 82 million included second quarter charge 82 million costs primarily related reduction office space san jose california consolidating employees two buildings one company also recorded charge 06 million associated certain stock combination expenses offset reversal 09 million accrued severance charges company determined would paid first quarter 2005 company recorded charges 143 million included charge 106 million costs associated employee termination severance payments related benefits workforce reduction continuation plan announced fourth quarter 2004 resulted termination 123 employees three months ended march 31 2005 addition first quarter 2005 company also recorded charges approximately 37 million primarily related restructuring company’s international operations 2004 company recorded charges 358 million included amount 297 million related severance benefits 203 employees including costs 77 million related departure president coo chairman ceo 203 employees 132 severed part action plan announced fourth quarter 2003 2004 company also revised estimate previously recorded costs losses associated excess facilities recorded 23 million additional provisions revised estimate due decline market lease rates expected subleases well reduction estimated periods subleases company also recorded charges 2004 19 million related restructuring certain internal systems 18 million charges related exit certain international noncore operations 2003 company recorded charges 297 million charges 200 million associated workforce reductions totaling 222 people addition company recorded 97 million charges additional estimated costs losses associated excess facilities following table summarizes activity related liability restructuring programs recorded charges thousands excess facilities liability december 31 2005 206 million table include approximately 37 million accrued excess facilities liability december 31 2005 related interest accreted lease liabilities interest accreted charged interest expense consolidated statements operations 206 million excess facilities liability december 31 2005 approximately 146 million classified liabilities consolidated balance sheets company expects 27 million 36 million workforce reduction costs paid june 30 2006 majority rest paid yearend 2006 06 million asset impairments paid june 30 2006 company intends fund payments existing cash costs excess facilities paid leases expire 2011 5accounts payable accrued liabilities assets accounts payable accrued liabilities consist following thousands assets consist following thousands 6debt company entered amended restated credit agreement “credit agreement” june 29 2005 provides 3250 million unsecured fiveyear facility bank group led jpmorgan chase bank na administrative agent consisting 2000 million term loan 1250 million revolving credit facility revolving credit facility may increased 1750 million december 31 2005 1967 million outstanding term loan 500 million outstanding revolving credit facility credit agreement requires term loan repaid 19 quarterly installments final payment due june 29 2010 revolving credit facility may used loans 150 million may used letters credit revolving loans may borrowed repaid reborrowed june 29 2010 time amounts borrowed must repaid loans bear interest company’s option among several alternatives company elected use libor plus margin consists spread 100 150 depending company’s leverage ratio fiscal quarter recently ended company elected use threemonth libor rate term loan onemonth libor rate revolver credit agreement contains certain restrictive loan covenants including among others financial covenants requiring maximum leverage ratio minimum fixed charge coverage ratio minimum annualized contract value ratio covenants limiting gartner’s ability incur indebtedness grant liens make acquisitions acquired dispose assets pay dividends repurchase stock make capital expenditures make investments gartner’s obligations credit facility guaranteed gartner’s us subsidiaries also contains events default include among others nonpayment principal interest fees inaccuracy representations warranties violation covenants cross defaults certain indebtedness bankruptcy insolvency events material judgments events constituting change control occurrence event default increase applicable rate interest 20 could result acceleration gartner’s obligations credit agreement obligation guarantors pay full amount gartner’s obligations credit agreement february 10 2006 company entered amendment credit agreement amendment modified definition consolidated fixed charges allow gartner exclude 300 million spent share repurchases fourth quarter 2005 full year 2006 amendment also increased letter credit facility 150 million provides letters credit denominated foreign currencies december 2005 company repaid 33 million term loan accordance credit agreement terms december 31 2005 company approximately 456 million borrowing capacity revolving credit facility december 31 2005 interest rates term loan revolver 603 589 respectively consist threemonth libor base rate onemonth libor base rate respectively plus margin 150 december 2005 company entered interest rate swap agreement hedge base interest rate risk term loan effect swap convert floating base rate term loan fixed rate swap terms company pay 4885 fixed rate return receive threemonth libor rate threemonth libor rate received swap match base rate paid term loan since use threemonth libor swap initial notional value 2000 million decline payments made term loan amount outstanding term loan notional amount swap always equal swap notional amount 1967 million december 31 2005 outstanding amount term loan company accounts swap cash flow hedge accordance sfas 133 “accounting derivative instruments hedging activities” “sfas 133” sfas 133 requires derivatives whether designated hedges recorded balance sheet fair value since swap qualifies cash flow hedge sfas 133 changes fair value swap recorded comprehensive income long swap continues effectively hedge base interest rate risk term loan ineffective portion changes fair value hedge recorded earnings december 31 2005 ineffective portion hedge defined sfas 133 interest rate swap negative fair value 07 million december 31 2005 recorded comprehensive income company issues letters credit ordinary course business december 31 2005 company outstanding letters credit 49 million 7commitments contingencies company leases various facilities furniture computer equipment operating lease arrangements expiring 2006 2025 future minimum annual payments noncancelable operating lease agreements december 31 2005 follows thousands rental expense operating leases 250 million 2005 252 million 2004 255 million 2003 company also commitments office services printing copying shipping mail services expire 2006 minimum obligation agreements approximately 03 million aggregate internal revenue service “irs” completed field work portion audit company’s federal income tax returns tax years ended september 30 1999 2002 october 2005 company received examination report indicating proposed changes primarily relate valuation intangible assets licensed foreign subsidiary calculation payments cost sharing arrangement gartner inc one foreign subsidiaries gartner disagrees proposed adjustments relating valuation cost sharing arrangement intends vigorously dispute matter applicable irs judicial procedures appropriate however irs ultimately prevail issues could result additional taxable income years examination approximately 1307 million additional federal cash tax liability approximately 410 million company recorded provision prior periods based estimate amount claim settled additional amount booked current period although final resolution proposed adjustments uncertain company believes ultimate disposition matter material adverse effect consolidated financial position cash flows results operations irs commenced examination tax years 2003 2004 significant developments date december 23 2003 gartner sued action entitled expert choice inc v gartner inc docket 303cv02234 united states district court district connecticut plaintiff expert choice inc seeks unspecified amount damages claims relating royalties development licensing marketing sale distribution certain computer software methodologies case currently discovery phase subsequently january 2004 arbitration demand filed decision drivers inc one company’s subsidiaries gartner inc expert choice arbitration demand described claim excess 100 million provide detail february 22 2006 company informed offer expert choice’s counsel settle matter 350 million company immediately rejected expert choice’s settlement offer since company believes meritorious defenses claims company intends continue vigorously defend case addition matters discussed involved legal proceedings litigation arising ordinary course business believe potential liability excess amounts already accrued proceedings claims litigation material effect financial position results operations resolved future period company various agreements may obligate us indemnify party respect certain matters generally indemnification clauses included contracts arising normal course business customarily agree hold party harmless losses arising breach representations related matters title assets sold licensed certain intellectual property rights possible predict maximum potential amount future payments indemnification agreements due conditional nature company’s obligations unique facts particular agreement historically payments made us agreements material december 31 2005 indemnification agreements would require material payments 8equity stock programs capital stock holders common stock entitled one vote per share matters voted stockholders company’s annual meeting june 29 2005 company’s stockholders approved combination company’s class common stock class b common stock single class common stock elimination classification company’s board directors share outstanding class common stock class b common stock reclassified share single class common stock accordingly certain share amounts disclosed herein restated reflect stock combination impact total issued outstanding shares common stock increase total number authorized shares common stock restated certificate incorporation filed delaware secretary state july 6 2005 effectuate changes new common stock retains class common stock’s ticker symbol new york stock exchange class b common stock delisted new york stock exchange effective date company currently pay cash dividends common stock subject periodic review current policy board directors retain earnings primarily provide funds continued growth amended restated credit agreement dated june 29 2005 contains negative covenant may limit ability pay dividends addition amended restated security holders agreement silver lake partners lp requires us obtain silver lake’s consent prior declaring paying dividends following table provides transactions relating company’s common stock 100 million share repurchase program october 2005 company’s board directors authorized 1000 million common share repurchase program repurchases program made timetotime open market purchases andor block trades company intends fund repurchases cash flow operations may also borrow company’s existing credit facility repurchases subject availability common stock prevailing market conditions trading price company’s common stock financial performance fourth quarter 2005 company repurchased 837800 shares common stock program total purchase price 111 million 96 million paid december 2005 15 million paid early january 2006 related share purchase transactions settled stock option buy back third quarter 2005 company completed onetime offer buy back certain vested outstanding stock options cash resulted tender cancellation 6383445 options conjunction buyback company recorded charge approximately 60 million including transaction related costs charge recorded charges net consolidated statements operations offer option holders given opportunity elect tender eligible options exchange cash payment equal value outstanding options calculated based blackscholes valuation model offer made current certain former employees except current executive officers directors held options purchase common stock strike price greater 1294 accounting buyback governed apb 25 apb 25 cash consideration paid redeemed stock options treated compensation expense charge earnings addition expense apb 25 also requires outstanding options company offered redeem tendered subject variable accounting treatment day offer onward requiring company take potential charge quarter extent inthemoney value options increased measured last day quarter company recorded immaterial charges third fourth quarters 2005 related revaluation options variable accounting treatment triggered option buy back ceased january 1 2006 date company adopted sfas 123r long term incentive plan company’s annual meeting june 29 2005 company’s stockholders approved certain amendments gartner’s 2003 long term incentive plan “the plan” including 11 million share increase number shares available plan addition restricted stock units award available grant plan extension term plan april 19 2015 unless sooner terminated company’s board directors tender offer third quarter 2004 company completed dutch auction tender offer repurchased 168 million common shares additionally company repurchased 92 million common shares silver lake partners lp certain affiliates “silver lake” total cost tender 3462 million including transaction costs 38 million terminated 2000 million share repurchase program july 2001 company’s board directors approved repurchase 750 million common stock board directors subsequently increased authorized stock repurchase program total authorization repurchase 2000 million 2004 company repurchased 527825 shares total cost approximately 61 million cumulative basis company repurchased 13720397 shares common stock total cost 1332 million program connection 2004 tender offer board directors terminated stock repurchase program june 2004 conversion convertible notes april 17 2000 company issued private placement transaction 3000 million 6 convertible subordinated notes “convertible notes” silver lake partners lp “silver lake” noteholders convertible notes scheduled mature april 2005 accruing interest 6 per annum interest accrued semiannually corresponding increase face amount convertible notes commencing september 15 2000 october 2003 convertible notes converted 49441122 shares gartner common stock accordance original terms notes determination number shares issued upon conversion based upon 745 conversion price convertible note 3683 million consisting original face amount 300 million plus accrued interest 683 million unamortized balances debt issue costs 28 million debt discount 03 million conversion date netted outstanding principal interest balances resulting 3652 million increase stockholders’ equity additionally certain costs directly associated conversion regulatory filing banking legal fees totaling 06 million charged equity part original private placement transaction two silver lake representatives elected tenmember board directors company also granted silver lake right acquire 5 company subsidiary spun 80 initial public offering price 9option plans stock option plans company grants stock options employees allow purchase shares company’s common stock options granted incentive employees contribute company’s longterm success options also granted members board directors certain consultants generally stock options issued fair market value date grant options vest either annually threeyear service period b fouryear vesting period 25 vesting end first year remaining 75 vesting monthly next three years options granted prior 2005 generally expire ten years grant date whereas options granted 2005 generally expire seven years date grant december 31 2005 109 million shares common stock authorized grants options restricted stock 2003 long term incentive plan february 2003 company’s stockholders approved 2003 longterm incentive plan “2003 plan” replaced 1993 director stock option plan 1994 long term option plan 1996 long term stock option plan 1998 long term stock option plan 1999 stock option plan collectively “previous plans” 2003 plan 9928000 shares common stock initially available grant upon approval 2003 plan grants awards allowable previous plans however outstanding options awards previous plans remain outstanding earlier exercise forfeiture expiry date summary stock option activity plans agreement december 31 2005 follows third quarter 2005 company completed offer buy back certain vested outstanding stock options cash resulted tender cancellation 6383445 options conjunction buyback company recorded charge approximately 60 million including transaction related costs charge recorded charges net consolidated statements operations options purchase 107 million 178 million 231 million shares common stock exercisable december 31 2005 2004 2003 respectively following table summarizes information stock options outstanding december 31 2005 employee stock purchase plans january 1993 company adopted employee stock purchase plan reserved aggregate 4000000 shares common stock issuance plan 1993 plan expired 2003 march 2002 shareholders approved 2002 employee stock purchase plan “2002 plan” substantially identical terms eligible employees permitted purchase common stock payroll deductions may exceed 10 employee’s compensation 21250 calendar year price equal 95 common stock price reported nyse end offering period prior june 1 2005 employees could purchase common stock program price equal 85 common stock price reported nyse beginning end offering period whichever lower 2005 2004 2003 540083 443959 544883 shares issued treasury stock average purchase price 922 933 724 per share respectively plans december 31 2005 2004 2003 company 22 million 27 million 32 million shares respectively available purchase 2002 plan restricted stock awards beginning 1998 company awarded restricted stock 1991 stock option plan 1998 long term stock option plan restricted stock awards generally vest six equal installments first installment vesting two years award annually thereafter five years company make awards restricted stock 2003 2004 company made four restricted stock awards 2005 issued one replacement award 2004 awards included two awards restricted stock 33000 shares market values 1196 1278 date grant respectively 2003 plan restrictions lapse three years addition additional award 175000 shares 2003 plan award forfeited 2004 inducement award 500000 shares ceo discussed subject performancebased vesting except awards performancebased vesting awardees required provide consideration company rendering service restricted share awards right vote shares receive dividends employee may sell restricted stock still subject vesting 1999 company also granted 40500 stock options exercise price 100 per share vest basis restricted stock awards certain international employees stock options weightedaverage fair market value 2281 per stock option date grant fourth quarter 2004 company announced ceo eugene hall received inducement grant 500000 shares restricted stock market value date grant 1205 per share fourth quarter 2005 company mr hall agreed cancel restricted stock award replace new award amount shares similar terms done tax reasons number shares restricted stock issued mr hall remains unchanged issuing new restricted stock award stockholder approved 2003 plan company able take tax deduction restrictions lapse restricted stock award company would able take advantage tax deduction 2004 award made inducement grant consequently issued pursuant stockholder approved plan company mr hall entered termination restricted stock agreement cancel original award 500000 shares restricted stock made october 15 2004 ii restricted stock agreement makes new grant 500000 shares restricted stock 2003 plan similar award cancelled restrictions new award lapse 300000 shares company’s common stock trades average price 20 sixty 60 consecutive trading days ii 100000 shares company’s common stock trades average price 25 sixty 60 consecutive trading days iii 100000 shares company’s common stock trades average price 30 sixty 60 consecutive trading days subject mr hall’s continued employment company date notwithstanding preceding sentence restrictions shall lapse full upon change control date mr hall’s restricted stock award replaced probabilityweighted present value 44 million determination value award based present value estimated discounted cash flows takes consideration factors historical price volatility company’s common stock well probability company’s common stock reach target prices value used company purposes calculating pro forma net income net income per share accordance sfas 123 see footnote 1 company total 530202 602236 restricted shares common stock outstanding december 31 2005 2004 respectively december 31 2005 2004 aggregate unamortized compensation expense restricted stock awards 1 stock option grants 67 million 76 million respectively included unearned compensation net consolidated balance sheet total compensation expense recognized restricted stock awards stock options granted exercise price 100 per share 08 million 09 million 09 million 2005 2004 2003 respectively 10computation loss income per share basic earnings per share “eps” computed dividing net loss income weighted average number common shares outstanding period diluted eps reflects potential dilution securities could share earnings exercise stock options conversion convertible debt antidilutive excluded calculation following table sets forth reconciliation basic diluted loss earnings per share computations thousands except per share amounts october 2005 company’s board directors authorized 1000 million common share repurchase program repurchases program made timetotime open market purchases andor block trades company intends fund repurchases cash flow operations may also borrow company’s existing credit facility fourth quarter 2005 company repurchased 837800 shares common stock program total purchase price 111 million first half 2004 company repurchased 527825 common shares aggregate cost 61 million 2000 million stock repurchase program addition third quarter 2004 company completed tender offer repurchased 16844508 common shares purchase price 1330 1250 per share respectively additionally company also repurchased 9228938 shares silver lake partners certain affiliates “silver lake” purchase price 1330 per share total cost tender 3462 million including transaction costs 38 million conjunction tender offer board directors terminated 2000 million stock repurchase program june 2004 following table presents number options purchase shares millions common stock included computation diluted eps effect would antidilutive periods reported income options antidilutive exercise prices greater average market value share common stock period periods reported loss options outstanding antidilutive effect 2005 2004 2003 unvested restricted stock awards included computation diluted income loss per share effect would antidilutive additionally convertible notes 2003 included eps calculation using “as converted” method effect would antidilutive following table provides information aftertax interest expense added back numerator eps calculation weighted average number shares associated convertible debt included denominator eps calculation effect would antidilutive thousands 11income taxes following summary components income loss income taxes thousands expense income taxes income consists following components thousands current longterm deferred tax assets liabilities comprised following thousands current longterm net deferred tax assets 118 million 566 million december 31 2005 134 million 431 million december 31 2004 respectively included prepaid expenses current assets consolidated balance sheets valuation allowance relates primarily state local foreign net operating losses capital loss carryforwards foreign tax credits likely expire unutilized net increase valuation allowances approximately 256 million 2005 relates primarily establishing valuation allowances associated meta preacquisition assets include state local foreign net operation losses domestic capital losses portion increase also relates valuation allowance established foreign tax credits current year capital losses approximately 23 million valuation allowance reduce additional paidincapital upon subsequent recognition related tax benefits associated stock options approximately 189 million valuation allowance reduce goodwill upon subsequent recognition related tax benefits associated various meta deferred tax assets company established full valuation allowances domestic realized unrealized capital losses utilization remains uncertain december 31 2005 company us federal capital loss carryforwards 344 million 192 million capital losses expired december 31 2005 however losses remain subject utilization potential audit adjustments associated current irs exam 36 million remaining capital loss carryovers expire 2006 33 million expire 2007 83 million expire 2008 2009 company also 848 million state local capital loss carryforwards 696 million expired december 31 2005 losses remain subject state utilization depending upon adjustments associated current irs exam remaining amount 36 million expire 2006 33 million expire 2007 83 million expire 2008 2009 december 31 2005 company federal net operating loss carryforward 188 million majority expire 18 years company also state local tax net operating loss carryforwards 3415 million 887 million expire within one five years 618 million expire within six fifteen years 1910 million expire within sixteen twenty years addition company foreign net operating loss carryforwards 406 million 123 million expire one eleven years 283 million carried forward indefinitely december 31 2005 company also foreign tax credit carryforwards 150 million 94 million expire 2010 remaining expire 2011 2015 addition company federal alternative minimum tax credit carryforwards 23 million carried forward indefinitely research development credit carryforwards approximately 12 million expire 2020 2025 differences us federal statutory income tax rate company’s effective tax rate income taxes higher effective tax rate 2004 compared 2003 primarily attributable incurring nondeductible restructuring charges tax costs repatriating foreign earnings increases offset part release valuation allowance associated foreign tax credits 2004 took 50 million tax charge anticipation repatriating approximately 520 million earnings nonus subsidiaries 2005 repatriation expected qualify onetime reduced tax rate pursuant american jobs creation act ajca charge partially offset benefit 25 million release valuation allowance foreign tax credits expected utilized expired increase effective tax rate 2005 compared 2004 principally due fact company generated less income low tax jurisdictions compared prior year recorded valuation allowances capital losses foreign tax credit carryforwards impact items offset part benefits taken reduce overall tax expense repatriated earnings well reductions interest costs related tax contingencies impact various positive negative adjustments amplified lower pretax book income 2005 compared 2004 company also recorded charges 2005 relating acquisition integration meta deductible tax purposes impact items increased tax expense approximately 07 million 132 undistributed earnings subsidiaries outside us amounted approximately 300 million december 31 2005 earnings continue permanently reinvested accordingly provision us federal state income taxes provided thereon earnings could become subject additional tax distributed form dividends otherwise practicable estimate amount additional tax may payable foreign earnings complexities associated hypothetical calculation march 2005 company repatriated approximately 520 million cash nonus subsidiaries order take advantage beneficial provisions american jobs creation act 2004 ajca company previously recorded 50 million tax expense anticipation repatriation 2005 company took account technical corrections issued treasury department result favorable provisions contained technical correction company realized tax benefit 36 million reduce cumulative charge 14 million additionally consequence application technical corrections company reevaluated ability use foreign tax credits future took charge 25 million reestablish valuation allowance foreign tax credits likely expire unused internal revenue service “irs” completed field work portion audit company’s federal income tax returns tax years ended september 30 1999 2002 october 2005 company received examination report indicating proposed changes primarily relate valuation intangible assets licensed foreign subsidiary calculation payments cost sharing arrangement gartner inc one foreign subsidiaries gartner disagrees proposed adjustments relating valuation cost sharing arrangement intends vigorously dispute matter applicable irs judicial procedures appropriate however irs ultimately prevail issues could result additional taxable income years examination approximately 1307 million additional federal cash tax liability approximately 410 million company recorded provision prior periods based estimate amount claim settled additional amount booked current period although final resolution proposed adjustments uncertain company believes ultimate disposition matter material adverse effect consolidated financial position cash flows results operations irs commenced examination tax years 2003 2004 significant developments date 12employee benefits savings investment plan company savings investment plan covering substantially domestic employees company contributions based upon level employee contributions addition company also contributes fixed discretionary profit sharing contributions set board directors amounts expensed connection plan totaled 106 million 95 million 93 million 2005 2004 2003 respectively deferred compensation employee stock trust company supplemental deferred compensation arrangements benefit certain officers managers key employees arrangements partially funded life insurance contracts purchased company plan permits participants diversify investments value assets held managed invested pursuant agreement 141 million 134 million december 31 2005 2004 respectively included assets corresponding deferred compensation liability 166 million 157 million december 31 2005 2004 respectively recorded fair market value adjusted corresponding charge credit compensation cost reflect fair value amount owed employee included liabilities total compensation expense recognized plan 02 million 03 million 03 million 2005 2004 2003 respectively defined benefit pension plans company definedbenefit pension plans several international locations covering approximately 188 individuals accounted accordance requirements statement financial accounting standards 87 “employers’ accounting pensions” sfas 87 benefits paid plans based years service employee compensation none plans plan assets defined sfas 87 company’s policy account material defined benefit plans accordance sfas 87 following components net periodic pension expense following table provides information related changes projected benefit obligations following table provides information related changes funded status plan assumptions used computation net periodic pension expense follows assumptions used computation benefit obligations follows 13segment information company manages business three reportable segments research consulting events research consists primarily subscriptionbased research products consulting consists primarily consulting measurement engagements strategic advisory services events consists various symposia conferences exhibitions company evaluates reportable segment performance allocate resources based gross contribution margin gross contribution presented defined operating income excluding certain cost sales selling general administrative expenses depreciation amortization intangibles charges accounting policies used reportable segments used company earn revenue clients many countries united states individual country revenues external clients represent 10 company’s consolidated revenues additionally single client accounted 10 total revenue loss single client management’s opinion would material adverse effect revenues identify allocate assets including capital expenditures operating segment accordingly assets reported segment information available segment reviewed evaluation performance making decisions allocation resources following tables present information company’s reportable segments thousands “other” column includes certain revenues corporate expenses primarily selling general administrative unallocated reportable segments expenses allocated operations meet segment reporting quantitative threshold charges intersegment revenues company’s consolidated revenues generated primarily direct sales clients domestic international sales forces network independent international sales agents revenues table reported based sale fulfilled “other international” revenues attributable areas located outside united states canada well europe middle east africa products services provided integrated worldwide basis integration products services delivery practical separate precisely revenues geographic location longlived assets exclude goodwill intangible assets accordingly separation set forth table based upon internal allocations involve certain management estimates judgments summarized information geographic location follows thousands 14valuation qualifying accounts following table provides information regarding company’s allowance doubtful accounts returns allowances thousands signatures pursuant requirements securities exchange act 1934 registrant caused report form 10k signed behalf undersigned duly authorized stamford connecticut march 10 2006 gartner inc power attorney person whose signature appears appoints eugene hall christopher lafond acting individually attorneyinfact full power substitution capacities sign amendments report form 10k file appropriate exhibits related documents securities exchange commission undersigned ratifies confirms signatures may signed attorneyinfact amendments report pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicateditem 15 exhibits financial statement schedules 1 2 consolidated financial statements schedules reports independent registered public accounting firm consolidated financial statements listed index consolidated financial statements page 31 hereof filed part report financial statement schedules listed index omitted information required applicable shown consolidated financial statements notes thereto 3 exhibits index consolidated financial statements gartner inc consolidated financial statements report independent registered public accounting firm report independent registered public accounting firm consolidated balance sheets december 31 2006 2005 consolidated statements operations years ended december 31 2006 2005 consolidated statements stockholders’ equity comprehensive income loss years ended december 31 2006 2005 2004 consolidated statements cash flows years ended december 31 2006 2005 2004 notes consolidated financial statements financial statement schedules omitted information required applicable shown consolidated financial statements notes thereto report independent registered public accounting firm board directors stockholders gartner inc audited accompanying consolidated balance sheets gartner inc subsidiaries december 31 2006 2005 related consolidated statements operations stockholders’ equity comprehensive income loss cash flows years threeyear period ended december 31 2006 consolidated financial statements responsibility company’s management responsibility express opinion consolidated financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements referred present fairly material respects financial position gartner inc subsidiaries december 31 2006 2005 results operations cash flows years threeyear period ended december 31 2006 conformity us generally accepted accounting principles discussed note 2 consolidated financial statements company changed method quantifying errors 2006 also audited accordance standards public company accounting oversight board united states effectiveness gartner inc’s internal control financial reporting december 31 2006 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission coso report dated march 1 2007 expressed unqualified opinion management’s assessment effective operation internal control financial reporting kpmg llp new york new york march 1 2007 report independent registered public accounting firm board directors stockholders gartner inc audited management’s assessment included accompanying management’s report internal control financial reporting item 9a gartner inc “company” maintained effective internal control financial reporting december 31 2006 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission coso company’s management responsible maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting responsibility express opinion management’s assessment opinion effectiveness company’s internal control financial reporting based audit conducted audit accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether effective internal control financial reporting maintained material respects audit included obtaining understanding internal control financial reporting evaluating management’s assessment testing evaluating design operating effectiveness internal control performing procedures considered necessary circumstances believe audit provides reasonable basis opinion company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate opinion management’s assessment gartner inc maintained effective internal control financial reporting december 31 2006 fairly stated material respects based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission coso also opinion gartner inc maintained material respects effective internal control financial reporting december 31 2006 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission coso also audited accordance standards public company accounting oversight board united states consolidated balance sheets gartner inc subsidiaries december 31 2006 2005 related consolidated statements operations stockholders’ equity comprehensive income loss cash flows years threeyear period ended december 31 2006 report dated march 1 2007 expressed unqualified opinion explanatory paragraph stating company changed method quantifying errors 2006 discussed note 2 consolidated financial statements kpmg llp new york new york march 1 2007 gartner inc consolidated balance sheets thousands except share data see notes consolidated financial statements gartner inc consolidated statements operations thousands except per share data see notes consolidated financial statements gartner inc consolidated statements stockholders’ equity comprehensive income loss thousands see notes consolidated financial statements gartner inc consolidated statements cash flows thousands see notes consolidated financial statements gartner inc notes consolidated financial statements 1summary significant accounting policies basis presentation fiscal year gartner inc “company” represents period january 1 december 31 certain prior year amounts reclassified conform current year presentation used notes terms “company” “we” “us” “our” mean gartner inc subsidiaries 2005 company combined class b common stock single class common stock accordingly certain share amounts disclosed herein restated reflect stock combination april 1 2005 company acquired meta group inc “meta” technology research firm purchase price approximately 1683 million excluding transaction costs approximately 81 million acquisition accounted purchase business combination consolidated financial statements include results meta date acquisition purchase price allocated net assets liabilities acquired based estimated fair values excess purchase price estimated fair value net assets acquired including identifiable intangible assets allocated goodwill principles consolidation consolidated financial statements include accounts company majorityowned subsidiaries significant intercompany transactions balances eliminated investments companies company owns less 50 ability exercise significant influence operating financial policies accounted using equity method investments company ability exercise significant influence accounted cost method accounting results operations acquisitions companies accounted using purchase method included consolidated statements operations beginning closing date acquisition use estimates company makes estimates assumptions affect reported amounts assets liabilities disclosures contingent assets liabilities dates financial statements reported amounts revenues expenses reporting periods estimates required generally accepted accounting principles united states america company’s preparation consolidated financial statements actual results could differ estimates used accounting items allowance doubtful accounts investments depreciation amortization income taxes certain accrued liabilities revenues commission expense recognition company typically enters annually renewable subscription contracts research products revenues research products deferred recognized ratably applicable contract term majority research contracts billable upon signing absent special terms granted limited basis time research contracts noncancelable nonrefundable except government contracts 30day cancellation clause produced material cancellations date exception certain government contracts permit termination contracts special billing terms company policy record entire amount contract billable fee receivable time contract signed represents legally enforceable claim corresponding amount deferred revenue government contracts permit termination company bills client full amount billable contract records receivable equal earned portion contract addition company records deferred revenue government contracts cash received deferred revenue attributable government contracts 479 million 417 million december 31 2006 2005 respectively addition december 31 2006 2005 company recognized receivables deferred revenues relating government contracts permit termination 96 million 71 million respectively billed yet collected company records commission obligation related research contracts upon signing contract amortizes corresponding deferred commission expense contract period related revenues earned consulting revenues primarily derived consulting measurement strategic advisory services paid oneday analyst engagements generated fixed fee time materials discrete projects revenues projects recognized work delivered andor services provided unbilled fees receivables associated consulting engagements 295 million december 31 2006 319 million december 31 2005 events revenues deferred recognized upon completion related symposium conference exhibition addition company defers certain costs directly related events expenses costs period related symposium conference exhibition occurs company policy defer costs primarily prepaid site production services costs incremental directly attributable specific event costs organizing producing events primarily company personnel nonevent specific expenses expensed period incurred revenues consist primarily fees research reprints software licensing reprint fees recognized reprint shipped fees software licensing recognized signed noncancelable software license exists delivery occurred collection probable fees fixed determinable cash equivalents highly liquid investments original maturities three months less classified cash equivalents carrying value investments approximates fair value based upon shortterm maturity investments maturities three months classified marketable securities investments equity securities company accounts investments publicly traded equity securities statement financial accounting standards “sfas” 115 “accounting certain investments debt equity securities” investments meet criteria classification available sale given company’s ability intent sell investments recorded fair value included assets consolidated balance sheets unrealized gains losses marketable investments recorded net tax component accumulated comprehensive income loss within stockholders’ equity section consolidated balance sheets realized gains losses recorded loss gain investments net within consolidated statements operations cost equity securities sold based specific identification company assesses need record impairment losses investments records losses impairment investment determined temporary nature property equipment leasehold improvements property equipment leasehold improvements stated cost less accumulated depreciation amortization property equipment depreciated using straightline method estimated useful lives assets leasehold improvements amortized using straightline method shorter estimated useful lives assets remaining term related leases property equipment leasehold improvements less accumulated depreciation amortization consist following thousands total depreciation expense 234 million 255 million 277 million 2006 2005 2004 respectively december 31 2006 2005 capitalized development costs internal use software 159 million 132 million respectively net accumulated amortization 101 million 140 million respectively amortization capitalized internal software development costs totaled 46 million 67 million 77 million 2006 2005 2004 respectively included depreciation consolidated statements operations intangible assets intangible assets amortized using straightline method expected useful lives intellectual property databases amortized 18 months customer relationships amortized five years noncompete agreements generally amortized two five years trademarks amortized nine twelve years acquisition meta resulted recording 256 million intangibles assets composed 144 million intellectual property 77 million customer relationships 35 million databases 2006 intellectual property databases company acquired meta fully amortized intangible assets subject amortization include following thousands category includes noncompete agreements trademarks aggregate amortization expense related intangibles assets 108 million 102 million 07 million 2006 2005 2004 respectively estimated future amortization expense year purchased intangibles follows thousands goodwill represents excess purchase price acquired businesses estimated fair value tangible identifiable intangible net assets acquired sfas 142 “goodwill intangible assets” goodwill amortized tested impairment least annually reporting unit level reporting unit operating segment business discrete financial information prepared reviewed management impairment test reporting unit’s carrying amount exceeds estimated fair value goodwill impairment recognized extent reporting unit’s carrying amount goodwill exceeds implied fair value goodwill fair value reporting units estimated using discounted cash flows market multiples valuation techniques 2004 recorded impairment charge 07 million relating goodwill associated certain operations south america closed 20 million related exit certain noncore product lines changes carrying amount goodwill reporting segment 2006 balance december 31 2006 follows december 31 2006 company recorded approximately 1757 million goodwill related acquisition meta 2006 company reduced goodwill meta acquisition approximately 55 million reduction due adjustment certain deferred tax assets approximately 36 million reversal deferred revenues adjustments 19 million decrease deferred tax assets primarily related release valuation allowances deferred tax assets net operating losses generated various meta foreign subsidiaries prior gartner’s acquisition meta company believes losses survive acquisition company generate sufficient taxable income utilize losses prior expiration impairment longlived assets intangible assets company reviews longlived assets intangible assets goodwill impairment whenever events changes circumstances indicate carrying amount respective asset may recoverable evaluation may based number factors including current projected operating results cash flows changes management’s strategic direction well economic market variables company’s policy regarding longlived assets intangible assets goodwill evaluate recoverability assets determining whether balance recovered undiscounted future operating cash flows events circumstances indicate carrying value might recoverable based undiscounted future operating cash flows impairment loss would recognized amount impairment measured based difference projected discounted future operating cash flows using discount rate reflecting company’s average cost funds carrying value asset foreign currency translation assets liabilities foreign subsidiaries translated us dollars exchange rates effect balance sheet date resulting translation adjustments recorded foreign currency translation adjustments component accumulated comprehensive income loss net within stockholders’ equity section consolidated balance sheets income expense items translated average exchange rates year currency transaction gains losses arising transactions denominated currencies functional currency subsidiary included results operations within expense net within consolidated statements operations net currency transaction losses 06 million 2006 28 million 2005 39 million 2004 39 million currency transaction loss 2004 included foreign currency charge 31 million related closing certain operations south america time enter foreign currency forward exchange contracts derivative financial instruments offset effects adverse fluctuations foreign currency exchange rates contracts generally short maturity reflected fair value unrealized realized gains losses recorded income expense 2006 net gain loss contracts immaterial december 31 2006 company 15 foreign currency forward contracts outstanding total notional amount approximately 640 million contracts expired january 2007 income taxes deferred tax assets liabilities recognized based differences book tax basis assets liabilities using presently enacted tax rates provision income taxes sum amount income tax paid payable year determined applying provisions enacted tax laws taxable income year net changes year deferred tax assets liabilities credit additional paidin capital realized tax benefits arising stock transactions employees tax benefit nonqualified stock option equal tax effect difference market price company’s common stock date exercise price fair value financial instruments company’s financial instruments include cash equivalents fees receivable accounts payable accruals shortterm nature carrying amounts financial instruments approximate fair value investments publicly traded equity securities valued based quoted market prices investments equity securities publicly traded valued lower cost net realizable value approximates fair market value december 31 2006 company 3700 million borrowings outstanding carrying amount borrowings approximates fair value rate interest term loan revolver approximates current market rates interest similar instruments comparable maturities company interest rate swap agreement hedge exposure floating base interest rate term loan see note 7 debt interest rate swap positive fair value approximately 06 million december 31 2006 existing credit facility interest rate swap terminated january 2007 connection refinancing company credit facilities see note 16subsequent events concentrations credit risk financial instruments potentially subject us concentrations credit risk consist primarily cash equivalents marketable equity securities fees receivable concentrations credit risk respect fees receivable limited due large number clients comprising client base dispersion across many different industries geographic regions stock repurchase programs company records cost repurchase shares treasury stock 2006 company recorded approximately 2707 million stock repurchases see note 9equity stock programs accounting stockbased compensation january 1 2006 company adopted statement financial accounting standards 123r “sharebased payment” “sfas 123r” interpreted sec staff accounting bulletin 107 “sab 107” accordingly company recognizing stockbased compensation expense awards granted based fair value award date grant recognized related service period net estimated forfeitures service period employee performs related services normally vesting period company adopted sfas 123r modified prospective transition method consequently prior period results restated transition method 2006 company’s reported stock compensation expense include expense related remaining unvested portion awards granted prior january 1 2006 based grant date fair value estimated accordance original provisions sfas 123 b expense related stock compensation awards granted subsequent january 1 2006 based grant date fair value estimated accordance provisions sfas 123r prior january 1 2006 company applied apb opinion 25 “accounting stock issued employees” “apb 25” accounting employee stock compensation applied statement financial accounting standards 123 “accounting stock issued employees” “sfas 123” disclosure purposes apb 25 intrinsic value method used account stockbased employee compensation plans expense generally recorded awards granted without intrinsic value sfas 123 disclosures include pro forma net income loss income loss per share fair valuebased method accounting used recent accounting developments september 2006 sec staff issued staff accounting bulletin 108 “considering effects prior year misstatements quantifying misstatements current year financial statements” “sab 108” sab provides guidance consideration effects prior year misstatements quantifying current year misstatements purpose materiality assessment sab 108 establishes approach requires quantification financial statement errors based effects company’s financial statements related financial statement disclosures sab permits existing public companies record cumulative effect initially applying approach first year ending november 15 2006 recording necessary correcting adjustments carrying values assets liabilities beginning year offsetting adjustment recorded opening balance retained earnings additionally use cumulative effect transition method requires detailed disclosure nature amount individual error corrected cumulative adjustment arose december 31 2006 company recorded adjustments sab 108 see note 2adoption staff accounting bulletin 108 june 2006 fasb ratified consensus reached emerging issues task force eitf issue 0603 “how sales taxes collected customers remitted governmental authorities presented income statement gross versus net presentation” “eitf 0603” eitf reached consensus presentation taxes either gross net basis accounting policy decision requires disclosure eitf 0603 effective first interim annual reporting period beginning december 15 2006 company’s policy present taxes net basis result adoption eitf 0603 effect company’s financial position results operations july 2006 fasb issued fasb interpretation 48 “accounting uncertainty income taxes interpretation fasb statement 109” “ fin 48” become effective company january 1 2007 interpretation prescribes recognition threshold measurement attribute financial statement recognition measurement tax positions taken expected taken tax return benefit recognized tax position must morelikelythannot sustained upon examination taxing authorities position meets morelikelythannot threshold amount recognized measured largest amount benefit greater 50 percent likely realized upon ultimate settlement fasb expected give additional guidance regarding meaning ultimate settlement guidance could impact whether certain reserves related ongoing irs appeals case released retained earnings upon adoption fin 48 current earnings later period company’s analysis final impact fin 48 yet complete september 2006 fasb issued sfas 157 “fair value measurements” “sfas 157” establishes framework measuring fair value generally accepted accounting principles expands disclosures fair value measurements statement applies accounting pronouncements require permit fair value measurements sfas 157 effective fiscal years beginning november 15 2007 therefore company begin apply standard fiscal year commencing january 1 2008 company process evaluating impact sfas 157 company’s financial position results operations september 2006 fasb issued sfas statement 158 “employers’ accounting defined benefit pension postretirement plans amendment fasb statements 87 88 106 132r” “sfas 158” new standard requires employer recognize statement financial position asset plan’s overfunded status liability plan’s underfunded status b measure plan’s assets obligations determine funded status end employer’s fiscal year limited exceptions c recognize changes funded status defined benefit postretirement plan year changes occur changes reported comprehensive income business entity requirement recognize funded status benefit plan disclosure requirements effective end fiscal year ending december 15 2006 public entities company adopted sfas 158 december 31 2006 see note 13employee benefits 2adoption staff accounting bulletin 108 discussed recent accounting developments note 1 september 2006 sec staff issued sab 108 transition provisions sab 108 permit company adjust cumulative effect retained earnings immaterial errors relating prior years sab 108 also requires adjustment prior quarterly financial statements within fiscal year adoption effects errors quarters information next presented adjustments require previously filed reports sec amended company adopted sab 108 effective beginning fiscal year ended december 31 2006 accordance requirements sab 108 company adjusted opening accumulated earnings 2006 accompanying consolidated financial statements items described net impact adjustments increased company’s opening accumulated earnings 2006 approximately 32 million company considers adjustments immaterial consolidated statements operations consolidated balance sheets prior periods operating leases company recorded adjustment 07 million related correction accounting treatment certain operating leases resulting reduction opening accumulated earnings approximately 04 million net tax effect 03 million promulgated accounting principles require contractual rent concessions rent increases applied ratably life operating lease company applied requirement operating leases certain threshold resulting adjustment amount accumulating period years taxes payable company recorded adjustment 107 million related overstatement current taxes payable resulting increase opening accumulated earnings 74 million 33 million increase opening additional paidin capital adjustment impact tax expense adjustment due carryover impact excess payable balance prior years current taxes payable account accumulated period years prior 2000 stock options granted prior october 1999 prior october 1999 exercise price stock options granted employees company’s stock option plans equal average closing price company’s common stock five trading days immediately preceding grant date 2006 company determined valuation purposes exercise price closing price date grant formula used company since october 1999 accordingly company revalued options granted prior october 1999 using closing price date grant determined additional 60 million compensation expense recorded cumulative effect adjustment resulted reduction opening accumulated earnings approximately 38 million increase additional paidin capital 39 million tax effect less 01 million impact adjustments cumulative effect items noted fiscal 2006 opening balances presented table thousands 3investments december 31 2006 company investments marketable equity securities 03 million recorded prepaid expenses current assets consolidated balance sheet first half 2005 company recorded noncash charges 53 million related writedowns investment si venture fund ii l p “si ii” third quarter 2005 company sold investment si ii approximately 13 million resulting gain loss recorded sale since investment already net realizable value also 2005 company sold investment common stock acquired meta acquisition 07 million recorded loss 05 million 2004 company made decision liquidate investment si venture associates “si i” sell company’s interest si ii si ii venture capital funds engaged making investments early midstage itbased internetenabled companies 2004 company recorded charge 15 million related liquidation investment si well charge 22 million related transfer investment si ii decrease company’s ownership percentage si ii company records writedowns investments loss investments net consolidated statements operations 4other charges company record charges 2006 2005 company recorded charges 292 million included 107 million related workforce reductions 60 million option buyback 82 million primarily due reduction office space approximately 43 million charges 2004 company recorded charges 358 million included amount 297 million related severance benefits charges 23 million related excess facilities 19 million related restructuring certain internal systems 18 million charges related exit certain international noncore operations 5other assets consist following thousands 6accounts payable accrued liabilities accounts payable accrued liabilities consist following thousands liabilities consist following thousands reconciliation liabilities recorded charges following table summarizes activity related liabilities recorded charges consolidated statements operations thousands excess facilities liability december 31 2006 150 million table include approximately 50 million accrued excess facilities liability related accretion lease liabilities company expects remaining balance workforce reduction costs paid 2007 costs excess facilities paid leases expire 2011 company intends fund payments existing cash reconciliation meta purchase accounting liabilities connection meta acquisition company recorded certain liabilities purchase accounting emerging issues task force issue 953 “recognition liabilities connection purchase combination” “eitf 953” involuntary terminations lease contract terminations costs company expects remaining exit costs paid 2007 lease obligations paid respective contract periods 2012 company uncertain time regarding timing settlement remaining tax contingencies company intends fund payments existing cash following table summarizes activity 2006 ending balance december 31 2006 thousands eitf 953 1 first quarter 2006 company recorded approximately 23 million additional accruals related meta obligations eitf 953 primarily termination certain contracts meta vendors effect additional accruals increase amount recorded goodwill meta acquisition 2 adjustments made eitf 953 liabilities information becomes available regarding obligations permitting company make better estimate amount ultimate settlement obligations actually settled cash amounts different estimated effect entries adjust amount goodwill recorded meta acquisition first quarter 2006 company reduced obligation approximately 07 million primarily reduction accrued lease termination costs reduction due higher rental revenue related faster subleasing leases originally projected third fourth quarters 2006 company recorded adjustments 11 03 million respectively related settlement contractual liabilities amounts less company originally estimated 7debt december 31 2006 company 3700 million debt outstanding 1250 million interim credit facility 3250 million credit facility discussed january 31 2007 company refinanced outstanding debt terminated interest rate swap see note 16subsequent events 1250 million interim credit facility company 1250 million outstanding interim credit facility december 31 2006 company borrowed funds december 13 2006 complete part repurchase 10389610 shares common stock silver lake see note 9equity stock programs interim credit facility provided 1250 million unsecured term loan stated maturity date march 13 2007 gartner entered credit agreement december 13 2006 jpmorgan chase bank loans interim credit facility bore interest rate equal either greatest administrative agent’s prime rate administrative agent’s rate threemonth certificates deposit adjusted statutory reserves plus 1 average rate overnight federal funds plus 12 1 plus margin equal 000 025 depending gartner’s leverage ratio fiscal quarter recently ended ii eurodollar rate adjusted statutory reserves plus margin equal 625 125 depending gartner’s leverage ratio fiscal quarter recently ended gartner’s option december 31 2006 rate loan 635 company incurred arrangement fee approximately 02 million conjunction interim credit facility interim credit facility contained certain restrictive loan covenants including among others financial covenants requiring maximum leverage ratio minimum fixed charge coverage ratio minimum annualized contract value ratio covenants limiting gartner’s ability incur indebtedness grant liens make acquisitions acquired dispose assets pay dividends repurchase stock make capital expenditures make investments gartner’s obligations credit facility guaranteed certain gartner us subsidiaries interim credit facility contained events default include among others nonpayment principal interest fees inaccuracy representations warranties violation covenants cross defaults certain indebtedness bankruptcy insolvency events material judgments events constituting change control occurrence event default would increase applicable rate interest 20 could result acceleration gartner’s obligations facility obligation guarantors pay full amount gartner’s obligations facility 3250 million credit facility company entered amended restated credit agreement “credit agreement” june 29 2005 provided 3250 million unsecured fiveyear credit facility bank group led jpmorgan chase bank na administrative agent consisting 2000 million term loan 1250 million revolving credit facility could increased 1750 million company’s option december 31 2006 1800 million outstanding term loan 650 million outstanding revolving credit facility december 13 2006 company drew 650 million cash revolving credit facility complete part repurchase 10389610 shares common stock silver lake credit agreement required term loan repaid 19 quarterly installments final payment due june 29 2010 revolving credit facility could used loans 150 million available letters credit revolving loans could borrowed repaid reborrowed june 29 2010 time amounts borrowed must repaid loans bore interest company’s option among several alternatives company elected use libor plus margin consisted spread 100 150 depending company’s leverage ratio fiscal quarter recently ended company elected use threemonth libor rate term loan onemonth libor rate revolver credit agreement contained certain restrictive loan covenants including among others financial covenants requiring maximum leverage ratio minimum fixed charge coverage ratio minimum annualized contract value ratio covenants limiting gartner’s ability incur indebtedness grant liens make acquisitions acquired dispose assets pay dividends repurchase stock make capital expenditures make investments gartner’s obligations credit facility guaranteed gartner’s us subsidiaries also contained events default include among others nonpayment principal interest fees inaccuracy representations warranties violation covenants cross defaults certain indebtedness bankruptcy insolvency events material judgments events constituting change control occurrence event default would increase applicable rate interest 20 could result acceleration gartner’s obligations credit agreement obligation guarantors pay full amount gartner’s obligations credit agreement february 10 2006 company entered first amendment credit agreement amendment modified definition consolidated fixed charges allow gartner exclude 300 million spent share repurchases fourth quarter 2005 full year 2006 amendment also increased letter credit facility 150 million provided letters credit denominated certain foreign currencies december 13 2006 company entered second amendment credit agreement purpose allow gartner complete repurchase 2000 million common stock silver lake modifying certain restrictive covenants 2006 company repaid 166 million term loan december 31 2006 company approximately 467 million borrowing capacity revolving credit facility december 31 2006 annualized interest rates term loan revolver 650 648 respectively consist threemonth libor base rate onemonth libor base rate respectively plus margin 1125 interest rate swap december 31 2006 company interest rate swap hedged base interest rate risk term loan credit agreement effect swap convert floating base rate term loan fixed rate swap terms company paid 4885 fixed rate return received threemonth libor rate threemonth libor rate received swap matched base rate paid term loan since use threemonth libor swap initial notional value 2000 million declined payments made term loan amount outstanding term loan notional amount swap always equal swap notional amount 1800 million december 31 2006 outstanding amount term loan including impact interest rate swap annualized effective interest rate term loan 601 december 31 2006 company accounted swap cash flow hedge accordance sfas 133 “accounting derivative instruments hedging activities” “sfas 133” sfas 133 requires derivatives whether designated hedges recorded balance sheet fair value since swap qualified cash flow hedge sfas 133 changes fair value swap recorded comprehensive income long swap continued effectively hedge base interest rate risk term loan december 31 2006 ineffective portion hedge defined sfas 133 interest rate swap positive fair value 06 million december 31 2006 recorded comprehensive income net tax interest rate swap terminated january 31 2007 connection refinancing interim credit facility credit facility letters credit company issues letters credit ordinary course business december 31 2006 company outstanding letters credit 34 million 8commitments contingencies company leases various facilities furniture computer equipment operating lease arrangements expiring 2007 2025 future minimum annual payments noncancelable operating lease agreements december 31 2006 follows thousands 1 excludes approximately 80 million contractual sublease rental income operating lease costs include contractual rent concessions rent increases expensed ratably life lease rental expense operating leases 226 million 2006 250 million 2005 252 million 2004 december 23 2003 gartner sued action entitled expert choice inc v gartner inc docket 303cv02234 united states district court district connecticut plaintiff expert choice inc seeks unspecified amount damages claims relating royalties development licensing marketing sale distribution certain computer software methodologies january 2004 arbitration demand filed decision drivers inc one subsidiaries gartner inc expert choice arbitration demand described claim excess 100 million provide detail february 22 2006 informed offer expert choice’s counsel settle matter 350 million immediately rejected expert choice’s settlement offer case currently discovery phase believe meritorious defenses claims continue vigorously defend case addition matters discussed involved legal proceedings litigation arising ordinary course business believe potential liability excess amounts already accrued proceedings claims litigation material effect financial position results operations resolved future period company various agreements may obligate us indemnify party respect certain matters generally indemnification clauses included contracts arising normal course business customarily agree hold party harmless losses arising breach representations related matters title assets sold licensed certain intellectual property rights possible predict maximum potential amount future payments indemnification agreements due conditional nature company’s obligations unique facts particular agreement historically payments made us agreements material december 31 2006 indemnification agreements would require material payments 9equity stock programs capital stock holders common stock entitled one vote per share matters voted stockholders company’s annual meeting june 29 2005 company’s stockholders approved combination company’s class common stock class b common stock single class common stock elimination classification company’s board directors share outstanding class common stock class b common stock reclassified share single class common stock accordingly certain share amounts disclosed herein restated reflect stock combination impact total issued outstanding shares common stock increase total number authorized shares common stock restated certificate incorporation filed delaware secretary state july 6 2005 effectuate changes new common stock retains class common stock’s ticker symbol new york stock exchange class b common stock delisted new york stock exchange effective date company currently pay cash dividends common stock subject periodic review current policy board directors retain earnings primarily provide funds continued growth 2007 credit agreement dated january 31 2007 contains negative covenant may limit ability pay dividends addition amended restated security holders agreement silver lake requires us obtain silver lake’s consent prior declaring paying dividends following table provides transactions relating company’s common stock silver lake share repurchases december 2006 company repurchased 10389610 shares common stock directly silver lake 1925 per share total aggregate purchase price 2000 million conjunction repurchase company borrowed 1900 million additional funds see note 7debt utilized 100 million existing cash may 2006 company also repurchased 1000000 shares directly silver lake 100 million share repurchase program october 2005 company’s board directors authorized 1000 million common share repurchase program repurchases program made timetotime open market purchases andor block trades company authorized fund repurchases cash flow operations also could borrow company’s existing credit facility repurchases subject availability common stock prevailing market conditions trading price company’s common stock financial performance 2006 company repurchased 4517850 shares common stock program aggregate purchase price 692 million includes 1000000 common share repurchased directly silver lake may 2006 2005 company repurchased 837800 shares common stock program total purchase price 111 million 15 million paid early january 2006 related share purchase transactions settled february 2007 company’s board directors authorized new program repurchase 2000 million gartner common stock program replaces 1000 million share repurchase program approved october 2005 repurchases made timetotime open market purchases repurchases subject availability stock prevailing market conditions trading price stock company’s financial performance conditions repurchases funded cash flow operations possible borrowings company’s credit facility stock option buy back company completed onetime offer 2005 buy back certain vested outstanding stock options cash resulted tender cancellation 6383445 options conjunction buyback company recorded charge approximately 60 million including transaction related costs charge recorded charges net consolidated statements operations long term incentive plan company’s annual meeting 2005 company’s stockholders approved certain amendments gartner’s 2003 long term incentive plan “the plan” including 11 million share increase number shares available plan addition restricted stock units award available grant plan extension term plan april 19 2015 unless sooner terminated company’s board directors tender offer 2004 company completed dutch auction tender offer repurchased 168 million common shares additionally company repurchased 92 million common shares silver lake total cost share repurchases 3462 million including transaction costs 38 million terminated 200 million share repurchase program 2004 company repurchased 527825 shares common stock total cost approximately 61 million 2000 million share repurchase program cumulative basis company repurchased 13720397 shares common stock total cost 1332 million repurchase program connection 2004 dutch auction tender offer discussed board directors terminated 2000 million stock repurchase program june 2004 10stockbased compensation company awards stockbased compensation incentive employees contribute company’s longterm success historically company issued options restricted stock 2006 company made changes stock compensation strategy awarded additional types equity instruments including stocksettled stock appreciation rights restricted stock units december 31 2006 company 81million shares common stock authorized awards stockbased compensation 2003 long term incentive plan january 1 2006 company adopted statement financial accounting standards 123r “sharebased payment” “sfas 123r” interpreted sec staff accounting bulletin 107 “sab 107” accordingly company recognizing stockbased compensation expense awards granted based fair value award date grant recognized related service period net estimated forfeitures service period employee performs related services normally vesting period company adopted sfas 123r modified prospective transition method consequently prior period results restated transition method 2006 company’s reported stock compensation expense included expense related remaining unvested portion awards granted prior january 1 2006 based grant date fair value estimated accordance original provisions sfas 123 b expense related stock compensation awards granted subsequent january 1 2006 based grant date fair value estimated accordance provisions sfas 123r prior adoption sfas 123r company followed apb opinion 25 “accounting stock issued employees” “apb 25” accounting employee stock compensation applied statement financial accounting standards 123 “accounting stock issued employees” “sfas 123” disclosure purposes apb 25 intrinsic value method used account stockbased employee compensation plans expense generally recorded awards granted without intrinsic value sfas 123 disclosures include pro forma net income loss income loss per share fair valuebased method accounting used determining appropriate fair value model calculating fair value stock compensation awards requires input certain highly complex subjective assumptions including expected life stock compensation awards company’s common stock price volatility addition determining appropriate amount associated periodic expense requires management estimate rate employee forfeitures likelihood achievement certain performance targets assumptions used calculating fair value stock compensation awards associated periodic expense represent management’s best estimates involve inherent uncertainties application judgment result factors change company deems necessary future modify assumptions made use different assumptions quantity nature company’s stockbased compensation awards changes amount expense may need adjusted future stock compensation expense could materially different recorded current period november 10 2005 financial accounting standards board “fasb” issued fasb staff position fas 123r3 “transition election related accounting tax effects sharebased payment awards” company elected adopt alternative transition method provided fasb staff position calculating tax effects stockbased compensation pursuant sfas 123r alternative transition method includes simplified methods establish beginning balance additional paidin capital pool “apic pool” related tax effects employee stockbased compensation determine subsequent impact apic pool consolidated statements cash flows tax effects employee stockbased compensation awards outstanding upon adoption sfas 123r prior adoption sfas 123r company classified tax benefits resulting exercise stock options operating cash flows consolidated statements cash flows sfas 123r requires cash flows resulting tax deductions excess cumulative compensation cost recognized options exercised “excess tax benefits” classified financing cash flows year ended december 31 2006 excess tax benefits realized exercise stock options approximately 92 million company recognized approximately 167 million pretax stock compensation expense sfas 123r 2006 82 million recorded cost services product development expense 85 million recorded sga expense consolidated statement operations december 31 2006 company 326 million total unrecognized compensation cost expected recognized stockbased compensation expense remaining weightedaverage vesting period approximately 27 years stockbased compensation awards following disclosures provide information regarding company’s stockbased compensation awards classified equity awards accordance sfas 123r stock options company may grant stock options employees allow purchase shares company’s common stock options may also granted members board directors certain consultants company determines fair value stock options date grant using blackscholesmerton valuation model options vest either annually threeyear service period b fouryear vesting period 25 vesting end first year remaining 75 vesting monthly next three years options granted prior 2005 generally expire ten years grant date whereas options granted beginning 2005 generally expire seven years grant date time company issues treasury shares upon exercise stock options 2006 company recognized 79 million expense related options approximately 10 million related retirementeligible employees company received approximately 440 million cash stock option exercises 2006 summary changes stock options outstanding twelve months ended december 31 2006 follows nmnot meaningful 1 million options granted 2006 weightedaverage grant date fair value 565 per option december 31 2006 options outstanding options vested exercisable aggregate intrinsic values 1118 million 806 million respectively options exercised 2006 aggregate intrinsic value 289 million summary changes number nonvested stock options follows nmnot meaningful stock appreciation rights stocksettled stock appreciation rights “sars” settled common stock similar options permit holder participate appreciation company’s common stock sars may settled common stock employee applicable vesting criteria met gartner withhold portion common stock issued meet minimum statutory tax withholding requirements sars recipients rights gartner stockholder including voting rights right receive dividends distributions actual shares common stock issued respect award subject prior satisfaction vesting criteria relating grants 2006 company granted approximately 12 million sars executive officers company determined fair value sars date grant using blackscholesmerton valuation model sars vest ratably fouryear service period expire seven years vesting commencement date total compensation expense recognized sars approximately 10 million 2006 summary changes sars outstanding twelve months ended december 31 2006 follows december 31 2006 sars outstanding intrinsic value 62 million fair value company’s options sars estimated date grant using blackscholesmerton valuation model following weightedaverage assumptions 1 dividend yield assumption based history expectation company’s dividend payouts historically gartner paid dividends common stock 2 determination expected stock price volatility options sars granted 2006 based historical gartner common stock prices implied volatility publicly traded options gartner common stock prior 2006 company considered historical stock price volatility gartner common stock determination expected stock price volatility 3 riskfree interest rate based yield us treasury bond maturity similar expected life award 4 expected life years options sars granted 2006 based “simplified” calculation provided sab 107 simplified method determines expected life years based vesting period contractual terms set forth award made previous periods company determined expected life years based historical exercise data options vested company believes changes determination expected stock price volatility expected life years consistent fair value measurement objectives sfas 123r sab 107 applied determining fair values employee stock options sars common stock equivalents certain members board directors receive directors’ fees payable common stock equivalents cses vest immediately fair value cses determined date grant based market price company’s common stock expense recorded time grant settlement deferred member ceases director twelve months ended december 31 2006 company recognized 05 million expense related cses 2006 company awarded 29000 cses 182000 cses vested outstanding december 31 2006 restricted stock company awarded shares restricted stock employees vest subject certain service market conditions restricted share awards right vote shares receive dividends however employee may sell restricted stock still subject relevant vesting conditions company recorded compensation expense restricted stock awards 21 million twelve months ending december 31 2006 accordance sfas 123r fair value restricted stock awards determined date grant based market price company’s common stock amortized compensation expense straightline basis related vesting periods three years recent servicebased award employees receiving awards required provide consideration company rendering service december 31 2006 11000 shares servicebased restricted stock outstanding issued market value 1196 date award none vested december 31 2006 500000 shares marketbased restricted stock outstanding market value date award 1286 per share company awarded 500000 restricted shares ceo 2004 nonshareholder approved plan fourth quarter 2005 company cancelled original award issued replacement award shareholder approved plan number shares permit company take tax deduction restrictions lapse company estimated cumulative fair value award approximately 44 million using monte carlo valuation model fair value award amortized compensation expense related weightedaverage estimated life award approximately 23 years restrictions award lapse follows 300000 shares company’s common stock trades average price 20 sixty consecutive trading days ii 100000 shares company’s common stock trades average price 25 sixty consecutive trading days iii 100000 shares company’s common stock trades average price 30 sixty consecutive trading days subject ceo’s continued employment company date notwithstanding preceding sentence restrictions shall lapse full upon change control december 31 2006 none restrictions lapsed restricted stock units restricted stock units “rsus” give awardee right receive actual gartner shares restrictions lapse vesting conditions met rsu vests entitles awardee one share company’s common stock gartner withhold portion common stock issued meet minimum statutory tax withholding requirements rsu recipients rights gartner stockholder including voting rights right receive dividends distributions actual shares gartner common stock issued respect award subject prior satisfaction vesting criteria relating grants accordance sfas 123r fair value awards estimated date grant based market price company’s common stock company granted 474000 rsus executive officers early 2006 vesting subject service requirements performance condition “performancebased rsus” market price company’s common stock 1444 grant date performance condition tied 2006 sales target company’s research segment 474000 rsus granted represented target amount number rsus ultimately awarded could 0 200 target amount performance achievement reached 2006 1645 target resulting total 740250 rsus awarded performancebased rsus vest ratably approximately four years vesting commencement date expensed accelerated basis required sfas 123r 2006 company awarded 818000 rsus employees directors vest subject service requirements “servicebased rsus” accordance sfas 123r fair value awards estimated date grant based market price company’s common stock ranged 1375 1569 value awards amortized compensation expense straightline basis approximately four years vesting commencement date none performancebased servicebased rsus vested december 31 2006 compensation expense rsus approximately 52 million 2006 stockbased compensation expense per share following table presents information net income diluted income per share year ended december 31 2006 determined accordance sfas 123r compared pro forma information determined sfas 123 years ended december 31 2005 2004 thousands except per share data nanot applicable 2005 company completed offer buy back certain vested outstanding employee stock options cash see note 9 equity stock programs additional information pro forma employee compensation cost 2005 includes 262 million pro forma expense related buyback pro forma expense resulted reversal pro forma deferred tax assets established prior periods would realized pro forma purposes options tendered cancelled employee stock purchase plan 2002 shareholders approved 2002 employee stock purchase plan “2002 plan” substantially identical terms earlier plan 2002 plan eligible employees permitted purchase gartner common stock payroll deductions may exceed 10 employee’s compensation 21250 calendar year price equal 95 common stock price reported nyse end offering period prior june 1 2005 employees could purchase common stock program price equal 85 common stock price reported nyse beginning end offering period whichever lower december 31 2006 company 20 million shares available purchase 2002 plan 2002 plan considered noncompensatory sfas 123r result company record compensation expense employee share purchases company received approximately 27 million cash exercises 2006 11computation income loss per share basic earnings per share “eps” computed dividing net income loss weighted average number common shares outstanding period diluted eps reflects potential dilution securities could share earnings impact stock options stockbased compensation antidilutive excluded calculation following table sets forth reconciliation basic diluted earnings loss per share computations thousands except per share amounts 2006 2005 2004 company repurchased 149 million 08 million 266 million common shares respectively see note 9 equity stock programs following table presents number options purchase shares millions common stock included computation diluted eps effect would antidilutive periods reported income options antidilutive exercise prices greater average market value share common stock period periods reported loss options outstanding antidilutive effect 2005 2004 unvested restricted stock awards included computation diluted income loss per share effect would antidilutive 12income taxes following summary components income taxes thousands expense income taxes income consists following components thousands current longterm deferred tax assets liabilities comprised following thousands current longterm net deferred tax assets 118 million 533 million december 31 2006 118 million 566 million december 31 2005 respectively included prepaid expenses current assets consolidated balance sheets valuation allowance relates primarily foreign net operating losses domestic capital loss carryforwards foreign tax credits likely expire unutilized net decrease valuation allowance 160 million 2006 relates primarily following items release 115 million valuation allowance state local net operating losses due expected utilization result legal entity restructuring b write 113 million valuation allowance capital losses expired unutilized 1206 c increase 174 million valuation allowance foreign tax credits expected generated result irs audit exam adjustments additionally company changed presentation respect state local net operating losses state capital loss carryovers related valuation allowances change relates presenting items basis net federal benefit prior periods federal benefit presented net deferred items reduction valuation allowance related change presentation 75 million approximately 128 million valuation allowance reduce goodwill upon subsequent recognition related tax benefits associated various meta deferred tax assets company established full valuation allowance domestic realized unrealized capital losses utilization remains uncertain december 31 2006 company us federal capital loss carryforwards 205 million 52 million capital loss carryovers expire 2007 40 million expire 2008 113 million expire 2009 2010 company also 205 million state local capital loss carryforwards expire similar time period losses remain subject state utilization december 31 2006 company federal net operating loss carryforward 37 million expire next 15 20 years company also state local tax net operating loss carryforwards 3534 million 377 million expire within one five years 1036 million expire within six fifteen years 2121 million expire within sixteen twenty years addition company foreign net operating loss carryforwards 380 million 96 million expire next 20 years 284 million carried forward indefinitely december 31 2006 company also foreign tax credit carryforwards 231 million 21 million expire 6 8 years 195 million expire 9 years 15 million expire 10 years addition company federal alternative minimum tax credit carryforwards 03 million carried forward indefinitely research development credit carryforwards 03 million expire 2023 2026 differences us federal statutory income tax rate company’s effective tax rate income taxes lower effective tax rate 2006 compared 2005 attributable several items significant items include following company generated income low tax jurisdictions 2006 compared 2005 b 2006 included significant decrease valuation allowances state local net operating losses 2005 included significant increase valuation allowances foreign tax credits impact items partially offset benefits taken reduce overall tax expense 2005 relating repatriated earnings items occurred 2006 b larger benefits taken 2005 compared 2006 foreign tax credits generated c overall increase reserve needs 2006 compared overall decrease 2005 note impact various positive negative adjustments amplified lower pretax book income 2005 compared 2006 increase effective tax rate 2005 compared 2004 principally due fact company generated less income low tax jurisdictions compared prior year recorded valuation allowances capital losses foreign tax credit carryforwards impact items offset part benefits taken reduce overall tax expense repatriated earnings well reductions interest costs related tax contingencies impact various positive negative adjustments amplified lower pretax book income 2005 compared 2004 undistributed earnings subsidiaries outside us amounted approximately 121 million december 31 2006 earnings continue permanently reinvested accordingly provision us federal state income taxes provided thereon earnings could become subject additional tax distributed form dividends otherwise undistributed earnings repatriated amount additional tax payable would approximately 20 million march 2005 company repatriated approximately 520 million cash nonus subsidiaries order take advantage beneficial provisions american jobs creation act 2004 ajca company previously recorded 50 million tax expense anticipation repatriation 2005 company took account technical corrections issued treasury department result favorable provisions contained technical correction company realized tax benefit 36 million reduce cumulative charge 14 million additionally consequence application technical corrections company reevaluated ability use foreign tax credits future took charge 25 million reestablish valuation allowance foreign tax credits likely expire unused company received examination reports internal revenue service “irs” october 2005 october 2006 connection audits company’s federal income tax returns tax years ended september 30 1999 december 31 2004 irs proposed adjustments relating primarily valuation intangible assets licensed gartner foreign subsidiary calculation payments made pursuant cost sharing arrangement gartner foreign subsidiary gartner appealed initial findings reached settlement issues irs appeals office respect audits company recorded provisions prior periods based estimates amount claim would settled based outcome negotiations released reserves recorded benefit 15 million 2006 company considering future impact settlement irs examination connection implementation fasb interpretation 48 described discussed note 2 september 2006 sec staff issued sab 108 transition provisions sab 108 permit company adjust cumulative effect retained earnings immaterial errors relating prior years company adopted sab 108 effective beginning fiscal year ended december 31 2006 accordance requirements sab 108 company adjusted opening accumulated earnings 2006 accompanying consolidated financial statements various items including adjustment 107 million related overstatement current taxes payable resulting increase opening accumulated earnings 74 million 33 million increase opening additional paidin capital adjustment impact tax expense adjustment due carryover impact excess balance prior years current taxes payable account accumulated period years prior 2000 july 2006 fasb issued fasb interpretation 48 “accounting uncertainty income taxes interpretation fasb statement 109” “ fin 48” become effective company january 1 2007 interpretation prescribes recognition threshold measurement attribute financial statement recognition measurement tax positions taken expected taken tax return benefit recognized tax position must morelikelythannot sustained upon examination taxing authorities position meets morelikelythannot threshold amount recognized measured largest amount benefit greater 50 percent likely realized upon ultimate settlement 13employee benefits savings investment plan company savings investment plan covering substantially domestic employees company contributions based upon level employee contributions addition company also contributes fixed discretionary profit sharing contributions set board directors amounts expensed connection plan totaled 109 million 106 million 95 million 2006 2005 2004 respectively deferred compensation arrangement company supplemental deferred compensation arrangement benefit certain officers managers key employees plan structured rabbi trust permits participants diversify investments recognize investment assets consolidated balance sheet current fair value assets 163 million 141 million december 31 2006 2005 respectively corresponding deferred compensation liability 191 million 166 million december 31 2006 2005 respectively recorded fair market value adjusted corresponding charge credit compensation cost reflect fair value amount owed employee included liabilities total compensation expense recognized plan 03 million 02 million 03 million 2006 2005 2004 respectively defined benefit pension plans company definedbenefit pension plans several international locations benefits paid plans based years service level employee compensation company accounts material defined benefit plans accordance requirements statement financial accounting standards 87 “employers’ accounting pensions” amended sfas 87 none plans plan assets defined sfas 87 december 31 2006 company adopted fasb statement 158 “employers’ accounting defined benefit pension postretirement plans amendment fasb statements 87 88 106 132r” “sfas 158” new standard requires employer recognize statement financial position asset plan’s overfunded status liability plan’s underfunded status b measure plan’s assets obligations determine funded status end employer’s fiscal year limited exceptions c recognize changes funded status defined benefit postretirement plan year changes occur following components net periodic pension expense thousands following table provides information related changes projected benefit obligation thousands following table provides information related funded status plans amounts recognized consolidated balance sheets thousands 13 million recorded accumulated comprehensive income represents plan’s remaining unrecognized net loss december 31 2006 amount recorded accordance sfas 158 amortized net periodic pension cost approximately 8 years following table details impact adoption sfas 158 consolidated balance sheet december 31 2006 thousands assumptions used computation net periodic pension expense follows company determines weightedaverage discount rate utilizing yields longterm corporate bonds relevant country duration consistent pension obligations 14segment information company manages business three reportable segments research consulting events research consists primarily subscriptionbased research products access research inquiry well peer networking services membership programs consulting consists primarily consulting measurement engagements strategic advisory services events consists various symposia conferences exhibitions company evaluates reportable segment performance allocates resources based gross contribution margin gross contribution presented defined operating income excluding certain cost services product development sg expenses depreciation meta integration charges amortization intangibles charges certain costs included consolidated cost services product development allocated segment expense primarily web maintenance customer relationship database costs certain bonus fringe charges accounting policies used reportable segments used company earn revenue clients many countries united states individual country revenues external clients represent 10 company’s consolidated revenues additionally single client accounted 10 total revenue loss single client management’s opinion would material adverse effect revenues identify allocate assets including capital expenditures operating segment accordingly assets reported segment information available segment reviewed evaluation performance making decisions allocation resources following tables present information company’s reportable segments thousands “other” column includes certain revenues corporate expenses unallocated reportable segments expenses allocated operations meet segment reporting quantitative threshold charges intersegment revenues company’s consolidated revenues generated primarily direct sales clients domestic international sales forces network independent international sales agents revenues table reported based sale fulfilled “other international” revenues attributable areas located outside united states canada well europe middle east africa products services provided integrated worldwide basis integration products services delivery practical separate precisely revenues geographic location longlived assets exclude goodwill intangible assets accordingly separation set forth table based upon internal allocations involve certain management estimates judgments summarized information geographic location follows thousands 15valuation qualifying accounts following table provides information regarding company’s allowance doubtful accounts returns allowances thousands 16subsequent events january 31 2007 company refinanced existing borrowing arrangements see note 7debt entering new credit agreement “2007 credit agreement” 2007 credit agreement provides fiveyear 1800 million term loan 3000 million revolving credit facility may increased gartner’s option additional 1000 million total revolving credit facility 4000 million term loan repaid 18 consecutive quarterly installments commencing september 30 2007 plus final payment due january 31 2012 may prepaid time without penalty premium option gartner revolving credit facility may used loans 150 million may used letters credit revolving loans may borrowed repaid reborrowed january 31 2012 time amounts borrowed must repaid loans 2007 credit agreement bear interest rate equal gartner’s option either greatest administrative agent’s prime rate administrative agent’s rate threemonth certificates deposit adjusted statutory reserves plus 1 average rate overnight federal funds plus 12 1 plus margin equal 000 025 depending gartner’s leverage ratio end four consecutive fiscal quarters recently ended ii eurodollar rate adjusted statutory reserves plus margin equal 625 125 depending gartner’s leverage ratio end four consecutive fiscal quarters recently ended conjunction refinancing january 31 2007 gartner drew 1900 million revolving facility 1800 million term loan facility repaid 1250 million outstanding interim loan facility 2450 million outstanding existing 3250 million credit facility 1250 million interim loan facility 3250 million credit facility terminated connection gartner entering 2007 credit agreement conjunction refinancing company also terminated interest rate swap contract february 2007 company’s board directors authorized new program repurchase 2000 million gartner common stock program replaces 1000 million share repurchase program approved october 2005 repurchases made timetotime open market purchases repurchases subject availability stock prevailing market conditions trading price stock company’s financial performance conditions repurchases funded cash flow operations possible borrowings company’s 2007 credit facility signatures pursuant requirements securities exchange act 1934 registrant caused report form 10k signed behalf undersigned duly authorized stamford connecticut march 1 2007 power attorney person whose signature appears appoints eugene hall christopher lafond acting individually attorneyinfact full power substitution capacities sign amendments report form 10k file appropriate exhibits related documents securities exchange commission undersigned ratifies confirms signatures may signed attorneyinfact amendments report pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicateditem 15 exhibits financial statement schedules 1 2 consolidated financial statements schedules reports independent registered public accounting firm consolidated financial statements listed index consolidated financial statements page 29 hereof filed part report financial statement schedules listed index omitted information required applicable shown consolidated financial statements notes thereto 3 exhibits index consolidated financial statements gartner inc consolidated financial statements report independent registered public accounting firm report independent registered public accounting firm consolidated balance sheets december 31 2007 2006 consolidated statements operations years ended december 31 2007 2006 consolidated statements stockholders’ equity comprehensive income loss years ended december 31 2007 2006 2005 consolidated statements cash flows years ended december 31 2007 2006 notes consolidated financial statements financial statement schedules omitted information required applicable shown consolidated financial statements notes thereto report independent registered public accounting firm board directors stockholders gartner inc audited accompanying consolidated balance sheets gartner inc subsidiaries december 31 2007 2006 related consolidated statements operations stockholders’ equity comprehensive income loss cash flows years threeyear period ended december 31 2007 consolidated financial statements responsibility company’s management responsibility express opinion consolidated financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements referred present fairly material respects financial position gartner inc subsidiaries december 31 2007 2006 results operations cash flows years threeyear period ended december 31 2007 conformity us generally accepted accounting principles company adopted provisions statement financial accounting standards 123r “sharebased payment” staff accounting bulletin 108 “considering effects prior year misstatements current year financial statements” january 1 2006 statement financial accounting standards 158 “employers’ accounting defined benefit pension postretirement plans” december 31 2006 also audited accordance standards public company accounting oversight board united states gartner inc’s internal control financial reporting december 31 2007 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso report dated february 28 2008 expressed unqualified opinion effectiveness company’s internal control financial reporting kpmg llp new york new york february 28 2008 report independent registered public accounting firm board directors stockholders gartner inc audited gartner inc’s internal control financial reporting december 31 2007 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso gartner inc’s management responsible maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included accompanying management’s annual report internal control financial reporting responsibility express opinion company’s internal control financial reporting based audit conducted audit accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether effective internal control financial reporting maintained material respects audit included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audit also included performing procedures considered necessary circumstances believe audit provides reasonable basis opinion company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate opinion gartner inc maintained material respects effective internal control financial reporting december 31 2007 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission also audited accordance standards public company accounting oversight board united states consolidated balance sheets gartner inc december 31 2007 2006 related consolidated statements operations stockholders’ equity comprehensive income loss cash flows years threeyear period ended december 31 2007 report dated february 28 2008 expressed unqualified opinion consolidated financial statements kpmg llp new york new york february 28 2008 gartner inc consolidated balance sheets thousands except share data see notes consolidated financial statements gartner inc consolidated statements operations thousands except per share data see notes consolidated financial statements gartner inc consolidated statements stockholders’ equity comprehensive income loss thousands see notes consolidated financial statements gartner inc consolidated statements cash flows thousands see notes consolidated financial statements gartner inc notes consolidated financial statements 1summary significant accounting policies basis presentation fiscal year gartner inc “company” represents period january 1 december 31 certain prior year amounts reclassified conform current year presentation used notes terms “company” “we” “us” “our” mean gartner inc subsidiaries april 1 2005 company acquired meta group inc “meta” technology research firm purchase price approximately 1683 million excluding transaction costs approximately 81 million acquisition accounted purchase business combination consolidated financial statements include results meta date acquisition purchase price allocated net assets liabilities acquired based estimated fair values excess purchase price estimated fair value net assets acquired including identifiable intangible assets allocated goodwill principles consolidation consolidated financial statements include accounts company majorityowned subsidiaries significant intercompany transactions balances eliminated investments companies company owns less 50 ability exercise significant influence operating financial policies accounted using equity method investments company ability exercise significant influence accounted cost method accounting results operations acquisitions companies accounted using purchase method included consolidated statements operations beginning closing date acquisition use estimates company makes estimates assumptions affect reported amounts assets liabilities disclosures contingent assets liabilities dates financial statements reported amounts revenues expenses reporting periods estimates required generally accepted accounting principles united states america company’s preparation consolidated financial statements actual results could differ estimates used accounting items allowance doubtful accounts investments depreciation amortization income taxes certain accrued liabilities revenues commission expense recognition company typically enters annually renewable subscription contracts research products revenues research products deferred recognized ratably applicable contract term majority research contracts billable upon signing absent special terms granted limited basis time research contracts noncancelable nonrefundable except government contracts 30day cancellation clause produced material cancellations date exception certain government contracts permit termination contracts special billing terms company policy record entire amount contract billable fee receivable time contract signed represents legally enforceable claim corresponding amount deferred revenue government contracts permit termination company bills client full amount billable contract records receivable equal earned portion contract addition company records deferred revenue government contracts cash received deferred revenue attributable government contracts 576 million 479 million december 31 2007 2006 respectively addition december 31 2007 2006 company recognized receivables deferred revenues relating government contracts permit termination 108 million 96 million respectively billed yet collected company records commission obligation related research contracts upon signing contract amortizes corresponding deferred commission expense contract period related revenues earned consulting revenues primarily derived consulting measurement strategic advisory services paid oneday analyst engagements generated fixed fee time materials discrete projects revenues projects recognized work delivered andor services provided unbilled fees receivables associated consulting engagements 358 million december 31 2007 295 million december 31 2006 events revenues deferred recognized upon completion related symposium conference exhibition addition company defers certain costs directly related events expenses costs period related symposium conference exhibition occurs company policy defer costs primarily prepaid site production services costs incremental directly attributable specific event costs organizing producing events primarily company personnel nonevent specific expenses expensed period incurred end fiscal quarter company assesses eventbyevent basis whether expected direct costs producing scheduled event exceed expected revenues costs expected exceed revenues company records expected loss period determined revenues consist primarily fees research reprints reprint fees recognized reprint shipped cash equivalents highly liquid investments original maturities three months less classified cash equivalents carrying value investments approximates fair value based upon shortterm maturity investments maturities three months classified marketable securities property leases costs lease facilities including contractual rent concessions rent increases expensed ratably life lease expense 238 million 2007 226 million 2006 250 million 2005 property equipment leasehold improvements property equipment leasehold improvements stated cost less accumulated depreciation amortization property equipment depreciated using straightline method estimated useful lives assets leasehold improvements amortized using straightline method shorter estimated useful lives assets remaining term related leases property equipment leasehold improvements less accumulated depreciation amortization consist following thousands total depreciation expense 243 million 234 million 255 million 2007 2006 2005 respectively december 31 2007 2006 capitalized development costs internal use software 186 million 159 million respectively net accumulated amortization 124 million 101 million respectively amortization capitalized internal software development costs totaled 65 million 46 million 67 million 2007 2006 2005 respectively included depreciation consolidated statements operations intangible assets intangible assets amortized using straightline method expected useful lives customer relationships amortized five years noncompete agreements generally amortized two five years intangible assets subject amortization include following thousands aggregate amortization expense related intangible assets 21 million 108 million 102 million 2007 2006 2005 respectively estimated future amortization expense year purchased intangibles follows thousands goodwill represents excess purchase price acquired businesses estimated fair value tangible identifiable intangible net assets acquired sfas 142 “goodwill intangible assets” goodwill amortized tested impairment least annually reporting unit level reporting unit operating segment business discrete financial information prepared reviewed management impairment test reporting unit’s carrying amount exceeds estimated fair value goodwill impairment recognized extent reporting unit’s carrying amount goodwill exceeds implied fair value goodwill fair value reporting units estimated using discounted cash flows market multiples valuation techniques changes carrying amount goodwill reporting segment 2007 balance december 31 2007 follows 2007 company reduced recorded goodwill meta acquisition approximately 16 million 03 million due adjustment certain lease obligations meta acquisition recorded eitf 953 see note 5 accounts payable accrued liabilities remaining 13 million reduction primarily due release valuation allowance deferred tax asset reduced goodwill impairment longlived assets intangible assets company reviews longlived assets intangible assets goodwill impairment whenever events changes circumstances indicate carrying amount respective asset may recoverable evaluation may based number factors including current projected operating results cash flows changes management’s strategic direction well economic market variables company’s policy regarding longlived assets intangible assets goodwill evaluate recoverability assets determining whether balance recovered undiscounted future operating cash flows events circumstances indicate carrying value might recoverable based undiscounted future operating cash flows impairment loss would recognized amount impairment measured based difference projected discounted future operating cash flows using discount rate reflecting company’s average cost funds carrying value asset foreign currency translation assets liabilities foreign subsidiaries translated us dollars exchange rates effect balance sheet date resulting translation adjustments recorded foreign currency translation adjustments component accumulated comprehensive income loss net within stockholders’ equity section consolidated balance sheets income expense items translated average exchange rates year currency transaction gains losses arising transactions denominated currencies functional currency subsidiary included results operations within income expense net within consolidated statements operations net currency transaction gains losses 11 million 2007 06 million 2006 28 million 2005 time enter foreign currency forward exchange contracts derivative financial instruments offset effects adverse fluctuations foreign currency exchange rates contracts generally short maturity reflected fair value unrealized realized gains losses recorded income expense 2007 net gain loss contracts immaterial december 31 2007 company 35 foreign currency forward contracts outstanding total notional value 2260 million contracts expired january 2008 income taxes deferred tax assets liabilities recognized based differences book tax basis assets liabilities using presently enacted tax rates provision income taxes sum amount income tax paid payable year determined applying provisions enacted tax laws taxable income year net changes year deferred tax assets liabilities credit additional paidin capital realized tax benefits arising stock transactions employees tax benefit nonqualified stock option equal tax effect difference market price company’s common stock date exercise price sales taxes sales tax collected customers remitted governmental authorities presented net basis consolidated statements operations fair value financial instruments company’s financial instruments include cash equivalents fees receivable accounts payable accruals shortterm nature carrying amounts financial instruments approximate fair value company 3940 million outstanding debt december 31 2007 considered financial instrument carrying amount debt approximates fair value rate interest term loan revolver reflect current market rates interest similar instruments comparable maturities company interest rate swap agreement hedge exposure floating base interest rate term loan see note 6 debt interest rate swap negative fair value approximately 52 million december 31 2007 concentrations credit risk financial instruments potentially subject company concentrations credit risk consist primarily cash equivalents fees receivable concentrations credit risk respect fees receivable limited due large number clients comprising client base dispersion across many different industries geographic regions stock repurchase programs company records cost repurchase shares treasury stock 2007 company recorded 1691 million stock repurchases see note 8equity stock programs accounting stockbased compensation january 1 2006 company adopted statement financial accounting standards 123r “sharebased payment” “sfas 123r” interpreted sec staff accounting bulletin 107 “sab 107” stockbased compensation cost based fair value award date grant expensed related service period net forfeitures service period employee performs related services normally vesting period company adopted sfas 123r modified prospective transition method consequently prior period results restated transition method company’s reported stock compensation expense includes expense related remaining unvested portion awards granted prior january 1 2006 based grant date fair value estimated accordance original provisions sfas 123 b expense related stock compensation awards granted subsequent january 1 2006 based grant date fair value estimated accordance provisions sfas 123r prior january 1 2006 company applied apb opinion 25 “accounting stock issued employees” “apb 25” accounting employee stock compensation applied statement financial accounting standards 123 “accounting stock issued employees” “sfas 123” disclosure purposes apb 25 intrinsic value method used account stockbased employee compensation plans expense generally recorded awards intrinsic value recent accounting developments september 2006 fasb issued sfas 157 “fair value measurements” “sfas 157” establishes framework measuring fair value generally accepted accounting principles expands disclosures fair value measurements statement applies accounting pronouncements require permit fair value measurements sfas 157 effective fiscal years beginning november 15 2007 february 2007 fasb issued sfas 159 “the fair value option financial assets financial liabilities including amendment fasb statement 115” “sfas 159” sfas 159 permits entities choose measure certain financial instruments certain items fair value specified election dates fair value option elected business entity shall report unrealized gains losses elected items earnings subsequent reporting date upon initial adoption statement entity permitted elect fair value option availableforsale heldtomaturity securities previously accounted sfas 115 “accounting certain investments debt equity securities” effect reclassifying securities trading category included cumulativeeffect adjustment retained earnings currentperiod earnings separately disclosed sfas 159 effective beginning first fiscal year begins november 15 2007 december 2007 fasb issued sfas 141 revised 2007 “business combinations” “sfas 141r” replaces fasb statement 141 sfas 141r establishes principles requirements acquirer recognizes measures financial statements identifiable assets acquired liabilities assumed non controlling interest acquiree goodwill acquired business combination statement also establishes disclosure requirements enable users evaluate nature financial effects business combination sfas 141r effective beginning entity’s fiscal year begins december 15 2008 company’s fiscal year beginning january 1 2009 december 2007 fasb issued sfas 160 “noncontrolling interests consolidated financial statementamendments arb 51 “sfas 160”” sfas 160 requires accounting reporting minority interests noncontrolling interests classified component equity statement also establishes reporting requirements provide sufficient disclosures clearly identify distinguish interests parent interests noncontrolling owners sfas 160 applies entities prepare consolidated financial statements except notforprofit organizations affect entities outstanding noncontrolling interest one subsidiaries deconsolidate subsidiary statement effective beginning entity’s first fiscal year beginning december 15 2008 company’s fiscal year beginning january 1 2009 sec staff issued staff accounting bulletin “sab” 110 permits companies certain circumstances continue use simplified method calculating expected term “plain vanilla” share options originally simplified method due expire december 31 2007 company may use simplified method concludes reasonable base estimate expected term experience exercising historical share options although expiration date sab 110 sec staff believes detailed external information exercise behavior time become readily available effective date sab 110 january 1 2008 company process assessing whether continue use simplified method awards stockbased compensation january 1 2008 2other charges company recorded charges approximately 91 million 2007 included charges 87 million related litigation settlement 27 million related restructuring offsetting charges credit 23 million related excess facility 87 million charge relates settlement agreement company entered expert choice inc company’s insurance carriers settle claims causes action disputes arising litigation entitled expert choice inc v gartner inc us district court district connecticut civil docket 303cv02234 settlement agreement provided full complete mutual releases among parties dismissal litigation resolved disputes parties total amount settlement 215 million 95 million paid company aggregate 120 million paid company’s insurers company previously accrued 10 million toward settlement claim company also recorded restructuring charge 27 million termination costs related company’s decision exit consulting operations asia resulted reduction 31 consultants addition company also recorded credit approximately 23 million reduce accrual related excess facility returned service company recorded original accrual excess facility 2002 company record charges 2006 2005 company recorded charges 292 million included 107 million related workforce reductions 60 million option buyback 82 million primarily due reduction office space approximately 43 million charges reconciliation liabilities recorded charges following table summarizes activity related liabilities recorded charges consolidated statements operations thousands 1 87 million charge recorded second quarter 2007 includes 85 million settlement expert choice claim approximately 02 million related legal expenses company also recorded accrual 10 million related expert choice claim 2003 recorded selling general administrative expense condensed consolidated statements operations company paid 95 million settlement expert choice claim august 2007 excess facilities liability december 31 2007 table excludes approximately 64 million additional accrued excess facilities liability related interest accreted lease liabilities company expects remaining balance workforce reduction costs paid 2008 costs excess facilities paid leases expire 2011 company intends fund payments existing cash 3claim settlement 2007 company received cash proceeds 18 million related settlement claim 18 million recorded gain expense net consolidated statements operations 4other assets consist following thousands 5accounts payable accrued liabilities accounts payable accrued liabilities consist following thousands liabilities consist following thousands reconciliation meta purchase accounting liabilities connection meta acquisition company recorded certain liabilities purchase accounting emerging issues task force issue 953 “recognition liabilities connection purchase combination” “eitf 953” involuntary terminations leases contract terminations company expects remaining exit costs paid 2008 company uncertain time regarding timing settlement remaining tax contingencies company intends fund payments existing cash following table summarizes activity 2007 ending balance december 31 2007 dollars thousands liabilities recorded eitf 953 6debt credit arrangement january 31 2007 company refinanced thenexisting debt entered new credit arrangement provides fiveyear 1800 million term loan 3000 million revolving credit facility revolving credit facility may increased additional 1000 million discretion lenders “expansion feature” total revolving credit facility 4000 million however 1000 million expansion feature may available us depending upon prevailing credit market conditions company incurred approximately 13 million debt issuance costs related refinancing amortized interest expense term new debt conjunction refinancing company also expensed 03 million first quarter 2007 previously capitalized debt issuance costs january 31 2007 conjunction refinancing company drew 1900 million revolving facility 1800 million term loan facility new credit arrangement repaid 3700 million outstanding prior borrowing arrangements company terminated conjunction refinancing company also terminated existing interest rate swap contract resulted realized gain approximately 12 million accordance requirements sfas 133 “accounting derivative instruments hedging activities” “sfas 133” gain recorded comprehensive income amortized interest expense term loan repaid 18 consecutive quarterly installments commencing september 30 2007 plus final payment due january 31 2012 may prepaid time without penalty premium option gartner revolving credit facility may used loans 150 million may used letters credit revolving loans may borrowed repaid reborrowed january 31 2012 time amounts borrowed must repaid december 31 2007 company 1740 million outstanding term loan 2200 million outstanding revolver borrowings credit arrangement bear interest rate equal gartner’s option either greatest administrative agent’s prime rate administrative agent’s rate threemonth certificates deposit adjusted statutory reserves plus 1 average rate overnight federal funds plus 12 1 plus margin equal 000 025 depending gartner’s leverage ratio end four consecutive fiscal quarters recently ended ii eurodollar rate adjusted statutory reserves plus margin equal 625 125 depending gartner’s leverage ratio end four consecutive fiscal quarters recently ended december 31 2007 company approximately 770 million available borrowing capacity revolving credit facility including expansion feature december 31 2007 annualized interest rates term loan revolver 571 577 respectively consists threemonth libor base rate onemonth libor base rate respectively plus margin 0875 interest rate swap company interest rate swap hedges base interest rate risk term loan portion credit agreement effect swap convert floating base rate term loan fixed rate swap terms company pays 506 fixed rate return receives threemonth libor rate threemonth libor rate received swap matches base rate paid term loan since use threemonth libor swap initial notional value 1800 million declines payments made term loan amount outstanding term loan notional amount swap always equal swap notional amount 1740 million december 31 2007 outstanding amount term loan including effect interest rate swap annualized effective interest rate term loan 506 december 31 2007 company accounts swap cash flow hedge accordance sfas 133 “accounting derivative instruments hedging activities” “sfas 133” sfas 133 requires derivatives whether designated hedges recorded balance sheet fair value since swap qualifies cash flow hedge sfas 133 changes fair value swap recorded comprehensive income long swap continues effectively hedge base interest rate risk term loan ineffective portion changes fair value hedge recorded earnings december 31 2007 ineffective portion hedge defined sfas 133 letters credit company issues letters credit ordinary course business december 31 2007 company outstanding letters credit 30 million 7commitments contingencies company leases various facilities furniture computer equipment operating lease arrangements expiring 2008 2025 future minimum annual cash payments noncancelable operating lease agreements december 31 2007 follows thousands 1 excludes approximately 84 million contractual sublease rental income involved legal proceedings litigation arising ordinary course business believe potential liability excess amounts already accrued proceedings claims litigation material effect financial position results operations resolved future period company various agreements may obligate us indemnify party respect certain matters generally indemnification clauses included contracts arising normal course business customarily agree hold party harmless losses arising breach representations related matters title assets sold licensed certain intellectual property rights possible predict maximum potential amount future payments indemnification agreements due conditional nature company’s obligations unique facts particular agreement historically payments made us agreements material december 31 2007 indemnification agreements would require material payments 8equity stock programs adoption staff accounting bulletin 108 company adopted sec staff accounting bulletin 108 “considering effects prior year misstatements quantifying misstatements current year financial statements” “sab 108” effective beginning fiscal year ended december 31 2006 sab 108 provides guidance consideration effects prior year misstatements quantifying current year misstatements purpose materiality assessment sab 108 establishes approach requires quantification financial statement errors based effects company’s financial statements related financial statement disclosures accordance requirements sab 108 company adjusted opening accumulated earnings 2006 accompanying consolidated statements stockholders’ equity comprehensive income loss items described net impact adjustments increased company’s opening balance accumulated earnings 2006 approximately 32 million company considers adjustments immaterial consolidated statements operations consolidated balance sheets prior periods operating leases company recorded adjustment 07 million related correction accounting treatment certain operating leases resulting reduction opening accumulated earnings approximately 04 million net tax effect 03 million promulgated accounting principles require contractual rent concessions rent increases applied ratably life operating lease company applied requirement operating leases certain threshold resulting adjustment amount accumulating period years taxes payable company recorded adjustment 107 million related overstatement current taxes payable resulting increase opening accumulated earnings 74 million 33 million increase opening additional paidin capital adjustment impact tax expense adjustment due carryover impact excess payable balance prior years current taxes payable account accumulated period years prior 2000 stock options granted prior october 1999 prior october 1999 exercise price stock options granted employees company’s stock option plans equal average closing price company’s common stock five trading days immediately preceding grant date 2006 company determined valuation purposes exercise price closing price date grant formula used company since october 1999 accordingly company revalued options granted prior october 1999 using closing price date grant determined additional 60 million compensation expense recorded cumulative effect adjustment resulted reduction opening accumulated earnings approximately 38 million increase additional paidin capital 39 million tax effect less 01 million capital stock holders common stock entitled one vote per share matters voted stockholders company currently pay cash dividends common stock subject periodic review current policy board directors retain earnings primarily provide funds continued growth also credit arrangement contains negative covenant may limit ability pay dividends addition amended restated security holders agreement silver lake requires us obtain silver lake’s consent prior declaring paying dividends following table summarizes transactions relating company’s common stock period ending december 31 2007 200 million share repurchase program february 2007 company’s board directors authorized new program repurchase 2000 million gartner common stock program replaces 1000 million share repurchase program approved october 2005 repurchases made timetotime open market purchases repurchases subject availability stock prevailing market conditions trading price stock company’s financial performance conditions repurchases funded cash flow operations possible borrowings company’s credit facility 2007 company repurchased 8386490 shares common stock aggregate purchase price 1691 million terminated 100 million share repurchase program october 2005 company’s board directors authorized 1000 million common share repurchase program company repurchased 4517850 837800 shares common stock 2006 2005 respectively program terminated early 2007 silver lake share repurchase december 2006 company repurchased 10389610 shares common stock directly silver lake 1925 per share total aggregate purchase price 2000 million stock option buy back company completed offer 2005 buy back certain vested outstanding stock options cash resulted tender cancellation 6383445 stock options conjunction buyback company recorded charge approximately 60 million including transaction costs charge recorded charges net consolidated statements operations 9stockbased compensation company grants stockbased compensation awards incentive employees directors contribute company’s longterm success company’s stock compensation awards include stock options stocksettled stock appreciation rights common stock equivalents restricted stock service performancebased restricted stock units december 31 2007 company 72 million shares common stock authorized awards stockbased compensation 2003 long term incentive plan january 1 2006 company adopted statement financial accounting standards 123r “sharebased payment” “sfas 123r” interpreted sec staff accounting bulletin 107 “sab 107” accordingly company recognizing stockbased compensation expense awards granted based fair value award date grant recognized related service period net estimated forfeitures service period employee performs related services normally vesting period company adopted sfas 123r modified prospective transition method consequently periods prior 2006 restated transition method company’s reported stock compensation expense includes expense related remaining unvested portion awards granted prior january 1 2006 based grant date fair value estimated accordance original provisions sfas 123 b expense related stock compensation awards granted subsequent january 1 2006 based grant date fair value estimated accordance provisions sfas 123r prior adoption sfas 123r company followed apb opinion 25 “accounting stock issued employees” “apb 25” accounting employee stock compensation applied statement financial accounting standards 123 “accounting stock issued employees” “sfas 123” disclosure purposes apb 25 intrinsic value method used account stockbased employee compensation plans expense generally recorded awards granted without intrinsic value determining appropriate fair value model calculating fair value stock compensation awards requires input certain highly complex subjective assumptions including expected life stock compensation awards company’s common stock price volatility addition determining appropriate amount associated periodic expense requires management estimate rate employee forfeitures likelihood achievement certain performance targets assumptions used calculating fair value stock compensation awards associated periodic expense represent management’s best estimates involve inherent uncertainties application judgment result factors change company deems necessary future modify assumptions made use different assumptions quantity nature company’s stockbased compensation awards changes amount expense may need adjusted future stock compensation expense could materially different recorded current period november 10 2005 financial accounting standards board “fasb” issued fasb staff position fas 123r3 “transition election related accounting tax effects sharebased payment awards” company elected adopt alternative transition method provided fasb staff position calculating tax effects stockbased compensation pursuant sfas 123r alternative transition method includes simplified methods establish beginning balance additional paidin capital pool “apic pool” related tax effects employee stockbased compensation determine subsequent impact apic pool consolidated statements cash flows tax effects employee stockbased compensation awards outstanding upon adoption sfas 123r prior adoption sfas 123r company classified tax benefits resulting exercise stock options operating cash flows consolidated statements cash flows sfas 123r requires cash flows resulting tax deductions excess cumulative compensation cost recognized options exercised “excess tax benefits” classified financing cash flows company recognized following amounts stockbased compensation expense sfas 123r consolidated statement operations 2007 2006 thousands december 31 2007 company 382 million total unrecognized stockbased compensation cost expected recognized stockbased compensation expense remaining weightedaverage service period approximately 22 years year ended december 31 2007 excess tax benefits realized exercise stockbased compensation awards 148 million compared 92 million prior year currently company issues treasury shares upon exercise settlement stockbased compensation awards stockbased compensation awards following disclosures provide information regarding company’s stockbased compensation awards classified equity awards accordance sfas 123r stock options stock appreciation rights company may grant stock options employees allow purchase shares company’s common stock certain price options may also granted members board directors certain consultants company determines fair value stock options date grant using blackscholesmerton valuation model options vest annually fouryear vesting period options granted prior 2005 expire ten years grant date whereas options granted beginning 2005 generally expire seven years grant date 2007 company recognized 58 million expense related stock options company received 317 million 440 million cash stock option exercises 2007 2006 respectively summary changes stock options outstanding year ended december 31 2007 follows summary changes number unvested stock options follows stocksettled stock appreciation rights “sars” settled common shares similar options permit holder participate appreciation company’s common stock sars may settled common shares employee applicable vesting criteria met sars exercised number gartner common shares awarded calculated follows 1 total proceeds sars exercise closing price gartner common stock date exercise less exercise price sars multiplied number sars exercised divided 2 closing price gartner common stock exercise date gartner withhold portion common shares issuable upon exercise satisfy minimum statutory tax withholding requirements sars recipients rights gartner stockholder including voting rights right receive dividends distributions actual shares common stock issued respect award subject prior satisfaction vesting criteria relating grants 2007 company granted approximately 06 million sars executive officers company determined fair value sars date grant using blackscholesmerton valuation model sars vest ratably fouryear service period expire seven years grant date total compensation expense recognized sars approximately 24 million 2007 summary changes sars outstanding year ended december 31 2007 follows fair value company’s options sars estimated date grant using blackscholesmerton valuation model following weightedaverage assumptions 1 dividend yield assumption based history expectation company’s dividend payouts historically gartner paid dividends common stock 2 determination expected stock price volatility options sars granted 2007 2006 based historical gartner common stock prices implied volatility publicly traded options gartner common stock prior 2006 company considered historical stock price volatility gartner common stock determination expected stock price volatility 3 riskfree interest rate based yield us treasury security maturity similar expected life award 4 expected life years options sars granted 2007 2006 based “simplified” calculation provided sab 107 simplified method determines expected life years based vesting period contractual terms set forth award made previous periods company determined expected life years based historical exercise data options vested restricted stock restricted stock units common stock equivalents restricted stock awards give awardee right vote restricted common shares receive dividends distributions shares however awardee may sell restricted shares restrictions release shares lapsed shares released restricted stock units rsus give awardee right receive gartner common shares restrictions lapse vesting conditions met rsu vests entitles awardee one common share rsu awardees rights gartner stockholder including voting rights right receive dividends distributions common shares released common stock equivalents cses convertible gartner common shares cse entitles holder one common share certain members board directors receive directors’ fees payable cses unless opt cash payment generally cses converted service director terminates fair value restricted stock rsus cses determined date grant based market price company’s common stock fair value awards recognized compensation expense follows restricted stock awards generally vest based achievement market condition expensed straightline basis three years ii servicebased rsus vest ratably four years expensed straightline basis four years iii performancebased rsus subject performance service conditions vest ratably four years expensed accelerated basis required sfas 123r iv cses vest immediately recorded expense date grant summary changes restricted stock restricted stock units common stock equivalents year ended december 31 2007 presented table restricted stock held ceo subject achievement specified market condition follows 100000 shares vest company’s common stock trades average price 25 sixty consecutive trading days ii 100000 shares vest company’s common stock trades average price 30 sixty consecutive trading days 4 weightedaverage remaining contractual term rsus 148 years restricted stock defined contractual term stockbased compensation expense per share following table presents information net income diluted income per share years ended december 31 2007 2006 determined accordance sfas 123r compared pro forma information determined sfas 123 year ended december 31 2005 thousands except per share data nanot applicable 1 2005 company completed offer buy back certain vested outstanding employee stock options cash result pro forma employee compensation cost 2005 includes 262 million pro forma expense related buyback pro forma expense resulted reversal pro forma deferred tax assets established prior periods would realized pro forma purposes options tendered cancelled employee stock purchase plan company employee stock purchase plan “plan” eligible employees permitted purchase gartner common stock payroll deductions may exceed 10 employee’s compensation 23750 calendar year price equal 95 common stock price reported nyse end offering period december 31 2007 company 19 million shares available purchase plan considered noncompensatory sfas 123r result company record compensation expense employee share purchases company received approximately 28 million cash share purchases plan 2007 10computation income loss per share basic earnings per share “eps” computed dividing net income loss weighted average number common shares outstanding period diluted eps reflects potential dilution securities could share earnings impact stock options stockbased compensation antidilutive excluded calculation following table sets forth reconciliation basic diluted earnings loss per share computations thousands except per share amounts following table presents number options purchase shares share equivalents included computation diluted eps effect would antidilutive periods reported income options antidilutive exercise prices greater average market value share common stock period periods reported loss options outstanding antidilutive effect 11income taxes following summary components income taxes thousands expense income taxes income consists following components thousands current longterm deferred tax assets liabilities comprised following thousands current net deferred tax assets net deferred tax liabilities 78 million 49 million december 31 2007 118 million zero december 2006 respectively included prepaid expenses current assets accounts payable accrued liabilities consolidated balance sheets longterm net deferred tax assets net deferred tax liabilities 558 million 03 million december 31 2007 533 million zero december 31 2006 respectively included assets liabilities consolidated balance sheets valuation allowance relates primarily nonus net operating losses domestic capital loss carryforwards foreign tax credits likely expire unutilized net decrease valuation allowance 124 million 2007 approximately 68 million reduced income tax expense relates primarily following items release approximately 33 million valuation allowance federal capital loss carryovers due expected utilization 2007 capital gains 14 million reduced income tax expense b release approximately 37 million valuation allowance nonus net operating losses current anticipated utilization 28 million reduced income tax expense c release approximately 33 million valuation allowance changes anticipated utilization foreign tax credits reduced income tax expense approximately 76 million valuation allowance reduce goodwill upon subsequent recognition related tax benefits associated various meta deferred tax assets company established full valuation allowance domestic realized unrealized capital losses future utilization losses uncertain december 31 2007 company us federal capital loss carryforwards 108 million 54 million capital loss carryovers expire 2009 53 million expire 2010 01 million expire 2011 company also 203 million state local capital loss carryforwards expire similar time period december 31 2007 company federal net operating loss carryforwards 104 million expire next 15 20 years company also state local net operating loss carryforwards 2244 million 64 million expire within one five years 542 million expire within six fifteen years 1638 million expire within sixteen twenty years addition company nonus net operating loss carryforwards 397 million 90 million expire next 20 years 307 million carried forward indefinitely december 31 2007 company also foreign tax credit carryforwards 228 million 28 million expire 5 8 years 200 million expire 10 years differences us federal statutory income tax rate company’s effective tax rate income taxes higher effective tax rate 2007 compared 2006 attributable several items significant items includes following company generated smaller percentage income low tax jurisdictions 2007 compared 2006 b differences relating release valuation allowances changes reserves lower effective tax rate 2006 compared 2005 attributable several items significant items include following company generated larger percentage income low tax jurisdictions 2006 compared 2005 b 2006 included significant decrease valuation allowances state local net operating losses 2005 included significant increase valuation allowances foreign tax credits impact items partially offset benefits taken reduce overall tax expense 2005 relating repatriated earnings items occurred 2006 b larger benefits taken 2005 compared 2006 foreign tax credits generated c overall increase reserve needs 2006 compared overall decrease 2005 impact various positive negative adjustments amplified lower pretax book income 2005 compared 2006 undistributed earnings subsidiaries outside us amounted approximately 79 million december 31 2007 earnings continue indefinitely reinvested accordingly provision us federal state income taxes provided thereon undistributed earnings repatriated foreseeable future amount additional tax payable would immaterial number years open tax audits varies depending tax jurisdiction generally statutes major taxing jurisdictions open tax years ended september 30 1999 forward major taxing jurisdictions include us federal state united kingdom italy canada japan company received examination reports internal revenue service “irs” october 2005 october 2006 connection audits company’s federal income tax returns tax years ended september 30 1999 december 31 2004 irs proposed adjustments relating primarily valuation intangible assets licensed gartner foreign subsidiary calculation payments made pursuant cost sharing arrangement gartner foreign subsidiary gartner appealed initial findings reached settlement issues irs appeals office respect audits company recorded provisions prior periods based estimates amount claim would settled based outcome negotiations released reserves recorded benefit 15 million 2006 february 27 2008 company received official written notification case cleared irs joint committee officially closes irs audit periods company adopted sab 108 “considering effects prior year misstatements quantifying misstatements current year financial statements” effective beginning fiscal year ended december 31 2006 accordance requirements sab 108 company recorded adjustment 107 million related overstatement current taxes payable resulting increase opening accumulated earnings 74 million 33 million increase opening additional paidin capital adjustment due carryover impact excess balance prior years current taxes payable account accumulated period years prior 2000 adjustment impact tax expense company considered adjustment immaterial consolidated statements operations it’s consolidated balance sheets prior periods july 2006 fasb issued fasb interpretation 48 “accounting uncertainty income taxes” “fin 48” fin 48 interpretation fasb statement 109 “accounting income taxes” seeks reduce diversity practice associated certain aspects measurement recognition accounting income taxes addition fin 48 provides guidance derecognition classification interest penalties accounting interim periods requires expanded disclosure respect uncertainty income taxes cumulative effect applying fin 48 reported adjustment opening balance retained earnings year adoption company adopted fin 48 january 1 2007 result implementation company decreased reserves uncertain tax positions approximately 14 million decreased deferred tax assets approximately 14 million amounts offsetting adjustment beginning balance retained earnings balance sheet adoption date january 1 2007 company gross unrecognized tax benefits 251 million december 31 2007 company gross unrecognized tax benefits 181 million amount 170 million would favorably affect effective income tax rate recognized future periods reasonably possible gross unrecognized tax benefits decreased 27 million within next 12 months due primarily expiration relevant statutes limitation nature uncertainty relates tax effects intercompany charges fin 48 also requires companies reclassify uncertain tax positions expected settled within one year long term liabilities therefore upon adoption accounts payable accrued liabilities decreased approximately 196 million liabilities increased approximately 196 million december 31 2007 company liabilities 154 million related long term uncertain tax positions upon adoption fin 48 company elected accounting policy classify accrued interest penalties related unrecognized tax benefits income tax provision previously policy classify interest penalties operating expense arriving pretax income company 25 million 01 million accrued interest penalties recorded december 31 2007 2006 respectively related unrecognized tax benefits entire increase reduced net income 2007 amounts addition gross unrecognized tax benefits noted reconciliation beginning ending amount unrecognized tax benefits follows thousands 12employee benefits savings investment plan company savings investment plan covering substantially domestic employees company contributions based upon level employee contributions maximum 4 employee’s eligible salary subject annual maximum 2007 maximum match 6200 addition company also contributes least 1 employee’s base compensation subject irs annual limitation 2250 2007 amounts expensed connection plan totaled 118 million 109 million 106 million 2007 2006 2005 respectively deferred compensation arrangement company supplemental deferred compensation arrangement benefit certain highly compensated officers managers key employees structured rabbi trust classify plan’s investment assets consolidated balance sheets current fair value assets 188 million 163 million december 31 2007 2006 respectively corresponding deferred compensation liability 219 million 191 million december 31 2007 2006 respectively recorded fair market value adjusted corresponding charge credit compensation cost reflect fair value amount owed employee included liabilities consolidated balance sheets total compensation expense recognized plan 03 million 03 million 02 million 2007 2006 2005 respectively defined benefit pension plans company definedbenefit pension plans several international locations benefits paid plans based years service level employee compensation company accounts material defined benefit plans accordance requirements statement financial accounting standards 87 “employers’ accounting pensions” amended sfas 87 none plans plan assets defined sfas 87 december 31 2006 company adopted fasb statement 158 “employers’ accounting defined benefit pension postretirement plans amendment fasb statements 87 88 106 132r” “sfas 158” new standard requires employer recognize statement financial position asset plan’s overfunded status liability plan’s underfunded status b measure plan’s assets obligations determine funded status end employer’s fiscal year limited exceptions c recognize changes funded status defined benefit postretirement plan year changes occur following components net periodic pension expense year ended december 31 following table provides information related changes projected benefit obligation following table provides information related funded status plans amounts recorded consolidated balance sheets december 31 2006 adopted sfas 158 pursuant adoption recorded increase liabilities accrued pension benefits approximately 10 million increase noncurrent deferred tax assets 04 million decrease stockholders equity 06 million assumptions used computation net periodic pension expense follows company determines weightedaverage discount rate utilizing yields longterm corporate bonds relevant country duration consistent pension obligations 13segment information company manages business three reportable segments research consulting events research consists primarily subscriptionbased research products access research inquiry well peer networking services membership programs consulting consists primarily consulting measurement engagements strategic advisory services events consists various symposia conferences exhibitions company evaluates reportable segment performance allocates resources based gross contribution margin gross contribution presented defined operating income excluding certain cost services product development sga expenses depreciation meta integration charges amortization intangibles charges certain costs included consolidated cost services product development allocated segment expense primarily web maintenance customer relationship database costs certain bonus fringe charges accounting policies used reportable segments used company earn revenue clients many countries united states individual country revenues external clients represent 10 company’s consolidated revenues additionally single client accounted 10 total revenue loss single client management’s opinion would material adverse effect revenues identify allocate assets including capital expenditures operating segment accordingly assets reported segment information available segment reviewed evaluation performance making decisions allocation resources following tables present information company’s reportable segments thousands “other” column includes certain revenues corporate expenses unallocated reportable segments expenses allocated operations meet segment reporting quantitative threshold charges intersegment revenues company’s consolidated revenues generated primarily direct sales clients domestic international sales forces network independent international sales agents revenues table reported based sale fulfilled “other international” revenues attributable areas located outside united states canada well europe middle east africa products services provided integrated worldwide basis integration products services delivery practical separate precisely revenues geographic location longlived assets exclude goodwill intangible assets accordingly separation set forth table based upon internal allocations involve certain management estimates judgments summarized information geographic location follows thousands 14valuation qualifying accounts following table provides information regarding company’s allowance doubtful accounts returns allowances thousands 15subsequent events increased share repurchase authorization february 2008 board directors authorized additional 2500 million share repurchases supplement remains available 2007 2000 million repurchase authorization repurchases subject availability stock prevailing market conditions trading price stock company’s financial performance conditions program funded cash flow operations possible borrowings company also repurchased additional 694153 shares common stock total cost 108 million january 1 2008 february 8 2008 sale vision events business february 20 2008 company announced contracted sell vision events portfolio events sale expected close first quarter 2008 2007 vision events business generated revenue approximately 210 million hosted 16 events business employs 47 associates gartner account vision events transaction discontinued operation beginning first quarter 2008 signatures pursuant requirements securities exchange act 1934 registrant caused report form 10k signed behalf undersigned duly authorized stamford connecticut february 28 2008 power attorney person whose signature appears appoints eugene hall christopher lafond acting individually attorneyinfact full power substitution capacities sign amendments report form 10k file appropriate exhibits related documents securities exchange commission undersigned ratifies confirms signatures may signed attorneyinfact amendments report pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated name title date eugene hall eugene hall director chief executive officer principal executive officer february 28 2008 christopher j lafond christopher j lafond executive vice president chief financial officer principal financial accounting officer february 28 2008item 15 exhibits financial statement schedules 1 2 consolidated financial statements schedules reports independent registered public accounting firm consolidated financial statements listed index consolidated financial statements herein filed part report financial statement schedules listed index omitted information required applicable shown consolidated financial statements notes thereto 3 exhibits index consolidated financial statements gartner inc consolidated financial statements report independent registered public accounting firm report independent registered public accounting firm consolidated balance sheets december 31 2010 2009 consolidated statements operations years ended december 31 2010 2009 2008 consolidated statements stockholders’ equity deficit comprehensive income loss years ended december 31 2010 2009 2008 consolidated statements cash flows years ended december 31 2010 2009 2008 notes consolidated financial statements financial statement schedules omitted information required applicable shown consolidated financial statements notes thereto report independent registered public accounting firm board directors stockholders gartner inc audited accompanying consolidated balance sheets gartner inc subsidiaries company december 31 2010 2009 related consolidated statements operations stockholders’ equity deficit comprehensive income loss cash flows years threeyear period ended december 31 2010 consolidated financial statements responsibility company’s management responsibility express opinion consolidated financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements referred present fairly material respects financial position gartner inc subsidiaries december 31 2010 2009 results operations cash flows years threeyear period ended december 31 2010 conformity us generally accepted accounting principles also audited accordance standards public company accounting oversight board united states company’s internal control financial reporting december 31 2010 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso report dated february 15 2011 expressed unqualified opinion effectiveness company’s internal control financial reporting kpmg llp new york new york february 15 2011 report independent registered public accounting firm board directors stockholders gartner inc audited gartner inc subsidiaries’ company internal control financial reporting december 31 2010 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso company’s management responsible maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included accompanying management’s annual report internal control financial reporting responsibility express opinion company’s internal control financial reporting based audit conducted audit accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether effective internal control financial reporting maintained material respects audit included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audit also included performing procedures considered necessary circumstances believe audit provides reasonable basis opinion company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate opinion company maintained material respects effective internal control financial reporting december 31 2010 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission also audited accordance standards public company accounting oversight board united states consolidated balance sheets gartner inc subsidiaries december 31 2010 2009 related consolidated statements operations stockholders’ equity deficit comprehensive income loss cash flows years threeyear period ended december 31 2010 report dated february 15 2011 expressed unqualified opinion consolidated financial statements kpmg llp new york new york february 15 2011 gartner inc consolidated balance sheets thousands except share data see notes consolidated financial statements gartner inc consolidated statements operations thousands except per share data see notes consolidated financial statements gartner inc consolidated statements stockholders’ equity deficit comprehensive income loss thousands see notes consolidated financial statements gartner inc consolidated statements cash flows thousands see notes consolidated financial statements gartner inc notes consolidated financial statements 1 business significant accounting policies business gartner inc global information technology research advisory company founded 1979 headquarters stamford connecticut gartner inc delivers principal products services three business segments research consulting events basis presentation accompanying consolidated financial statements prepared accordance generally accepted accounting principles united states america “us gaap” defined financial accounting standards board fasb accounting standards codification topic 270 financial information applicable instructions us securities exchange commission “sec” regulation sx fiscal year gartner inc “company” represents period january 1 december 31 used notes terms “gartner” “company” “we” “us” “our” mean gartner inc consolidated subsidiaries references 2010 2009 2008 relate fiscal year unless otherwise indicated december 2009 acquired amr research inc “amr research” burton group inc “burton group” results businesses included operating results beginning respective dates acquisition see note 2 acquisitions principles consolidation consolidated financial statements include accounts company whollyowned subsidiaries significant intercompany transactions balances eliminated use estimates preparation accompanying consolidated financial statements requires management make estimates assumptions future events estimates underlying assumptions affect amounts assets liabilities reported disclosures contingent assets liabilities reported amounts revenues expenses estimates include valuation accounts receivable goodwill intangible assets longlived assets well tax accruals liabilities addition estimates used revenue recognition income tax expense performancebased compensation charges depreciation amortization allowance losses management believes use estimates accompanying consolidated financial statements reasonable management continuously evaluates revises estimates using historical experience factors including general economic environment actions may take future adjust estimates facts circumstances dictate however estimates may involve significant uncertainties judgments cannot determined precision addition estimates based best judgment point time result differences estimates actual results could material would reflected company’s consolidated financial statements future periods subsequent events company evaluated potential impact subsequent events consolidated financial statements herein date filing annual report form 10k see note 17 subsequent events regarding secondary offering company’s shares revenues revenue recognized accordance us gaap sec staff accounting bulletin 101 revenue recognition financial statements “sab 101” sec staff accounting bulletin 104 revenue recognition “sab 104” revenues recognized required recognition criteria met consolidated statement operations present revenues net sales valueadded taxes collect customers remit government authorities company’s revenues significant source follows research revenues generally derived annual subscription contracts research products revenues deferred recognized ratably applicable contract term company typically enters annually renewable subscription contracts research products reprint fees recognized reprint shipped majority research contracts billable upon signing absent special terms granted limited basis time research contracts noncancelable nonrefundable except government contracts may cancellation fiscal funding clauses produced material cancellations date policy record entire amount contract billable fee receivable time contract signed corresponding amount deferred revenue since contract represents legally enforceable claim government contracts permit cancellation historically recorded fees receivables extent amounts earned deferred revenue extent cash received september 30 2010 based analysis historic contract cancellations determined likelihood cancellations remote accordingly date record entire billable contract amount fees receivable time contract signed corresponding amount deferred revenue consistent contracts change estimate immaterial impact consulting revenues primarily derived consulting measurement strategic advisory services paid oneday analyst engagements principally generated fixed fee time materials engagements revenues projects recognized work delivered andor services provided unbilled fees receivable associated consulting engagements 294 million december 31 2010 300 million december 31 2009 revenues related contract optimization contracts contingent nature recognized upon satisfaction conditions related payment events revenues deferred recognized upon completion related symposium conference exhibition addition company defers certain costs directly related events expenses costs period related symposium conference exhibition occurs company policy defer costs primarily prepaid site production services costs incremental directly attributable specific event costs organizing producing events primarily company personnel nonevent specific expenses expensed period incurred end fiscal quarter company assesses eventbyevent basis whether expected direct costs producing scheduled event exceed expected revenues costs expected exceed revenues company records expected loss period determined uncollectible fees receivable company maintains allowance losses composed bad debt allowance sales reserve provisions charged earnings either reduction revenues increase expense amount allowance losses based historical loss experience aging outstanding receivables assessment current economic conditions financial health specific clients cost services product development “cos” cos expense includes direct costs incurred creation delivery products services selling general administrative “sga” sga expense includes direct indirect selling costs general administrative costs commission expense company records commission obligations upon signing contracts amortizes corresponding deferred commission expense estimated period related revenues earned commission expense included sga consolidated statements operations stockbased compensation expense company accounts stockbased compensation accordance fasb asc topics 505 718 interpreted sec staff accounting bulletins 107 “sab 107” 110 “sab 110” stockbased compensation cost based fair value award date grant expensed related service period net estimated forfeitures service period employee performs related services normally vesting period 2010 2009 2008 company recognized 326 million 261 million 207 million respectively stockbased compensation expense see note 9 stockbased compensation recorded cos sga consolidated statements operations income tax expense provision income taxes sum amount income tax paid payable year determined applying provisions enacted tax laws taxable income year net changes year deferred tax assets liabilities deferred tax assets liabilities recognized based differences book tax basis assets liabilities using presently enacted tax rates credit additional paidin capital realized tax benefits arising stock transactions employees tax benefit nonqualified stock option equal tax effect difference market price common stock date exercise price cash equivalents highly liquid investments original maturities three months less classified cash equivalents carrying value investments approximates fair value based upon shortterm maturity investments maturities three months classified marketable securities interest earned investments classified interest income consolidated statements operations property equipment leasehold improvements company leases facilities certain equipment leases classified operating leases accordance fasb asc topic 840 cost operating leases including contractual rent increases rent concessions landlord incentives recognized ratably life related lease agreement lease expense 235 million 2010 225 million 2009 2008 equipment leasehold improvements fixed assets owned company recorded cost less accumulated depreciation depreciated using straightline method estimated useful lives assets leasehold improvements amortized using straightline method shorter estimated useful lives assets remaining term related leases company total depreciation expense 253 million 254 million 259 million 2010 2009 2008 respectively property equipment leasehold improvements less accumulated depreciation amortization consist following thousands company capitalizes certain costs incurred develop internal use software accordance fasb asc topic 350 december 31 2010 2009 capitalized development costs internal use software 143 million 161 million respectively net accumulated amortization 237 million 204 million respectively amortization capitalized internal software development costs classified depreciation consolidated statements operations totaled 79 million 83 million 74 million 2010 2009 2008 respectively company’s corporate headquarters located approximately 213000 square feet leased office space three buildings located stamford connecticut stamford facility accommodates research analysis marketing sales client support production corporate services executive offices administration april 2010 company entered new 15 year lease agreement facility new lease grants company three options renew fair market value five years option purchase facility fair market value accordance fasb asc topic 840 company accounts new stamford lease operating lease arrangement total minimum payments company obligated pay lease including contractual escalation clauses reduced rents renovation period expensed straightline basis lease term december 31 2010 total minimum lease payments noncancelable lease agreement 845 million terms new stamford lease landlord provide 250 million used renovate three buildings parking areas comprising facility renovation work occur 2011 2012 contractual amount due landlord recorded tenant improvement allowance assets deferred rent liabilities consolidated balance sheets renovation work progresses payments received landlord tenant improvement receivable relieved leasehold improvement assets recorded property equipment leasehold improvements leasehold improvement assets amortized depreciation expense useful lives beginning assets placed service amount recorded deferred rent amortized reduction rent expense sga straightline basis term lease year ended december 31 2010 approximately 10 million deferred rent balance amortized rent expense intangible assets intangible assets amortized using straightline method expected useful lives intangible assets subject amortization include following thousands intangible assets amortized earnings following period aggregate amortization expense intangible assets 105 million 16 million 16 million 2010 2009 2008 respectively estimated future amortization expense year purchased intangibles follows thousands goodwill represents excess purchase price acquired businesses estimated fair value tangible identifiable intangible net assets acquired evaluation goodwill performed accordance fasb asc topic 350 requires annual assessment potential goodwill impairment reporting unit level reporting unit operating segment business discrete financial information prepared reviewed management impairment test reporting unit’s carrying amount exceeds estimated fair value goodwill impairment recognized extent reporting unit’s carrying amount goodwill exceeds implied fair value goodwill fair value reporting units estimated using discounted cash flows market multiples valuation techniques following table presents changes carrying amount goodwill reporting segment two years ended december 31 2010 thousands 1 company recorded charges goodwill impairment since adoption current goodwill impairment rules january 1 2002 accordingly company considers goodwill amount december 31 2008 gross amount goodwill 2 includes impact foreign currency translation certain immaterial goodwill adjustments impairment longlived assets intangible assets company reviews longlived assets intangible assets goodwill impairment whenever events changes circumstances indicate carrying amount respective asset may recoverable evaluation may based number factors including current projected operating results cash flows changes management’s strategic direction well external economic market factors company’s policy regarding longlived assets intangible assets goodwill evaluate recoverability assets determining whether balance recovered undiscounted future operating cash flows events circumstances indicate carrying value might recoverable based undiscounted future operating cash flows impairment loss would recognized amount impairment measured based difference projected discounted future operating cash flows using discount rate reflecting company’s average cost funds carrying value asset pension obligations company definedbenefit pension plans three international locations see note 14 employee benefits earned plans generally based years service level employee compensation company accounts defined benefit plans accordance requirements fasb asc topic 715 company determines periodic pension expense related liabilities plans actuarial assumptions valuations company recognized 24 million 22 million 22 million expense plans 2010 2009 2008 respectively company classifies pension expense sga consolidated statements operations foreign currency exposure assets liabilities foreign subsidiaries translated us dollars exchange rates effect balance sheet date resulting translation adjustments recorded foreign currency translation adjustments component accumulated comprehensive income loss net within stockholders’ equity section consolidated balance sheets income expense items translated average exchange rates year currency transaction gains losses arising transactions denominated currencies functional currency subsidiary included results operations income expense net within consolidated statements operations net currency transaction losses gains 48 million 36 million 09 million 2010 2009 2008 respectively enter foreign currency forward exchange contracts offset effects adverse fluctuations foreign currency exchange rates contracts generally short duration recorded fair value unrealized realized gains losses recorded income expense net gain loss contracts 28 million 07 million 06 million 2010 2009 2008 respectively fair value disclosures company’s fair value disclosures included note 13 fair value disclosures concentrations credit risk assets may subject company concentration credit risk consist primarily shortterm highly liquid investments classified cash equivalents accounts receivable interest rate swaps pension reinsurance asset majority company’s cash equivalent investments interest rate swap contract investment grade commercial banks participants company’s 2010 credit agreement accounts receivable balances deemed collectible customers limited concentration credit risk due diverse customer base geographic dispersion company’s pension reinsurance asset see note 14 employee benefits maintained large international insurance company rated investment grade december 31 2010 stock repurchase programs company records cost repurchase shares treasury stock 2010 2009 2008 company recorded 998 million 37 million 1986 million respectively stock repurchases see note 8equity shares repurchased company added treasury shares retired recent accounting developments january 2010 fasb issued asu 201006 “fair value measurements disclosures” asu 201006 requires fair value hierarchy disclosures disaggregated class assets liabilities class often subset assets liabilities within line item balance sheet addition significant transfers levels 1 2 fair value hierarchy required disclosed additional disclosure requirements became effective january 1 2010 general gartner anticipate transfers different levels fair value hierarchy twelve months ended december 31 2010 none required fair value disclosures presented note 13 fair value disclosures beginning january 1 2011 fasb also require additional disclosures regarding changes level 3 instruments september 2009 fasb issued asu 200913 “revenue arrangements multiple deliverables” asu 200913 requires companies allocate revenue arrangements involving multiple deliverables based estimated selling price deliverable even though deliverables sold separately either company vendors asu 200913 eliminates requirement undelivered elements must objective reliable evidence fair value company recognize portion overall arrangement fee attributable items already delivered result new guidance expected allow companies recognize revenue transactions involve multiple deliverables earlier current requirements asu 200913 effective company beginning first quarter fiscal year 2012 early adoption permitted 2 acquisitions december 2009 company acquired outstanding shares amr research burton group total 1177 million cash company’s consolidated results include operating results businesses beginning respective acquisition dates september 2010 company finalized allocation purchase price related acquisitions resulting immaterial adjustments recorded goodwill company recorded 79 million acquisition integration expenses related acquisitions 2010 29 million 2009 included charges legal fees consultant fees connection acquisition integration well severance costs related redundant headcount company received contractual indemnifications selling shareholders amr research burton group certain preacquisition liabilities company estimated 61 million accordance fasb asc topic 805 company recorded 61 million indemnification receivable prepaid expenses current assets 61 million liability accrued liabilities included purchase price allocation separately portion sale proceeds placed escrow account pending resolution preacquisition liabilities 2010 company paid 51 million settle preacquisition liabilities received reimbursement escrow account amount result settlement liabilities impact company’s results operations cash flows recorded goodwill company believes remaining 10 million recorded accrued liabilities reasonable estimate amount necessary satisfy remaining liabilities fully reimbursable escrow account 3 discontinued operations 2008 company sold vision events business part company’s events segment company realized net cash proceeds sale 78 million recorded net gain sale approximately 71 million deducting direct costs sell charge 18 million allocated events segment goodwill related tax charges results operations business gain sale recorded income discontinued operations net taxes consolidated statements operations 4 assets consist following thousands 1 represents contractual amounts receivable stamford headquarters renovation 5 accounts payable accrued liabilities accounts payable accrued liabilities consist following thousands liabilities consist following thousands 1 represents deferred rent company’s stamford lease 6 debt 2010 credit agreement december 22 2010 company entered new credit facility “2010 credit agreement” syndication banks led jpmorgan chase take advantage favorable financing conditions obtain greater financial flexibility liquidity larger revolving credit facility 2010 credit agreement provides fiveyear 2000 million term loan 4000 million revolving credit facility addition 2010 credit agreement contains expansion feature term loan revolving credit facility may increased company’s option certain conditions additional 1500 million aggregate company paid 48 million debt issuance costs 2010 related refinancing capitalized amortized interest expense term 2010 credit agreement december 22 2010 company drew 2000 million term loan facility 1000 million revolving credit facility used repay amounts outstanding company’s prior credit arrangement terminated connection refinancing end december 2010 company repaid 800 million amount drawn revolving credit facility future amounts drawn revolving credit facility used general working capital purposes term loan repaid 19 consecutive quarterly installments commencing march 31 2011 plus final payment due december 22 2015 may prepaid time without penalty premium company’s option revolving credit facility may used loans 400 million may used letters credit revolving loans may borrowed repaid reborrowed december 22 2015 time amounts borrowed must repaid amounts borrowed 2010 credit agreement bear interest rate equal company’s option either greatest administrative agent’s prime rate average rate overnight federal funds plus 12 1 eurodollar rate adjusted statutory reserves plus 1 case plus margin equal 050 125 depending company’s leverage ratio end four consecutive fiscal quarters recently ended ii eurodollar rate adjusted statutory reserves plus margin equal 150 225 depending company’s leverage ratio end four consecutive fiscal quarters recently ended 2010 credit agreement contains certain customary restrictive loan covenants including among others financial covenants requiring maximum leverage ratio minimum interest expense coverage ratio covenants limiting company’s ability incur indebtedness grant liens make acquisitions acquired dispose assets pay dividends repurchase stock make capital expenditures make investments enter certain transactions affiliates company full compliance covenants december 31 2010 following table provides information regarding company’s borrowings december 2010 company recorded certain incremental pretax charges due termination prior credit arrangement charges would recognized expenses 2011 accounting rules required accelerated recognition 2010 accelerated pretax charges included 33 million deferred losses interest rate swap contracts recorded comprehensive income oci 04 million writeoff portion capitalized debt issuance costs resulting extinguishment previous longterm indebtedness accordance fasb asc topic 815 deferral amounts oci longer permitted since forecasted interest payments related previous debt would occur debt issuance interest rate swap charges recorded interest expense consolidated statements operations interest rate swap hedge december 22 2010 company entered 2000 million notional fixedforfloating interest rate swap contract designated hedge forecasted interest payments company’s variable rate borrowings swap terms company pays base fixed rate 226 return receives threemonth eurodollar base rate company accounts interest rate swap cash flow hedge accordance fasb asc topic 815 since swap hedging forecasted interest payments changes fair value swap recorded oci long swap continues highly effective hedge designated interest rate risk ineffective portion change fair value hedge recorded earnings december 31 2010 ineffective portion hedge interest rate swap negative fair value company 21 million december 31 2010 recorded oci net tax effect letters credit company issues letters credit related guarantees ordinary course business december 31 2010 2009 company outstanding letters credit guarantees approximately 47 million 42 million respectively 7 commitments contingencies company leases various facilities furniture computer equipment operating lease arrangements expiring 2011 2027 future minimum annual cash payments noncancelable operating lease agreements december 31 2010 follows thousands 1 excludes 250 million contractual payments receivable leasehold improvements company’s stamford headquarters lease see property equipment leasehold improvements note 1 business significant accounting policies additional discussion 2 excludes approximately 25 million contractual sublease rental income involved various legal proceedings litigation arising ordinary course business outcome individual matters predictable time however believe ultimate resolution matters considering amounts already accrued insurance coverage material adverse effect financial position results operations cash flows future periods company various agreements may obligate us indemnify party respect certain matters generally indemnification clauses included contracts arising normal course business customarily agree hold party harmless losses arising breach representations related matters title assets sold licensed certain intellectual property rights possible predict maximum potential amount future payments indemnification agreements due conditional nature company’s obligations unique facts particular agreement historically payments made us agreements material december 31 2010 indemnification agreements would require material payments company received cash proceeds 12 million 2008 related settlement litigation matter recorded gain expense income net consolidated statements operations 8 equity common stock holders gartner’s common stock par value 0005 per share “common stock” entitled one vote per share matters voted stockholders company currently pay cash dividends common stock also credit arrangement contains negative covenant may limit ability pay dividends following table summarizes transactions relating common stock three years’ ending december 31 2010 share repurchase program company 5000 million share repurchase program 4819 million remained available share repurchases december 31 2010 5000 million share repurchase program approved company’s board directors third quarter 2010 replaced company’s prior repurchase program largely expended repurchases may made timetotime open market purchases private transactions tender offers transactions amount timing repurchases subject availability stock prevailing market conditions trading price stock company’s financial performance conditions repurchases may also made timetotime connection settlement company’s sharedbased compensation awards repurchases funded cash flow operations borrowings 2010 2009 2008 company recorded 998 million 37 million 1986 million respectively common stock repurchases 9 stockbased compensation company grants stockbased compensation awards incentive employees directors contribute company’s longterm success company currently awards stocksettled stock appreciation rights service performancebased restricted stock units common stock equivalents december 31 2010 company approximately 70 million shares common stock available awards stockbased compensation 2003 longterm incentive plan company accounts stockbased compensation accordance fasb asc topics 505 718 interpreted sec staff accounting bulletins 107 “sab 107” 110 “sab 110” stockbased compensation expense based fair value award date grant recognized related service period net estimated forfeitures service period related service performed generally vesting period present time company issues treasury shares upon exercise release settlement stockbased compensation awards determining appropriate fair value model calculating fair value stock compensation awards requires input certain highly complex subjective assumptions including expected life stock compensation awards common stock price volatility addition determining appropriate amount associated periodic expense requires management estimate amount employee forfeitures likelihood achievement certain performance targets assumptions used calculating fair value stock compensation awards associated periodic expense represent management’s best estimates involve inherent uncertainties application judgment result factors change company deems necessary future modify assumptions made use different assumptions quantity nature company’s stockbased compensation awards changes amount expense may need adjusted future stock compensation expense could materially different recorded current period company recognized following amounts stockbased compensation expense millions year ended december 31 stockbased compensation millions recognized follows consolidated statements operations year ended december 31 december 31 2010 company 457 million total unrecognized stockbased compensation cost expected recognized stockbased compensation expense remaining weightedaverage service period approximately 18 years stockbased compensation awards following disclosures provide information regarding company’s stockbased compensation awards classified equity awards accordance fasb asc topic 505 stock appreciation rights stocksettled stock appreciation rights sars settled common shares similar stock options permit holder participate appreciation common stock sars may settled shares common stock employee applicable vesting criteria met sars vest ratably fouryear service period expire seven years grant date fair value sars awards recognized compensation expense straightline basis four years sars awarded company’s executive officers sars exercised number shares common stock issued calculated follows 1 total proceeds sars exercise calculated closing price common stock date exercise less exercise price sars multiplied number sars exercised divided 2 closing price common stock exercise date company withholds portion shares common stock issued upon exercise satisfy minimum statutory tax withholding requirements sars recipients rights gartner stockholder including voting rights right receive dividends distributions actual shares common stock issued respect award subject prior satisfaction vesting criteria relating grants following table provides summary changes sars outstanding year ended december 31 2010 fair value sars grants determined date grant using blackscholesmerton valuation model following weightedaverage assumptions years ended december 31 1 dividend yield assumption based history expectation company’s dividend payouts historically gartner paid cash dividends common stock 2 determination expected stock price volatility based historical common stock prices implied volatility publicly traded options common stock 3 riskfree interest rate based yield us treasury security maturity similar expected life award 4 expected life years based “simplified” calculation provided sab 107 simplified method determines expected life years based vesting period contractual terms set forth award made company continues use simplified method awards stockbased compensation since necessary historical exercise forfeiture data determine expected life sars permitted sab 110 restricted stock restricted stock units common stock equivalents restricted stock awards give awardee right vote receive dividends distributions shares however awardee may sell restricted shares restrictions release shares lapsed shares released restricted stock units rsus give awardee right receive shares common stock vesting conditions met restrictions lapse rsu vests entitles awardee one common share rsu awardees rights gartner stockholder including voting rights right receive dividends distributions common shares released common stock equivalents cses convertible common stock cse entitles holder one common share members board directors receive directors’ fees payable cses unless opt receive 50 fees cash generally cses converted service director terminates unless director elected accelerated release fair value restricted stock rsus cses determined date grant based closing price common stock reported new york stock exchange date fair value awards recognized compensation expense follows restricted stock awards vest based achievement market condition expensed straightline basis approximately three years ii servicebased rsus vest ratably four years expensed straightline basis four years iii performancebased rsus subject performance service conditions vest ratably four years expensed accelerated basis iv cses vest immediately recorded expense date grant summary changes restricted stock rsus cses year ended december 31 2010 follows 1 16 million rsus granted 2010 consisted 09 million performancebased rsus awarded executives 07 million servicebased rsus awarded nonexecutive employees certain board members number performancebased rsus granted subject achievement performance condition tied annual increase company’s subscriptionbased contract value 2010 ranged 0 200 target number depending performance level achieved aggregate performancebased rsu target 2010 05 million shares actual performance target achieved 2010 approximately 174 resulting grant 09 million performancebased rsus 2 cses represent fees paid directors cses vest granted convertible common shares director leaves board directors earlier director elects accelerate release 3 restricted shares held company’s ceo vested fourth quarter 2010 designated market conditions achieved remaining unamortized cost shares 4 weightedaverage remaining contractual term rsus 11 years cses defined contractual term stock options historically company granted stock options employees allowed purchase shares common stock certain price company made stock option grants since 2006 outstanding options fully vested remaining unamortized cost company received approximately 207 million 122 million 420 million cash option exercises twelve months ended december 31 2010 2009 2008 respectively following table provides summary changes stock options outstanding year ended december 31 2010 employee stock purchase plan company employee stock purchase plan “espp plan” eligible employees permitted purchase common stock payroll deductions may exceed 10 employee’s compensation 23750 calendar year price equal 95 closing price common stock reported new york stock exchange end offering period december 31 2010 company approximately 14 million shares available purchase espp plan espp plan considered noncompensatory fasb asc topic 718 result company record compensation expense related employee share purchases company received 28 million cash share purchases espp plan 2010 27 million 2009 2008 10 computation earnings per share basic earnings per share “eps” computed dividing net income weighted average number shares common stock outstanding period diluted eps reflects potential dilution securities could share earnings impact common share equivalents antidilutive excluded calculation following table sets forth reconciliation basic diluted earnings per share computations thousands except per share amounts years ended december 31 following table presents number common share equivalents included computation diluted eps table effect would antidilutive periods reported income common share equivalents antidilutive exercise price greater average market value share common stock period periods reported loss common share equivalents would antidilutive effect 11 income taxes following summary components income taxes years ended december 31 thousands expense income taxes income consists following components thousands current longterm deferred tax assets liabilities comprised following thousands current net deferred tax assets current net deferred tax liabilities 284 million 04 million december 31 2010 190 million 12 million december 31 2009 respectively included prepaid expenses current assets accounts payable accrued liabilities consolidated balance sheets longterm net deferred tax assets longterm net deferred tax liabilities 212 million 00 million december 31 2010 295 million 01 million december 31 2009 respectively included assets liabilities consolidated balance sheets likely results future operations generate sufficient taxable income realize deferred tax assets valuation allowances 2010 relate primarily nonus net operating losses domestic capital loss carryforwards likely expire unutilized valuation allowances 2009 relate primarily items well domestic foreign tax credits net decrease valuation allowance 171 million 2010 relates primarily following items release approximately 60 million valuation allowance changes actual anticipated utilization foreign tax credits b release approximately 54 million valuation allowance changes actual anticipated utilization foreign net operating losses c release approximately 55 million valuation allowance federal state capital loss carryovers company established full valuation allowance domestic realized unrealized capital losses future utilization losses uncertain december 31 2010 company us federal capital loss carryforwards 21 million majority expire 2012 company also 21 million state local capital loss carryforwards expire similar period time december 31 2010 company state local tax net operating loss carryforwards 1545 million 54 million expire within one five years 1100 million expire within six fifteen years 391 million expire within sixteen twenty years addition company nonus net operating loss carryforwards 290 million 33 million expire next 20 years 257 million carried forward indefinitely december 31 2010 company also foreign tax credit carryforwards 43 million majority expire 2018 differences us federal statutory income tax rate company’s effective tax rate income taxes years ended december 31 follow december 31 2010 december 31 2009 company gross unrecognized tax benefits 158 million 138 million respectively increase primarily attributable uncertainties surrounding utilization certain carryforward attributes reasonably possible gross unrecognized tax benefits decreased 01 million within next 12 months due primarily anticipated settlements expiration certain statutes limitation company classifies uncertain tax positions expected settled within one year long term liabilities december 31 2010 december 31 2009 company liabilities 157 million 135 million respectively related long term uncertain tax positions company records accrued interest penalties related unrecognized tax benefits income tax provision december 31 2010 december 31 2009 company 38 million 28 million accrued interest penalties respectively related unrecognized tax benefits amounts addition gross unrecognized tax benefits noted total amount interest penalties recognized consolidated statements operations years ending december 31 2010 2009 10 million 05 million respectively following reconciliation beginning ending amount unrecognized tax benefits excluding interest penalties years ending december 31 thousands 2010 company repatriated approximately 850 million foreign subsidiaries cash cost repatriation offset utilization foreign tax credits capital loss carryovers number years open statutes limitation varies depending tax jurisdiction generally company’s statutes open tax years ended december 31 2006 forward major taxing jurisdictions include us federal state united kingdom germany italy canada japan netherlands ireland internal revenue service “irs” completed examination federal income tax return company tax year ended december 31 2007 december 2010 company received report audit findings company disagrees certain proposed adjustments intends vigorously dispute matter applicable irs judicial procedures appropriate company believes recorded reserves sufficient cover exposures related issues however resolution matters involves uncertainties assurances ultimate resolution exceed amounts recorded although final resolution proposed adjustments uncertain believe ultimate disposition matter material adverse effect consolidated financial position cash flows results operations december 31 2010 company undistributed earnings subsidiaries outside united states accordingly provision united states federal state income taxes provided thereon 12 derivatives hedging company enters limited number derivative contracts offset potentially negative economic effects interest rate foreign exchange movements company accounts outstanding derivative contracts accordance fasb asc topic 815 requires derivatives include derivatives designated accounting hedges recorded balance sheet fair value following tables provide information regarding company’s outstanding derivatives contracts twelve months ended thousands except number outstanding contracts december 31 2010 december 31 2009 1 changes fair value swap recognized earnings beginning third quarter 2010 swap previously designated cash flow hedge forecasted interest payments company’s debt result changes fair value recorded oci net tax effect hedge accounting interest rate swap discontinued third quarter 2010 december 2010 company refinanced debt result remaining deferred losses previously recorded oci charged expense see note 6 debt swap matures january 2012 2 changes fair value swap recognized earnings beginning third quarter 2009 swap previously designated cash flow hedge forecasted interest payments company’s debt result changes fair value recorded oci net tax effect hedge accounting interest rate swap discontinued third quarter 2009 december 2010 company refinanced debt result remaining deferred losses previously recorded oci charged expense see note 6 debt swap matures january 2012 3 company entered swap december 22 2010 company designated accounts swap cash flow hedge forecasted interest payments borrowings see note 6 debt 4 company foreign exchange transaction risk since typically enters transactions normal course business denominated foreign currencies differ local functional currencies company enters shortterm foreign currency forward exchange contracts offset economic effects foreign currency transaction risks contracts accounted fair value realized unrealized gains losses recognized income expense net since company designate contracts hedges accounting purposes 63 outstanding contracts december 31 2010 matured end january 2011 5 see note 13 fair value disclosures determination fair value instruments 6 represents unrealized gain loss recorded oci net tax effect december 31 2010 company’s derivative counterparties large investment grade financial institutions company collateral arrangements derivative counterparties none derivative contracts contained creditrisk related contingent features following table provides information regarding derivative gains losses recognized consolidated statements operations years ended december 31 thousands 1 includes interest expense recorded interest rate swap contracts 2 includes realized unrealized gains losses foreign currency forward contracts 13 fair value disclosures fasb asc topic 820 provides framework measuring fair value valuation hierarchy based upon transparency inputs used valuation asset liability classification within hierarchy based upon lowest level input significant resulting fair value measurement valuation hierarchy contains three levels • level 1 valuation inputs unadjusted quoted market prices identical assets liabilities active markets • level 2 valuation inputs quoted prices identical assets liabilities markets active quoted market prices similar assets liabilities active markets observable inputs directly indirectly related asset liability measured • level 3 valuation inputs unobservable significant fair value measurement company’s financial instruments include cash equivalents fees receivable customers accounts payable accruals normally shortterm nature company believes carrying amounts financial instruments reasonably approximates fair value december 31 2010 company 2200 million floating rate debt outstanding 2010 credit agreement carried amortized cost company believes carrying amount debt reasonably approximates fair value rate interest term loan revolver floating rate reflect current market rates interest similar instruments comparable maturities following table presents company assets liabilities measured fair value recurring basis utilizing level 1 level 2 measurement inputs thousands 1 company supplemental deferred compensation arrangement benefit certain highly compensated officers managers key employees see note 14 employee benefits plan’s assets consist investments money market mutual funds companyowned life insurance money market mutual funds consist cash equivalents securities traded active markets company considers fair value assets based level 1 input assets fair value 75 million 84 million december 31 2010 2009 respectively fair value companyowned life insurance based indirectly observable prices company considers level 2 inputs assets fair value 166 million 118 million december 31 2010 2009 respectively 2 company enters foreign currency forward exchange contracts hedge effects adverse fluctuations foreign currency exchange rates see note 12 derivatives hedging valuation foreign currency forward contracts based foreign currency exchange rates active markets thus company measures fair value contracts level 2 input 3 company three interest rate swap contracts see note 12 derivatives hedging determine fair value swaps company relies marktomarket valuations prepared thirdparty brokers based observable interest rate yield curves accordingly fair value swaps determined level 2 input exception goodwill company utilize level 3 valuation inputs measure assets liabilities level 3 inputs used company periodic impairment reviews goodwill information regarding periodic assessment goodwill included note 1 business significant accounting policies 14 employee benefits savings investment plan company savings investment plan covering substantially domestic employees company contributions based upon level employee contributions maximum 4 employee’s eligible salary subject annual maximum 2010 maximum match 6600 addition company also contributes least 1 employee’s base compensation subject irs annual limitation 2450 2010 amounts expensed connection plan totaled 146 million 130 million 125 million 2010 2009 2008 respectively deferred compensation arrangement company supplemental deferred compensation arrangement benefit certain highly compensated officers managers key employees structured rabbi trust plan’s investment assets classified assets consolidated balance sheets fair value assets 241 million 202 million december 31 2010 2009 respectively corresponding deferred compensation liability 269 million 230 million december 31 2010 2009 respectively carried fair value adjusted corresponding charge credit compensation cost reflect fair value amount owed employees included liabilities consolidated balance sheets total compensation expense benefit recognized arrangement zero 2010 01 million 2009 04 million 2008 defined benefit pension plans company definedbenefit pension plans several international locations benefits earned plans based years service level employee compensation company accounts material defined benefit plans accordance requirements fasb asc topics 715 960 following components net periodic pension expense years ended december 31 thousands following assumptions used computation net periodic pension expense years ended december 31 weightedaverage discount rate determined utilizing yields longterm corporate bonds relevant country duration consistent pension obligations following table provides information related changes projected benefit obligation thousands following table provides information related funded status plans amounts recorded consolidated balance sheets thousands 1 21 million plan asset december 31 2010 represents assets defined benefit pension plan company adopted accounting provisions fasb asc topics 715 960 2010 assets considered assets plan accounting purposes thus recorded company’s consolidated balance sheets assets maintained thirdparty insurance company invested diversified portfolio equities bonds investments projected longterm rate return plan assets 50 2 company expects contribute 07 million plans 2011 3 consists reinsurance asset arrangement large international insurance company rated investment grade december 31 2010 purpose reinsurance asset arrangement fund benefit obligation one company’s foreign defined benefit pension plans however reinsurance asset legally segregated restricted purposes meeting pension obligation result acknowledged pension plan asset accounting purposes result reinsurance asset carried company’s consolidated balance sheets cash surrender value company believes reasonably approximates fair value 4 balance recorded stockholders’ equity net tax effect represents plan’s net unrealized actuarial gain amortized net periodic pension cost approximately 15 years amortization unrealized gain december 31 2010 projected reduce company’s net periodic pension cost 2011 approximately 01 million 15 segment information company manages business three reportable segments research consulting events research consists primarily subscriptionbased research products access research inquiry well peer networking services membership programs consulting consists primarily consulting measurement engagements strategic advisory services events consists various symposia conferences exhibitions company evaluates reportable segment performance allocates resources based gross contribution margin gross contribution presented table defined operating income excluding certain cos sga expenses depreciation acquisition integration charges amortization intangibles charges certain bonus fringe benefit costs included consolidated cos allocated segment expense accounting policies used reportable segments used company intersegment revenues company earns revenue clients many countries united states individual country revenues external clients represent 10 company’s consolidated revenues additionally single client accounted 10 total revenue loss single client management’s opinion would material adverse effect revenues company identify allocate assets including capital expenditures reportable segment accordingly assets reported segment information available segment reviewed evaluation performance making decisions allocation resources following tables present operating information company’s reportable segments years ended december 31 thousands company’s revenues generated primarily direct sales clients domestic international sales forces network independent international sales agents company’s products services provided integrated worldwide basis integrated delivery practical separate precisely revenues geographic location accordingly separation set forth table based upon internal allocations involve certain management estimates judgments revenues table reported based sale fulfilled “other international” revenues attributable areas located outside united states canada europe middle east africa summarized information geographic location years ended december 31 follows thousands 1 excludes goodwill intangible assets 16 valuation qualifying accounts following table summarizes activity company’s allowance doubtful accounts returns allowances thousands 1 amounts charged revenues 17 subsequent event february 15 2011 company announced valueact capital master fund lp “valueact capital” sell approximately 8000000 shares company’s common stock registered public offering underwritten credit suisse securities usa llc goldman sachs co underwriters also option purchase additional 1200000 shares company’s common stock valueact capital cover overallotments company receive proceeds sale shares common stock offering company also announced entered agreement valueact capital pursuant company purchase aggregate 500000 shares common stock valueact capital net price per share received valueact capital offering long public offering completed signatures pursuant requirements securities exchange act 1934 registrant caused report form 10k signed behalf undersigned duly authorized stamford connecticut february 15 2011 power attorney person whose signature appears appoints eugene hall christopher j lafond acting individually attorneyinfact full power substitution capacities sign amendments report form 10k file appropriate exhibits related documents securities exchange commission undersigned ratifies confirms signatures may signed attorneyinfact amendments report pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicateditem 15 exhibits financial statement schedules 1 2 consolidated financial statements schedules reports independent registered public accounting firm consolidated financial statements listed index consolidated financial statements herein filed part report financial statement schedules listed index omitted information required applicable shown consolidated financial statements notes thereto index consolidated financial statements gartner inc consolidated financial statements report independent registered public accounting firm report independent registered public accounting firm consolidated balance sheets december 31 2011 2010 consolidated statements operations years ended december 31 2011 2010 2009 consolidated statements stockholders’ equity deficit comprehensive income years ended december 31 2011 2010 2009 consolidated statements cash flows years ended december 31 2011 2010 2009 notes consolidated financial statements financial statement schedules omitted information required applicable shown consolidated financial statements notes thereto report independent registered public accounting firm board directors stockholders gartner inc audited accompanying consolidated balance sheets gartner inc subsidiaries company december 31 2011 2010 related consolidated statements operations stockholders’ equity deficit comprehensive income cash flows years threeyear period ended december 31 2011 consolidated financial statements responsibility company’s management responsibility express opinion consolidated financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements referred present fairly material respects financial position gartner inc subsidiaries december 31 2011 2010 results operations cash flows years threeyear period ended december 31 2011 conformity us generally accepted accounting principles also audited accordance standards public company accounting oversight board united states company’s internal control financial reporting december 31 2011 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso report dated february 23 2012 expressed unqualified opinion effectiveness company’s internal control financial reporting kpmg llp logo kpmg llp new york new york february 23 2012 report independent registered public accounting firm board directors stockholders gartner inc audited gartner inc subsidiaries’ company internal control financial reporting december 31 2011 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso company’s management responsible maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included accompanying management’s annual report internal control financial reporting responsibility express opinion company’s internal control financial reporting based audit conducted audit accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether effective internal control financial reporting maintained material respects audit included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audit also included performing procedures considered necessary circumstances believe audit provides reasonable basis opinion company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate opinion company maintained material respects effective internal control financial reporting december 31 2011 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission also audited accordance standards public company accounting oversight board united states consolidated balance sheets gartner inc subsidiaries december 31 2011 2010 related consolidated statements operations stockholders’ equity deficit comprehensive income cash flows years threeyear period ended december 31 2011 report dated february 23 2012 expressed unqualified opinion consolidated financial statements kpmg llp logo kpmg llp new york new york february 23 2012 gartner inc consolidated balance sheets thousands except share data see notes consolidated financial statements gartner inc consolidated statements operations thousands except per share data see notes consolidated financial statements gartner inc consolidated statements stockholders’ equity deficit comprehensive income thousands see notes consolidated financial statements gartner inc consolidated statements cash flows thousands see notes consolidated financial statements gartner inc notes consolidated financial statements 1 business significant accounting policies business gartner inc “gartner” “company” global information technology research advisory company founded 1979 headquarters stamford connecticut gartner delivers principal products services three business segments research consulting events used notes terms “company” “we” “us” “our” refer gartner inc consolidated subsidiaries basis presentation accompanying consolidated financial statements prepared accordance generally accepted accounting principles united states america “us gaap” defined financial accounting standards board fasb accounting standards codification “asc” topic 270 financial information applicable instructions us securities exchange commission “sec” regulation sx fiscal year gartner represents twelvemonth period january 1 december 31 references 2011 2010 2009 refer fiscal year unless otherwise indicated principles consolidation accompanying consolidated financial statements include accounts company whollyowned subsidiaries significant intercompany transactions balances eliminated use estimates preparation accompanying consolidated financial statements requires management make estimates assumptions future events estimates underlying assumptions affect amounts assets liabilities reported disclosures contingent assets liabilities reported amounts revenues expenses estimates include valuation accounts receivable goodwill intangible assets longlived assets well tax accruals liabilities addition estimates used revenue recognition income tax expense performancebased compensation charges depreciation amortization allowance losses management believes use estimates accompanying consolidated financial statements reasonable management continuously evaluates revises estimates using historical experience factors including general economic environment actions may take future management adjusts estimates facts circumstances dictate however estimates may involve significant uncertainties judgments cannot determined precision addition estimates based best judgment point time result differences estimates actual results could material would reflected company’s consolidated financial statements future periods revenues revenue recognized accordance us gaap sec staff accounting bulletin 101 revenue recognition financial statements “sab 101” sec staff accounting bulletin 104 revenue recognition “sab 104” revenues recognized required criteria recognition met consolidated statement operations presents revenues net sales valueadded taxes collect customers remit government authorities company’s revenues significant source follows research revenues derived annual subscription contracts research products revenues deferred recognized ratably applicable contract term company typically enters annually renewable subscription contracts research products reprint fees recognized reprint shipped majority research contracts billable upon signing absent special terms granted limited basis time research contracts noncancelable nonrefundable except government contracts may cancellation fiscal funding clauses produced material cancellations date policy record entire amount contract billable fee receivable time contract signed corresponding amount deferred revenue since contract represents legally enforceable claim consulting revenues primarily derived consulting measurement strategic advisory services paid oneday analyst engagements principally generated fixed fee time materials engagements revenues fixed fee engagements recognized proportional performance basis revenues time material engagements recognized work delivered andor services provided revenues related contract optimization engagements contingent nature recognized upon satisfaction conditions related payment unbilled fees receivable associated consulting engagements 292 million december 31 2011 294 million december 31 2010 events revenues deferred recognized upon completion related symposium conference exhibition addition company defers certain costs directly related events expenses costs period related symposium conference exhibition occurs company policy defer costs primarily prepaid site production services costs incremental directly attributable specific event costs organizing producing events primarily company personnel nonevent specific expenses expensed period incurred end fiscal quarter company assesses eventbyevent basis whether expected direct costs producing scheduled event exceed expected revenues costs expected exceed revenues company records expected loss period determined allowance losses company maintains allowance losses composed bad debt allowance sales reserve provisions charged earnings either reduction revenues increase expense amount allowance losses based historical loss experience aging outstanding receivables assessment current economic conditions financial health specific clients cost services product development “cos” cos expense includes direct costs incurred creation delivery products services selling general administrative “sga” sga expense includes direct indirect selling costs general administrative costs charges earnings related uncollectible accounts commission expense company records commission obligations upon signing customer contracts amortizes deferred obligation commission expense estimated period related revenues earned commission expense included sga consolidated statements operations stockbased compensation expense company accounts stockbased compensation accordance fasb asc topics 505 718 interpreted sec staff accounting bulletins 107 “sab 107” 110 “sab 110” stockbased compensation cost based fair value award date grant expensed related service period net estimated forfeitures service period employee performs related services normally vesting period 2011 2010 2009 company recognized 329 million 326 million 261 million respectively stockbased compensation expense see note 8 stockbased compensation recorded cos sga consolidated statements operations income tax expense provision income taxes sum amount income tax paid payable year determined applying provisions enacted tax laws taxable income year net changes year deferred tax assets liabilities deferred tax assets liabilities recognized based differences book tax basis assets liabilities using presently enacted tax rates credit additional paidin capital realized tax benefits arising stock transactions employees tax benefit nonqualified stock option equal tax effect difference market price common stock date exercise price cash equivalents includes cash highly liquid investments original maturities three months less considered cash equivalents carrying value cash equivalents approximates fair value due shortterm maturity investments maturities three months classified marketable securities interest earned investments classified interest income consolidated statements operations property equipment leasehold improvements company leases facilities certain equipment leases classified operating leases accordance fasb asc topic 840 cost operating leases including contractual rent increases rent concessions landlord incentives recognized ratably life related lease agreement lease expense 262 million 235 million 225 million 2011 2010 2009 respectively equipment leasehold improvements fixed assets owned company recorded cost less accumulated depreciation except leasehold improvements fixed assets depreciated using straightline method estimated useful lives assets leasehold improvements amortized using straightline method shorter estimated useful lives improvements remaining term related leases company total depreciation expense 255 million 253 million 254 million 2011 2010 2009 respectively property equipment leasehold improvements less accumulated depreciation amortization consist following thousands company capitalizes certain eligible costs incurred develop internal use software accordance fasb asc topic 350 december 31 2011 2010 net capitalized development costs internal use software 136 million 143 million respectively amortization capitalized internal software development costs classified depreciation consolidated statements operations totaled 78 million 79 million 83 million 2011 2010 2009 respectively company’s corporate headquarters located approximately 213000 square feet leased office space three buildings stamford connecticut stamford facility accommodates research analysis marketing sales client support production corporate services executive offices administration 2010 company entered new 15 year lease agreement facility provides reduced rental completion certain renovation work accordance fasb asc topic 840 company accounted new stamford lease operating lease arrangement total minimum payments company obligated pay lease including contractual escalation clauses reduced rents renovation period expensed straightline basis lease term terms new stamford lease landlord provided 250 million tenant improvement allowance used renovate three buildings parking areas comprising facility renovation work began 2011 expected completed late 2012 250 million contractual amount due landlord recorded tenant improvement allowance assets deferred rent liabilities consolidated balance sheets renovation work progresses payments received landlord tenant improvement receivable relieved leasehold improvement assets recorded property equipment leasehold improvements leasehold improvement assets amortized depreciation expense useful lives beginning assets placed service amount recorded deferred rent amortized reduction rent expense sga straightline basis term lease december 31 2011 company 225 million remaining unamortized deferred rent resulting tenant improvement allowance 15 million recorded accounts payable accrued liabilities 210 million recorded liabilities company’s consolidated balance sheets company paid 95 million renovation costs project 2011 90 million reimbursed 2011 05 reimbursed 2012 company expects utilize entire remaining 155 million improvement allowance 2012 intangible assets intangible assets amortized using straightline method expected useful lives intangible assets subject amortization include following thousands intangible assets amortized earnings following periods aggregate amortization expense intangible assets 65 million 105 million 16 million 2011 2010 2009 respectively estimated future amortization expense year purchased intangibles follows thousands goodwill represents excess purchase price acquired businesses estimated fair value tangible identifiable intangible net assets acquired evaluation recoverability goodwill performed accordance fasb asc topic 350 requires annual assessment potential goodwill impairment reporting unit level whenever events changes circumstances indicate carrying value may recoverable company three reporting units research consulting events since 2002 current goodwill impairment rules first adopted goodwill must tested annually impairment twostep impairment test twostep test reporting unit’s carrying amount exceeds estimated fair value goodwill impairment recognized extent reporting unit’s carrying amount goodwill exceeds implied fair value goodwill company uses discounted cash flows market multiples valuation techniques measure estimated fair value reporting unit september 2011 fasb issued accounting standards update “asu” 201108 intangiblesgoodwill testing goodwill impairment “asu 201108” asu 201108 permits entity make qualitative assessment whether likely reporting unit’s fair value less carrying amount rather automatically applying twostep goodwill impairment test entity’s qualitative assessment allow reach conclusion necessary perform twostep goodwill impairment test determine amount impaired goodwill otherwise twostep goodwill impairment test required objective asu 201108 simplify reduce ongoing cost goodwill impairment testing private public companies company conducted annually required twostep goodwill impairment test 2010 quarter ended september 30 concluded fair values company’s reporting units substantially exceeded respective carrying values 2011 company made decision early adopt asu 201108 conduct qualitative assessment reporting unit fair value september 30 based part demonstrated historical trend fair values company’s reporting units substantially exceeding carrying values among factors included company’s qualitative assessment general economic conditions competitive environment actual expected segment financial performance forwardlooking business measurements external market assessments based results qualitative assessment company believes fair value goodwill company’s reporting units continue substantially exceed respective carrying values concluded necessary conduct twostep goodwill impairment test result adoption asu 201108 impact company’s results operations financial position cash flows following table presents changes carrying amount goodwill reporting unit two year period ended december 31 2011 thousands impairment longlived assets intangible assets company reviews longlived assets intangible assets goodwill impairment whenever events changes circumstances indicate carrying amount respective asset may recoverable evaluation may based number factors including current projected operating results cash flows changes management’s strategic direction well external economic market factors company’s policy regarding longlived assets intangible assets goodwill evaluate recoverability assets determining whether balance recovered undiscounted future operating cash flows events circumstances indicate carrying value might recoverable based undiscounted future operating cash flows impairment loss would recognized amount impairment measured based difference projected discounted future operating cash flows using discount rate reflecting company’s average cost funds carrying value asset pension obligations company definedbenefit pension plans three international locations see note 13 employee benefits earned plans generally based years service level employee compensation company accounts defined benefit plans accordance requirements fasb asc topic 715 company determines periodic pension expense related liabilities plans actuarial assumptions valuations company recognized 27 million 24 million 22 million expense plans 2011 2010 2009 respectively company classifies pension expense sga consolidated statements operations foreign currency exposure assets liabilities foreign subsidiaries translated us dollars exchange rates effect balance sheet date income expense items translated average exchange rates year resulting translation adjustments recorded foreign currency translation adjustments component accumulated comprehensive income net within stockholders’ equity section consolidated balance sheets currency transaction gains losses arising transactions denominated currencies functional currency subsidiary included results operations income expense net within consolidated statements operations net currency transaction losses 13 million 48 million 36 million 2011 2010 2009 respectively company enters foreign currency forward exchange contracts mitigate effects adverse fluctuations foreign currency exchange rates transactions contracts generally short duration recorded fair value unrealized realized gains losses also recorded income expense net loss gain contracts 12 million 28 million 07 million 2011 2010 2009 respectively fair value disclosures company’s fair value disclosures included note 12 fair value disclosures concentrations credit risk assets may subject company concentration credit risk consist primarily shortterm highly liquid investments classified cash equivalents accounts receivable interest rate swaps pension reinsurance asset majority company’s cash equivalent investments interest rate swap contract investment grade commercial banks participants company’s 2010 credit agreement accounts receivable balances deemed collectible customers limited concentration credit risk due diverse customer base geographic dispersion company’s pension reinsurance asset see note 13 employee benefits maintained large international insurance company rated investment grade december 31 2011 stock repurchase programs company records cost repurchase shares treasury stock 2011 2010 2009 company recorded 2120 million 998 million 37 million respectively stock repurchases see note 7 stockholders’ equity shares repurchased company added treasury shares retired recent accounting developments following disclosures highlight new significant accounting rules company adopted adopt future periods accounting standards adopted september 30 2011 company early adopted fasb asu 201108 intangiblesgoodwill testing goodwill impairment “asu 201108” see discussion goodwill adoption asu 201108 impact company’s results operations financial position cash flows accounting standards adopted future accounting periods final accounting rules issued fasb yet become effective may impact company’s consolidated financial statements related disclosures future periods described comprehensive income june 2011 financial accounting standards board “fasb” issued accounting standards update “asu” 201105 comprehensive income topic 22010 presentation comprehensive income new guidance eliminates current option report comprehensive income components statement stockholders’ equity instead new rule require entity present net income comprehensive income one continuous statement referred statement comprehensive income two separate consecutive statements new guidance changes presentation comprehensive income changes components recognized net income comprehensive income current accounting guidance new guidance effective fiscal years interim periods beginning december 15 2011 company adopt new rule quarter ending march 31 2012 fair value measurements may 2011 fasb issued asu 201104 fair value measurement topic 820 amendments achieve common fair value measurement disclosure requirements us gaap ifrss asu 201104 establishes number new requirements fair value measurements include 1 prohibition grouping financial instruments purposes determining fair value except entity manages market credit risks basis entity’s net exposure group 2 extension prohibition use blockage factor fair value measurements prohibition currently applies financial instruments quoted prices active markets 3 requirement recurring level 3 fair value measurements entities disclose quantitative information unobservable inputs description valuation process used qualitative details sensitivity measurements addition items carried fair value fair value disclosed entities required disclose level within fair value hierarchy applies fair value measurement disclosed asu effective interim annual periods beginning december 15 2011 company adopt new rule quarter ending march 31 2012 2 acquisitions december 2009 company acquired outstanding shares amr research burton group total net cash 1167 million 122 million paid 2010 1045 million paid 2009 company’s consolidated results include operating results businesses beginning respective acquisition dates company recorded aggregate 79 million acquisition integration expenses related acquisitions 2010 29 million 2009 included charges legal fees consultant fees connection acquisition integration well severance costs related redundant headcount 3 assets consist following thousands 1 includes contractual amounts receivable related renovation company’s stamford headquarters facility see property equipment leasehold improvements note 1 business significant accounting policies additional description 4 accounts payable accrued liabilities accounts payable accrued liabilities consist following thousands 1 represents unamortized deferred rent resulting 250 million tenant improvement allowance company’s stamford headquarters facility see property equipment leasehold improvements note 1 business significant accounting policies additional description 5 debt credit agreement december 2010 company entered new credit arrangement provides fiveyear 2000 million term loan 4000 million revolving credit facility “2010 credit agreement” company terminated prior credit arrangement entered 2010 credit agreement paid remaining amounts outstanding 2010 credit agreement contains expansion feature term loan revolving credit facility may increased company’s option certain conditions additional 1500 million aggregate term loan repaid 19 consecutive quarterly installments commenced march 31 2011 plus final payment due december 22 2015 may prepaid time without penalty premium company’s option revolving credit facility may used loans 400 million may used letters credit revolving loans may borrowed repaid reborrowed december 22 2015 time amounts borrowed must repaid amounts borrowed 2010 credit agreement bear interest rate equal company’s option either greatest administrative agent’s prime rate average rate overnight federal funds plus 12 1 eurodollar rate adjusted statutory reserves plus 1 case plus margin equal 050 125 depending company’s leverage ratio end four consecutive fiscal quarters recently ended ii eurodollar rate adjusted statutory reserves plus margin equal 150 225 depending company’s leverage ratio end four consecutive fiscal quarters recently ended 2010 credit agreement contains certain customary restrictive loan covenants including among others financial covenants requiring maximum leverage ratio minimum interest expense coverage ratio covenants limiting company’s ability incur indebtedness grant liens make acquisitions acquired dispose assets pay dividends repurchase stock make capital expenditures make investments enter certain transactions affiliates company full compliance covenants december 31 2011 following table provides information regarding company’s borrowings december 2010 company recorded certain incremental pretax charges due termination prior credit arrangement majority charges would recognized expenses 2011 accounting rules required accelerated recognition 2010 accelerated pretax charges included 33 million deferred losses interest rate swap contracts recorded comprehensive income oci since swaps previously designated accounting hedges 04 million writeoff portion capitalized debt issuance costs related previous debt accordance fasb asc topic 815 deferral unrealized losses swaps recorded oci longer permitted since forecasted interest payments related previous debt would occur capitalized debt issuance writeoff interest rate swap charge classified interest expense consolidated statements operations year ended december 31 2010 interest rate swap hedge company entered 2000 million notional fixedforfloating interest rate swap contract december 2010 designated hedge forecasted interest payments company’s variable rate borrowings swap terms company pays base fixed rate 226 return receives eurodollar base rate company accounts interest rate swap cash flow hedge accordance fasb asc topic 815 since swap hedging forecasted interest payments changes fair value swap recorded oci long swap continues highly effective hedge designated interest rate risk ineffective portion change fair value hedge recorded earnings december 31 2011 ineffective portion hedge interest rate swap negative fair value company 99 million december 31 2011 classified oci net tax effect letters credit company 47 million letters credit related guarantees outstanding yearend 2011 company issues instruments ordinary course business facilitate transactions customers others 6 commitments contingencies contractual lease commitments company leases various facilities furniture computer equipment operating lease arrangements expiring 2012 2027 future minimum annual cash payments noncancelable operating lease agreements december 31 2011 follows thousands 1 excludes 161 million future contractual reimbursements related leasehold improvements company’s stamford headquarters lease see property equipment leasehold improvements note 1 business significant accounting policies additional discussion 2 excludes 31 million future contractual sublease rental income legal matters involved various legal administrative proceedings litigation arising ordinary course business outcome individual matters predictable time however believe ultimate resolution matters considering amounts already accrued insurance coverage material adverse effect financial position results operations cash flows future periods indemnifications company various agreements may obligate us indemnify party respect certain matters generally indemnification clauses included contracts arising normal course business customarily agree hold party harmless losses arising breach representations related matters title assets sold licensed certain intellectual property rights possible predict maximum potential amount future payments indemnification agreements due conditional nature company’s obligations unique facts particular agreement historically payments made us agreements material december 31 2011 indemnification agreements would require material payments 7 stockholders’ equity common stock holders gartner’s common stock par value 0005 per share “common stock” entitled one vote per share matters voted stockholders company currently pay cash dividends common stock also credit arrangement contains negative covenant may limit ability pay dividends following table summarizes transactions relating common stock three years’ ending december 31 2011 share repurchase program company 5000 million share repurchase program 2935 million remained available share repurchases december 31 2011 repurchases may made timetotime open market purchases private transactions tender offers transactions amount timing repurchases subject availability stock prevailing market conditions trading price stock company’s financial performance conditions repurchases may also made timetotime connection settlement company’s sharedbased compensation awards repurchases may funded cash flow operations borrowings company paid cash 2120 million 998 million 37 million 2011 2010 2009 respectively common stock repurchases 2120 million paid share repurchases 2011 includes cost shares repurchased directly valueact 8 stockbased compensation company grants stockbased compensation awards incentive employees directors contribute company’s longterm success company currently awards stocksettled stock appreciation rights service performancebased restricted stock units common stock equivalents december 31 2011 company approximately 65 million shares common stock available awards stockbased compensation 2003 longterm incentive plan company accounts stockbased compensation awards accordance fasb asc topics 505 718 interpreted sec staff accounting bulletins 107 “sab 107” 110 “sab 110” stockbased compensation expense based fair value award date grant recognized related service period net estimated forfeitures service period related service performed generally vesting period currently company issues treasury shares upon exercise release settlement stockbased compensation awards determining appropriate fair value model calculating fair value stockbased compensation awards requires input certain complex subjective assumptions including expected life stockbased compensation awards common stock price volatility addition determining appropriate amount associated periodic expense requires management estimate amount employee forfeitures likelihood achievement certain performance targets assumptions used calculating fair value stockbased compensation awards associated periodic expense represent management’s best estimates involve inherent uncertainties application judgment result factors change company deems necessary future modify assumptions made use different assumptions quantity nature company’s stockbased compensation awards changes amount expense may need adjusted future stockbased compensation expense could materially different recorded current period company recognized following amounts stockbased compensation expense millions years ended december 31 stockbased compensation millions recognized follows consolidated statements operations years ended december 31 december 31 2011 company 423 million total unrecognized stockbased compensation cost expected recognized stockbased compensation expense remaining weightedaverage service period approximately 21 years stockbased compensation awards following disclosures provide information regarding company’s stockbased compensation awards classified equity awards accordance fasb asc topic 505 stock appreciation rights stocksettled stock appreciation rights sars settled common shares permit holder participate appreciation common stock sars settled shares common stock employee applicable vesting criteria met sars vest ratably fouryear service period expire seven years grant date fair value sars awards recognized compensation expense straightline basis four years present time sars awarded company’s executive officers sars exercised number shares common stock issued calculated follows 1 total proceeds sars exercise calculated closing price common stock date exercise less exercise price sars multiplied number sars exercised divided 2 closing price common stock exercise date company withholds portion shares common stock issued upon exercise satisfy minimum statutory tax withholding requirements sars recipients stockholder rights actual shares common stock issued respect award subject prior satisfaction vesting criteria relating grants following table summarizes changes sars outstanding year ended december 31 2011 1 december 31 2011 14 million sars unvested company expects substantially unvested awards vest future periods 2 december 31 2011 sars outstanding intrinsic value 368 million sars vested exercisable intrinsic value 183 million fair value sars determined grant date using blackscholesmerton valuation model following weightedaverage assumptions years ended december 31 1 dividend yield assumption based history expectation company’s dividend payouts historically company paid cash dividends common stock 2 determination expected stock price volatility based historical common stock prices implied volatility publicly traded options common stock 3 riskfree interest rate based yield us treasury security maturity similar expected life award 4 expected life years represents weightedaverage estimate period time sars expected outstanding period time service inception date expected exercise date expected life based “simplified” calculation permitted sab 107 simplified method expected life years determined taking average vesting period plus original contractual term dividing two company continues use simplified method sars since necessary actual historical exercise forfeiture data permitted sab 110 restricted stock units restricted stock units rsus give awardee right receive shares common stock vesting conditions met restrictions lapse rsu vests entitles awardee one common share rsu awardees stockholder rights common shares released fair value rsus determined date grant based closing price common stock reported new york stock exchange date servicebased rsus vest ratably four years expensed straightline basis four years performancebased rsus subject performance service conditions vest ratably four years expensed accelerated basis presently performancebased rsus awarded executive officers following table summarizes changes rsus outstanding year ended december 31 2011 common stock equivalents common stock equivalents cses convertible common stock cse entitles holder one common share members board directors receive directors’ fees payable cses unless opt receive 50 fees cash generally cses defined term converted common shares service director terminates unless director elected accelerated release fair value cses determined date grant based closing price common stock reported new york stock exchange date cses vest immediately result recorded expense date grant following table summarizes changes cses outstanding year ended december 31 2011 stock options historically company granted stock options employees allowed purchase shares common stock certain price company made stock option grants since 2006 outstanding options fully vested remaining unamortized cost company received 166 million 207 million 122 million cash stock option exercises 2011 2010 2009 respectively following table summarizes changes stock options outstanding year ended december 31 2011 company employee stock purchase plan “esp plan” eligible employees permitted purchase common stock payroll deductions may exceed 10 employee’s compensation 23750 calendar year price equal 95 closing price common stock reported new york stock exchange end offering period december 31 2011 company approximately 14 million shares available purchase esp plan esp plan considered noncompensatory fasb asc topic 718 result company record stockbased compensation expense employee share purchases company received 34 million 28 million 27 million cash share purchases esp plan 2011 2010 2009 respectively 9 computation earnings per share basic earnings per share “eps” computed dividing net income weighted average number shares common stock outstanding period diluted eps reflects potential dilution securities could share earnings impact common share equivalents antidilutive excluded calculation following table sets forth reconciliation basic diluted earnings per share computations thousands except per share amounts years ended december 31 following table presents number common share equivalents included computation diluted eps table effect would antidilutive periods net income common share equivalents antidilutive exercise price greater average market value share common stock period 10 income taxes following summary components income taxes years ended december 31 thousands expense income taxes income consists following components thousands current longterm deferred tax assets liabilities comprised following thousands current net deferred tax assets current net deferred tax liabilities 314 million 06 million december 31 2011 284 million 04 million december 31 2010 respectively included prepaid expenses current assets accounts payable accrued liabilities consolidated balance sheets longterm net deferred tax assets longterm net deferred tax liabilities 228 million zero december 31 2011 212 million zero december 31 2010 respectively included assets liabilities consolidated balance sheets likely results future operations generate sufficient taxable income realize deferred tax assets valuation allowances 19 million december 31 2011 26 million december 31 2010 relate primarily nonus net operating losses domestic capital loss carryforwards likely expire unutilized net decrease valuation allowance 07 million 2011 relates primarily release valuation allowances federal state capital loss carryovers company established full valuation allowance domestic realized unrealized capital losses future utilization losses uncertain december 31 2011 company us federal capital loss carryforwards 08 million expire 2012 company also 08 million state local capital loss carryforwards expire similar period time december 31 2011 company state local tax net operating loss carryforwards 1399 million 50 million expire within one five years 1142 million expire within six fifteen years 207 million expire within sixteen twenty years addition company nonus net operating loss carryforwards 273 million 26 million expire next 20 years 247 million carried forward indefinitely december 31 2011 company also foreign tax credit carryforwards 100 million majority expire 2018 differences us federal statutory income tax rate company’s effective tax rate income taxes years ended december 31 follow december 31 2011 december 31 2010 company gross unrecognized tax benefits 183 million 158 million respectively increase primarily attributable uncertainties surrounding utilization certain tax attributes reasonably possible gross unrecognized tax benefits decreased 29 million within next 12 months due primarily anticipated settlements audits expiration certain statutes limitation benefits question relate primarily utilization certain tax attributes company classifies uncertain tax positions expected settled within one year long term liabilities december 31 2011 december 31 2010 company liabilities 154 million 157 million respectively related long term uncertain tax positions company records accrued interest penalties related unrecognized tax benefits income tax provision december 31 2011 december 31 2010 company 48 million 38 million accrued interest penalties respectively related unrecognized tax benefits amounts addition gross unrecognized tax benefits noted total amount interest penalties recognized consolidated statements operations years ending december 31 2011 2010 15 million 10 million respectively following reconciliation beginning ending amount unrecognized tax benefits excluding interest penalties years ending december 31 thousands 2011 company repatriated approximately 326 million foreign subsidiaries cash cost repatriation offset utilization foreign tax credits capital loss carryovers number years open statutes limitation varies depending tax jurisdiction generally company’s statutes open tax years ended december 31 2007 forward major taxing jurisdictions include us federal state united kingdom france germany australia italy canada japan netherlands ireland internal revenue service “irs” completed examination federal income tax return company tax year ended december 31 2007 december 2010 company received report audit findings company disagrees certain proposed adjustments disputing matter applicable irs judicial procedures appropriate addition second quarter 2011 irs commenced audit company’s 2008 2009 tax years company continues comply information requests material adjustments company’s tax positions proposed time 2008 2009 tax years although final resolution audits uncertain assurances ultimate resolution exceed amounts recorded company believes ultimate disposition matters material adverse effect consolidated financial position cash flows results operations earnings nonus subsidiary affiliate subject us taxation repatriated company intends reinvest earnings outside us except instances repatriating earnings would result minimal additional tax company currently plan remit earnings result material additional tax cost accordingly company recognized us tax expense nonus earnings december 31 2011 accumulated undistributed earnings nonus subsidiaries approximated 413 million indefinitely invested estimate us income tax liability would payable earnings indefinitely reinvested 97 million 11 derivatives hedging company enters limited number derivative contracts offset potentially negative economic effects interest rate foreign exchange movements company accounts outstanding derivative contracts accordance fasb asc topic 815 requires derivatives include derivatives designated accounting hedges recorded balance sheet fair value following tables provide information regarding company’s outstanding derivatives contracts years ended thousands except number outstanding contracts december 31 2011 1 company designates accounts swap cash flow hedge forecasted interest payments borrowings result changes fair value swap deferred recorded oci net tax effect company entered swap december 2010 see note 5 debt 2 changes fair value swaps recognized earnings swaps matured january 2012 3 company foreign exchange transaction risk since typically enters transactions normal course business denominated foreign currencies differ local functional currency company enters shortterm foreign currency forward exchange contracts offset economic effects foreign currency transaction risks contracts accounted fair value realized unrealized gains losses recognized income expense net since company designate contracts hedges accounting purposes outstanding contracts december 31 2011 matured end january 2012 4 see note 12 fair value disclosures determination fair value instruments december 31 2011 company’s derivative counterparties large investment grade financial institutions company collateral arrangements derivative counterparties none derivative contracts contained creditrisk related contingent features following table provides information regarding derivative gains losses recognized consolidated statements operations years ended december 31 thousands 1 consists interest expense interest rate swap contracts 2 consists realized unrealized gains losses foreign currency forward contracts 12 fair value disclosures company’s financial instruments include cash equivalents fees receivable customers accounts payable accruals normally shortterm nature company believes carrying amounts financial instruments reasonably approximates fair value due shortterm nature company’s financial instruments also includes borrowings outstanding 2010 credit agreement december 31 2011 company 2000 million floating rate debt outstanding arrangement carried amortized cost company believes carrying amount outstanding borrowings reasonably approximates fair value since rate interest borrowings reflect current market rates interest similar instruments comparable maturities fasb asc topic 820 provides framework measurement fair value valuation hierarchy based upon transparency inputs used valuation assets liabilities classification within hierarchy based upon lowest level input significant resulting fair value measurement valuation hierarchy contains three levels level 1 measurements consist quoted prices active markets identical assets liabilities level 2 measurements include significant observable inputs quoted prices similar assets liabilities active markets identical assets liabilities inactive markets observable inputs interest rates yield curves marketcorroborated inputs level 3 measurements include significant unobservable inputs internallycreated valuation models company currently utilize level 3 valuation inputs remeasure assets liabilities however level 3 inputs may used company required annual impairment review goodwill information regarding periodic assessment company’s goodwill included note 1 business significant accounting policies company limited number assets liabilities recorded consolidated balance sheets remeasured fair value recurring basis presented following table thousands 1 company deferred compensation plan benefit certain highly compensated officers managers key employees see note 13 employee benefits plan’s assets consist investments money market mutual funds companyowned life insurance contracts money market funds consist cash equivalents mutual fund investments consist publiclytraded quoted equity shares company considers fair value assets based level 1 inputs assets fair value 80 million 75 million december 31 2011 2010 respectively carrying amount life insurance contracts equals cash surrender value required us gaap approximates fair value cash surrender value represents estimated amount company would receive upon termination contract company considers life insurance contracts valued based level 2 input assets fair value 170 million 166 million december 31 2011 2010 respectively related deferred compensation plan liabilities recorded fair value amount needed settle liability company also considers based level 2 input 2 company maintains pension reinsurance asset fund payments one defined benefit pension plans see note 13employee benefits reinsurance asset carried cash surrender value approximates fair value company considers reinsurance contract valued based level 2 input 3 company enters foreign currency forward exchange contracts hedge effects adverse fluctuations foreign currency exchange rates see note 11 derivatives hedging valuation foreign currency forward contracts based foreign currency exchange rates active markets company considers level 2 input 4 december 31 2011 company three outstanding interest rate swap contracts see note 11 derivatives hedging determine fair value overthecounter financial instruments company relies marktomarket valuations prepared thirdparty brokers valuations based observable interest rates recently executed market transactions broker quotes corroborated observable market data accordingly fair value swaps determined level 2 input company independently corroborates reasonableness swap valuations prepared thirdparty brokers use electronic quotation service 13 employee benefits savings investment plan company savings investment plan covering substantially domestic employees company contributions based upon level employee contributions maximum 4 employee’s eligible salary subject annual maximum 2011 maximum match 6600 addition company may also contribute least 1 employee’s base compensation subject irs annual limitation 2450 2011 amounts expensed connection plan totaled 159 million 146 million 130 million 2011 2010 2009 respectively deferred compensation plan company supplemental deferred compensation plan benefit certain highly compensated officers managers key employees structured rabbi trust plan’s investment assets classified assets consolidated balance sheets fair value assets 251 million 241 million december 31 2011 2010 respectively see note 12 fair value disclosures description regarding determination fair value assets corresponding deferred compensation liability 281 million 269 million december 31 2011 2010 respectively carried fair value adjusted corresponding charge credit compensation cost reflect fair value amount owed employees classified liabilities consolidated balance sheets total compensation expense recognized plan 03 million 2011 zero 2010 01 million 2009 defined benefit pension plans company definedbenefit pension plans several nonus locations benefits earned plans based years service level employee compensation company accounts defined benefit plans accordance requirements fasb asc topics 715 960 following components net periodic pension expense years ended december 31 thousands 1 pension expense classified sga consolidated statements operations following assumptions used computation net periodic pension expense years ended december 31 discount rates typically determined utilizing yields longterm corporate government bonds relevant country duration consistent expected term underlying pension obligations following table provides information related changes projected benefit obligation years ended december 31 thousands 1 company adopted defined benefit pension plan accounting provisions fasb asc topics 715 960 nonus plan december 31 2010 previously company accounted plan accordance local statutory accounting requirements adoption fasb asc topics 715 960 plan result recognition additional expense 2 company projects following amounts paid future years plan participants 04 million 2012 12 million 2013 13 million 2014 08 million 2015 09 million 2016 65 million five years thereafter 3 measured december 31 following table provides information regarding plan projected benefit obligation amounts recorded consolidated balance sheets december 31 thousands 1 consists assets nonus plan company adopted accounting provisions fasb asc topics 715 960 december 31 2010 assets considered assets plan accounting purposes thus recorded company’s consolidated balance sheets assets maintained thirdparty insurance company invested diversified portfolio equities bonds investments assets primarily valued based level 1 level 2 inputs fair value hierarchy fasb asc topic 820 company considers overall portfolio assets medium investment risk projected longterm rate return plan assets 41 december 31 2011 yearended december 31 2011 company contributed 06 million plan actual return plan assets 01 million benefits paid participants 01 million 2 funded status shortfall represents amount projected benefit obligation company funded amount recorded liability liabilities company’s consolidated balance sheets company expects contribute approximately 06 million plans 2012 3 consists reinsurance asset arrangement large international insurance company rated investment grade december 31 2011 purpose reinsurance asset arrangement fund benefit payments one company’s foreign defined benefit pension plans however reinsurance asset legally segregated restricted purposes meeting pension obligation result acknowledged pension plan asset us gaap result reinsurance asset carried company’s consolidated balance sheets cash surrender value company believes reasonably approximates fair value 4 balance recorded stockholders’ equity net tax represents plan’s net unrealized actuarial gain amortized net periodic pension cost thereby reducing amount charge approximately 15 years amortization unrealized gain december 31 2011 projected reduce company’s net periodic pension cost 2012 approximately 02 million 14 segment information company manages business three reportable segments research consulting events research consists primarily subscriptionbased research products access research inquiry peer networking services membership programs consulting consists primarily consulting measurement engagements strategic advisory services events consists various symposia conferences exhibitions company evaluates reportable segment performance allocates resources based gross contribution margin gross contribution presented table defined operating income excluding certain cos sga expenses depreciation acquisition integration charges amortization intangibles certain bonus fringe benefit costs included consolidated cos allocated segment expense accounting policies used reportable segments used company intersegment revenues company earns revenue clients many countries united states individual country revenues external clients represent 10 company’s consolidated revenues additionally single client accounted 10 total revenue loss single client management’s opinion would material adverse effect revenues company identify allocate assets including capital expenditures reportable segment accordingly assets reported segment information available segment reviewed evaluation performance making decisions allocation resources following tables present operating information company’s reportable segments years ended december 31 thousands company’s revenues generated primarily direct sales clients domestic international sales forces network independent international sales agents company’s products services provided integrated worldwide basis integrated delivery practical precisely separate revenues geographic location accordingly separation set forth table based upon internal allocations involve certain management estimates judgments revenues table reported based sale fulfilled “other international” revenues attributable areas located outside united states canada europe middle east africa summarized information geographic location years ended december 31 follows thousands 1 excludes goodwill intangible assets 15 valuation qualifying accounts company maintains allowance losses composed bad debt allowance revenue reserve provisions charged earnings either increase expense reduction revenues following table summarizes activity company’s allowance years ended december 31in thousands signatures pursuant requirements securities exchange act 1934 registrant caused report form 10k signed behalf undersigned duly authorized stamford connecticut february 23 2012 power attorney person whose signature appears appoints eugene hall christopher j lafond acting individually attorneyinfact full power substitution capacities sign amendments report form 10k file appropriate exhibits related documents securities exchange commission undersigned ratifies confirms signatures may signed attorneyinfact amendments report pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated name title date eugene hall director chief executive officer february 23 principal executive officer eugene hall christopher j lafond executive vice president chief financial officer february 23 2012 principal financial accounting officer christopher j lafond michael j bingle director february 23 michael j bingle richard j bressler director february 23 richard j bressler raul e cesan director february 23 raul e cesan karen e dykstra director february 23 karen e dykstra anne sutherland fuchs director february 23 anne sutherland fuchs william grabe director february 23 william grabe stephen g pagliuca director february 23 stephen g pagliuca james c smith director february 23 james c smithitem 15 exhibits financial statement schedules 1 2 consolidated financial statements schedules reports independent registered public accounting firm consolidated financial statements listed index consolidated financial statements herein filed part report financial statement schedules listed index omitted information required applicable shown consolidated financial statements notes thereto 3 exhibits exhibit number description document 311 restated certificate incorporation company 322 bylaws amended february 2 2012 411 form certificate common stock june 2 2005 423 credit agreement dated december 22 2010 among company several lenders time parties thereto jpmorgan chase bank na administrative agent 1014 lease dated april 16 2010 soundview farms company premises 56 top gallant road 70 gatehouse road 88 gatehouse road stamford connecticut 1024 first amendment lease dated april 16 2010 soundview farms company premises 56 top gallant road 70 gatehouse road 88 gatehouse road stamford connecticut 1045 2011 employee stock purchase plan 1066 2003 longterm incentive plan amended restated june 4 2009 1077 amended restated employment agreement eugene hall company dated april 13 2011 1088 company deferred compensation plan effective january 1 2009 1099 form stock appreciation right agreement executive officers 10109 form performance stock unit agreement executive officers 211 subsidiaries registrant 231 consent independent registered public accounting firm 241 power attorney see signature page 311 certification chief executive officer section 302 sarbanesoxley act 2002 312 certification chief financial officer section 302 sarbanesoxley act 2002 32 certification section 906 sarbanesoxley act 2002 filed document management compensation plan arrangement 1 incorporated reference company’s current report form 8k dated june 29 2005 filed july 6 2005 2 incorporated reference company’s current report form 8k dated february 2 2012 filed february 7 2012 3 incorporated reference company’s annual report form 10k filed february 15 2011 4 incorporated reference company’s quarterly report form 10q filed august 9 2010 5 incorporated reference company’s proxy statement schedule 14a filed april 18 2011 6 incorporated reference company’s proxy statement schedule 14a filed april 21 2009 7 incorporated reference company’s quarterly report form 10q filed august 2 2011 8 incorporated reference company’s annual report form 10k filed february 20 2009 9 incorporated reference company’s current report form 8k dated february 12 2013 filed february 13 2013 index consolidated financial statements gartner inc consolidated financial statements report independent registered public accounting firm report independent registered public accounting firm consolidated balance sheets december 31 2012 2011 consolidated statements operations three year period ended december 31 2012 consolidated statements comprehensive income three year period ended december 31 2012 consolidated statements stockholders’ equity three year period ended december 31 2012 consolidated statements cash flows three year period ended december 31 2012 notes consolidated financial statements financial statement schedules omitted information required applicable shown consolidated financial statements notes thereto report independent registered public accounting firm board directors stockholders gartner inc audited accompanying consolidated balance sheets gartner inc subsidiaries company december 31 2012 2011 related consolidated statements operations comprehensive income stockholders’ equity cash flows years threeyear period ended december 31 2012 consolidated financial statements responsibility company’s management responsibility express opinion consolidated financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements referred present fairly material respects financial position gartner inc subsidiaries december 31 2012 2011 results operations cash flows years threeyear period ended december 31 2012 conformity us generally accepted accounting principles also audited accordance standards public company accounting oversight board united states company’s internal control financial reporting december 31 2012 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso report dated february 22 2013 expressed unqualified opinion effectiveness company’s internal control financial reporting kpmg llp logo kpmg llp new york new york february 22 2013 report independent registered public accounting firm board directors stockholders gartner inc audited gartner inc subsidiaries’ company internal control financial reporting december 31 2012 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso company’s management responsible maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included accompanying management’s annual report internal control financial reporting responsibility express opinion company’s internal control financial reporting based audit conducted audit accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether effective internal control financial reporting maintained material respects audit included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audit also included performing procedures considered necessary circumstances believe audit provides reasonable basis opinion company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate opinion company maintained material respects effective internal control financial reporting december 31 2012 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission also audited accordance standards public company accounting oversight board united states consolidated balance sheets gartner inc subsidiaries december 31 2012 2011 related consolidated statements operations comprehensive income stockholders’ equity cash flows years threeyear period ended december 31 2012 report dated february 22 2013 expressed unqualified opinion consolidated financial statements kpmg llp logo kpmg llp new york new york february 22 2013 gartner inc consolidated balance sheets thousands except share data see notes consolidated financial statements gartner inc consolidated statements operations thousands except per share data see notes consolidated financial statements gartner inc consolidated statements comprehensive income thousands see notes consolidated financial statements gartner inc consolidated statements stockholders’ equity thousands see notes consolidated financial statements gartner inc consolidated statements cash flows thousands see notes consolidated financial statements gartner inc notes consolidated financial statements 1 business significant accounting policies business gartner inc global information technology research advisory company founded 1979 headquarters stamford connecticut gartner delivers principal products services three business segments research consulting events used notes terms “gartner” “company” “we” “us” “our” refer gartner inc consolidated subsidiaries basis presentation accompanying consolidated financial statements prepared accordance generally accepted accounting principles united states america “us gaap” defined financial accounting standards board “fasb” accounting standards codification “asc” topic 270 financial information applicable instructions us securities exchange commission “sec” regulation sx fiscal year gartner represents twelvemonth period january 1 december 31 references 2012 2011 2010 herein refer fiscal year unless otherwise indicated principles consolidation accompanying consolidated financial statements include accounts company whollyowned subsidiaries significant intercompany transactions balances eliminated use estimates preparation accompanying consolidated financial statements requires management make estimates assumptions future events estimates underlying assumptions affect amounts assets liabilities reported disclosures contingent assets liabilities reported amounts revenues expenses estimates include valuation accounts receivable goodwill intangible assets longlived assets well tax accruals liabilities addition estimates used revenue recognition income tax expense performancebased compensation charges depreciation amortization allowance losses management believes use estimates accompanying consolidated financial statements reasonable management continuously evaluates revises estimates using historical experience factors including general economic environment actions may take future management adjusts estimates facts circumstances dictate however estimates may involve significant uncertainties judgments cannot determined precision addition estimates based management’s best judgment point time result differences estimates actual results could material would reflected company’s consolidated financial statements future periods revenues revenue recognized accordance us gaap sec staff accounting bulletin 101 revenue recognition financial statements “sab 101” sec staff accounting bulletin 104 revenue recognition “sab 104” revenues recognized required criteria recognition met accompanying consolidated statements operations presents revenues net sales valueadded taxes collect customers remit government authorities company’s revenues significant source follows research revenues derived annual subscription contracts research products revenues deferred recognized ratably applicable contract term company typically enters annually renewable subscription contracts research products reprint fees recognized reprint shipped majority research contracts billable upon signing absent special terms granted limited basis time research contracts noncancelable nonrefundable except government contracts may cancellation fiscal funding clauses historically produced material cancellations policy record entire amount contract billable fee receivable time contract signed corresponding amount deferred revenue since contract represents legally enforceable claim consulting revenues primarily derived consulting measurement strategic advisory services paid oneday analyst engagements principally generated fixed fee time materials engagements revenues fixed fee engagements recognized proportional performance basis revenues time material engagements recognized work delivered andor services provided revenues related contract optimization engagements contingent nature recognized upon satisfaction conditions related payment unbilled fees receivable associated consulting engagements 340 million december 31 2012 292 million december 31 2011 events revenues deferred recognized upon completion related symposium conference exhibition addition company defers certain costs directly related events expenses costs period related symposium conference exhibition occurs company policy defer costs primarily prepaid site production services costs incremental directly attributable specific event costs organizing producing events primarily company personnel nonevent specific expenses expensed period incurred end fiscal quarter company assesses eventbyevent basis whether expected direct costs producing scheduled event exceed expected revenues costs expected exceed revenues company records expected loss period determined allowance losses company maintains allowance losses composed bad debt allowance sales reserve provisions charged earnings either reduction revenues increase expense amount allowance losses based historical loss experience aging outstanding receivables assessment current economic conditions financial health specific clients cost services product development “cos” cos expense includes direct costs incurred creation delivery products services selling general administrative “sga” sga expense includes direct indirect selling costs general administrative costs charges earnings related uncollectible accounts commission expense company records commission obligations upon signing customer contracts amortizes deferred obligation commission expense period related revenues earned commission expense included sga consolidated statements operations stockbased compensation expense company accounts stockbased compensation accordance fasb asc topics 505 718 interpreted sec staff accounting bulletins 107 “sab 107” 110 “sab 110” stockbased compensation cost based fair value award date grant expensed related service period net estimated forfeitures service period employee performs related services normally vesting period 2012 2011 2010 company recognized 364 million 329 million 326 million respectively stockbased compensation expense see note 8 stockbased compensation recorded cos sga consolidated statements operations income tax expense prepare consolidated financial statements estimate income taxes jurisdictions operate process involves estimating current tax expense together assessing temporary differences resulting differing treatment items tax accounting purposes differences result deferred tax assets liabilities included within consolidated balance sheets record valuation allowance reduce deferred tax assets future realization question consider availability loss carryforwards existing deferred tax liabilities future taxable income ongoing prudent feasible tax planning strategies assessing need valuation allowance event determine able realize deferred tax assets future excess net recorded amount adjustment made reduce valuation allowance increase income period determination made likewise determine able realize part net deferred tax asset future adjustment valuation allowance charged income period determination made cash equivalents includes cash highly liquid investments original maturities three months less considered cash equivalents carrying value cash equivalents approximates fair value due shortterm maturity investments maturities three months classified marketable securities interest earned classified interest income consolidated statements operations property equipment leasehold improvements company leases facilities certain equipment leases classified operating leases accordance fasb asc topic 840 cost operating leases including contractual rent increases rent concessions landlord incentives recognized ratably life related lease agreement lease expense 303 million 262 million 235 million 2012 2011 2010 respectively equipment leasehold improvements fixed assets owned company recorded cost less accumulated depreciation except leasehold improvements fixed assets depreciated using straightline method estimated useful lives assets leasehold improvements amortized using straightline method shorter estimated useful lives improvements remaining term related leases company total depreciation expense 254 million 255 million 253 million 2012 2011 2010 respectively property equipment leasehold improvements less accumulated depreciation amortization consist following thousands company incurs costs develop internal use software used operations certain costs meeting criteria outlined fasb asc topic 350 capitalized amortized future periods december 31 2012 2011 net capitalized development costs internal use software 144 million 136 million respectively amortization capitalized internal software development costs classified depreciation consolidated statements operations totaled 74 million 78 million 79 million 2012 2011 2010 respectively stamford headquarters lease renewal company’s corporate headquarters located 213000 square feet leased office space three buildings stamford connecticut stamford facility accommodates research analysis marketing sales client support production corporate services executive offices administration 2010 company entered new 15 year lease agreement facility provides reduced rental completion certain renovation work accordance fasb asc topic 840 company accounted new stamford lease operating lease arrangement total minimum payments company obligated pay lease including contractual escalation clauses reduced rents renovation period expensed straightline basis lease term arrangement landlord provided 250 million tenant improvement allowance used renovate three buildings renovation work began 2011 expected completed early 2013 250 million contractual amount due landlord recorded tenant improvement allowance assets deferred rent liabilities consolidated balance sheets renovation work progresses payments received landlord tenant improvement receivable relieved leasehold improvement assets recorded property equipment leasehold improvements leasehold improvement assets amortized depreciation expense useful lives beginning assets placed service amount recorded deferred rent amortized reduction rent expense sga straightline basis term lease december 31 2012 company 210 million remaining unamortized deferred rent resulting tenant improvement allowance 15 million recorded accounts payable accrued liabilities 195 million recorded liabilities company’s consolidated balance sheets company paid 170 million 95 million renovation costs project 2012 2011 respectively classified cash outflows investing activities section company’s consolidated statements cash flows company received landlord cash reimbursements expenditures 130 million 90 million 2012 2011 respectively classified cash inflows operating activities section company’s consolidated statements cash flows intangible assets company amortizable intangible assets amortized earnings using straightline method expected useful lives changes intangible assets subject amortization two year period ended december 31 2012 follows thousands 1the company acquired ideas international 2012 recorded total 85 million amortizable intangible assets see note 2acquisitions additional information 2intangible assets amortized earnings following periods trade name2 5 years customer relationships4 years content4 years software3 years aggregate amortization expense related intangible assets 44 million 65 million 105 million 2012 2011 2010 respectively estimated future amortization expense year amortizable intangibles follows thousands goodwill represents excess purchase price acquired businesses estimated fair value tangible identifiable intangible net assets acquired evaluation recoverability goodwill performed accordance fasb asc topic 350 requires annual assessment potential goodwill impairment reporting unit level whenever events changes circumstances indicate carrying value goodwill may recoverable annual assessment recoverability recorded goodwill based either qualitative assessment combination two methods utilize estimates turn require judgments assumptions regarding future trends events result precision reliability resulting estimates subject uncertainty company conducted qualitative assessment fair value three reporting units september 30 2012 based part demonstrated historical trend fair values company’s reporting units substantially exceeding carrying values recent financial performance among factors included company’s qualitative assessment general economic conditions competitive environment actual projected reporting unit financial performance forwardlooking business measurements external market assessments based results qualitative assessment company believes fair values reporting units continue substantially exceed respective carrying values following table presents changes carrying amount goodwill reporting unit two year period ended december 31 2012 thousands 1the company accumulated goodwill impairment losses 2the company acquired ideas international mid2012 recorded 75 million goodwill recorded goodwill resulting acquisition included research segment see note 2acquisitions additional information impairment longlived intangible assets company reviews longlived intangible assets goodwill impairment whenever events changes circumstances indicate carrying amount respective asset may recoverable evaluation may based number factors including current projected operating results cash flows changes management’s strategic direction well external economic market factors company’s policy regarding longlived assets intangible assets goodwill evaluate recoverability assets determining whether balance recovered undiscounted future operating cash flows events circumstances indicate carrying value might recoverable based undiscounted future operating cash flows impairment loss would recognized amount impairment measured based difference projected discounted future operating cash flows using discount rate reflecting company’s average cost funds carrying value asset company record material impairment charges longlived intangible assets 2012 2011 2010 pension obligations company definedbenefit pension plans several international locations see note 13 employee benefits earned plans generally based years service level employee compensation company accounts defined benefit plans accordance requirements fasb asc topic 715 company determines periodic pension expense related liabilities plans actuarial assumptions valuations company recognized 26 million 27 million 24 million expense plans 2012 2011 2010 respectively company classifies pension expense sga consolidated statements operations debt company presents amounts borrowed consolidated balance sheets amortized cost accrued interest amounts borrowed classified interest expense consolidated statements operations company 2050 million 2000 million debt outstanding december 31 2012 2011 see note 5debt additional information regarding company’s debt foreign currency exposure assets liabilities foreign subsidiaries translated us dollars exchange rates effect balance sheet date income expense items translated average exchange rates year resulting translation adjustments recorded foreign currency translation adjustments component accumulated comprehensive income net within stockholders’ equity section consolidated balance sheets currency transaction gains losses arising transactions denominated currencies functional currency subsidiary recognized results operations expense income net within consolidated statements operations net currency transaction losses 23 million 13 million 48 million 2012 2011 2010 respectively company enters foreign currency forward exchange contracts mitigate effects adverse fluctuations foreign currency exchange rates transactions contracts generally short duration recorded fair value realized unrealized gains losses recorded expense income net gain loss contracts 06 million 12 million 28 million 2012 2011 2010 respectively comprehensive income january 1 2012 company retrospectively adopted fasb accounting standards update “asu” 201105 comprehensive income topic 22010 presentation comprehensive income related amendment comprehensive income includes income expense items nonowner sources consists two separate components net income reported comprehensive income asu 201105 eliminates option report comprehensive income components statement stockholders’ equity instead new rule optionally requires presentation net income comprehensive income one continuous statement two separate consecutive statements company presented net income comprehensive income components comprehensive income new separate statement called consolidated statements comprehensive income included herein company’s presentation comprehensive income changed changes components amounts recognized net income comprehensive income existing accounting guidance result adoption new rule impact company’s results operations cash flows financial position february 2013 fasb issued asu 201302 reporting amounts reclassified accumulated comprehensive income updates asu 201105 standard requires public companies present information reclassification adjustments accumulated comprehensive income financial statements single note face financial statements public companies provide information annual interim financial statements new requirements take effect gartner beginning january 1 2013 applied prospectively company completed analysis new standard believes new rule may result additional disclosures changes presentation statement comprehensive income fair value disclosures company limited number assets liabilities adjusted fair value balance sheet date company’s fair value disclosures included note 12 fair value disclosures concentrations credit risk assets may subject company concentration credit risk consist primarily shortterm highly liquid investments classified cash equivalents accounts receivable interest rate swaps pension reinsurance asset majority company’s cash equivalent investments interest rate swap contract investment grade commercial banks participants company’s credit facility accounts receivable balances deemed collectible customers limited concentration credit risk due diverse customer base geographic dispersion company’s pension reinsurance asset see note 13 employee benefits maintained large international insurance company rated investment grade december 31 2012 stock repurchase programs company records cost repurchase common shares treasury stock 2012 2011 2010 company recorded 1113 million 2120 million 998 million respectively stock repurchases see note 7 stockholders’ equity shares repurchased company added treasury shares retired recent accounting developments accounting rules issued fasb yet become effective may impact company’s consolidated financial statements related disclosures future periods described balance sheet offsetting december 2011 fasb issued asu 201111 disclosures offsetting assets liabilities new guidance requires disclosures assets liabilities offset potential offset us gaap rules disclosures intended address differences asset liability offsetting requirements us gaap international financial reporting standards new disclosure requirements mandate entities disclose gross net information financial instruments transactions eligible offset statement financial position well instruments transactions subject agreement similar master netting arrangement addition standard requires disclosure collateral received posted connection master netting agreements similar arrangements however yearend 2012 fasb considering certain amendments asu 201111 may limit scope new rules asu 201111 effective gartner interim annual reporting periods beginning january 1 2013 retrospective application required adoption new guidance may result additional disclosures expect impact company’s consolidated balance sheets comprehensive income disclosures see discussion comprehensive income 2 acquisitions may 2012 company acquired ideas international limited “ideas international” publiclyowned australian corporation asx ide headquartered outside sydney 40 employees ideas international provided intelligence infrastructure configurations pricing data professionals vendors company paid aggregate cash consideration 188 million 100 outstanding shares ideas international company’s strategic objectives acquiring ideas international leverage gartner’s scale worldwide distribution capability introduce ideas international’s products services gartner’s much larger end user client base penetrate technology vendor market ideas international’s business operations integrated company’s research segment gartner’s financial statements include operating results ideas international beginning date acquisition results material company’s 2012 results company recorded 24 million pretax acquisition integration charges acquisition 2012 classified acquisition integration charges consolidated statements operations included charges legal consulting severance costs direct incremental charges acquisition company acquired ideas international january 1 2010 impact company’s operating results 2011 2010 would material result pro forma financial information periods presented acquisition accounted acquisition method accounting prescribed fasb asc topic 805 business combinations acquisition method accounting requires consideration paid allocated net assets liabilities acquired based estimated fair values acquisition date excess purchase price estimated fair value net assets acquired including identifiable intangible assets must allocated goodwill company considers allocation respective purchase price preliminary particularly respect valuation certain tax related items accordance fasb asc topic 805 final determination purchase price allocation resulting goodwill must made within one year acquisition date company anticipates none recorded goodwill arising acquisition deductible tax purposes recorded goodwill included company’s research segment company believes recorded goodwill supported anticipated revenues related acquisition following table summarizes preliminary allocation purchase price fair value assets acquired liabilities assumed acquisition dollars thousands 1includes 75 million allocated goodwill 85 million allocated amortizable intangible assets see note 1business significant accounting policies additional information 2the fair value cost fulfill deferred revenue obligations determined estimating costs provide services plus normal profit margin include costs associated selling efforts company acquired outstanding shares amr research burton group 2009 total net cash 1167 million 122 million paid 2010 1045 million paid 2009 company recorded 79 million acquisition integration expenses related acquisitions 2010 3 assets consist following thousands 1the balance december 31 2011 represented landlord receivable related renovation company’s stamford headquarters facility majority collected 2012 balance reclassified current assets see note 1 business significant accounting policies additional information 4 accounts payable accrued liabilities accounts payable accrued liabilities consist following thousands liabilities consist following thousands 1represents remaining unamortized longterm deferred rent 250 million tenant improvement allowance company’s stamford headquarters facility see note 1 business significant accounting policies additional information 5 debt 2010 credit agreement company credit arrangement provides fiveyear 2000 million term loan 4000 million revolving credit facility entered december 2010 “2010 credit agreement” company terminated prior credit arrangement entered 2010 credit agreement paid remaining amounts outstanding 2010 credit agreement contains expansion feature term loan revolving credit facility may increased company’s option certain conditions additional 1500 million aggregate term loan repaid 19 consecutive quarterly installments commenced march 31 2011 plus final payment due december 22 2015 may prepaid time without penalty premium company’s option revolving credit facility may used loans 400 million may used letters credit revolving loans may borrowed repaid reborrowed december 22 2015 time amounts borrowed must repaid amounts borrowed 2010 credit agreement bear interest rate equal company’s option either greatest administrative agent’s prime rate average rate overnight federal funds plus 12 1 eurodollar rate adjusted statutory reserves plus 1 case plus margin equal 050 125 depending company’s leverage ratio end four consecutive fiscal quarters recently ended ii eurodollar rate adjusted statutory reserves plus margin equal 150 225 depending company’s leverage ratio end four consecutive fiscal quarters recently ended 2010 credit agreement contains certain customary restrictive loan covenants including among others financial covenants requiring maximum leverage ratio minimum interest expense coverage ratio covenants limiting company’s ability incur indebtedness grant liens make acquisitions acquired dispose assets pay dividends repurchase stock make capital expenditures make investments enter certain transactions affiliates company full compliance covenants december 31 2012 december 2010 company recorded certain incremental pretax charges due termination prior credit arrangement majority charges would recognized expenses 2011 accounting rules required accelerated recognition 2010 accelerated pretax charges included 33 million deferred losses interest rate swap contracts recorded comprehensive income oci since swaps previously designated accounting hedges 04 million writeoff portion capitalized debt issuance costs related previous debt accordance fasb asc topic 815 deferral unrealized losses swaps recorded oci longer permitted since forecasted interest payments related previous debt would occur capitalized debt issuance writeoff interest rate swap charge classified interest expense consolidated statements operations year ended december 31 2010 following table provides information regarding company’s total outstanding borrowings 1both term revolver loan rates consisted floating eurodollar base rate 031 plus margin 15 however company interest rate swap contract converts floating eurodollar base rate 226 fixed base rate first 2000 million company borrowings see result company’s effective annual interest rate 2000 million outstanding debt 2010 credit facility december 31 2012 including margin 376 2the company 3466 million available borrowing capacity revolver including expansion feature december 31 2012 3in december 2012 company borrowed 50 million previously disclosed financial assistance package provided economic development program state connecticut connection company’s renovation stamford headquarters facility loan 10 year maturity bears 3 fixed rate interest principal payments deferred first five years loan may repaid point company without penalty loan principal forgiveness provision 25 million loan may forgiven company meets certain employment targets state connecticut first five years loan interest rate swap hedge company entered 2000 million notional fixedforfloating interest rate swap contract december 2010 designated hedge forecasted interest payments company’s variable rate borrowings swap terms company pays base fixed rate 226 return receives eurodollar base rate company accounts interest rate swap cash flow hedge accordance fasb asc topic 815 since swap hedging forecasted interest payments changes fair value swap recorded oci long swap continues highly effective hedge designated interest rate risk ineffective portion change fair value hedge recorded earnings december 31 2012 ineffective portion hedge interest rate swap negative fair value company 100 million december 31 2012 classified oci net tax effect letters credit company 101 million letters credit related guarantees outstanding yearend 2012 company issues instruments ordinary course business facilitate transactions customers others 6 commitments contingencies contractual lease commitments company leases various facilities furniture computer office equipment operating lease arrangements expiring 2013 2027 future minimum annual cash payments noncancelable operating lease agreements december 31 2012 follows thousands 1 excludes 22 million future contractual sublease rental income legal matters involved various legal administrative proceedings litigation arising ordinary course business outcome individual matters predictable time however believe ultimate resolution matters considering amounts already accrued insurance coverage material adverse effect financial position results operations cash flows future periods indemnifications company various agreements may obligate us indemnify party respect certain matters generally indemnification clauses included contracts arising normal course business customarily agree hold party harmless losses arising breach representations related matters title assets sold licensed certain intellectual property rights possible predict maximum potential amount future payments indemnification agreements due conditional nature company’s obligations unique facts particular agreement historically payments made us agreements material december 31 2012 indemnification agreements could require material payments 7 stockholders’ equity common stock holders gartner’s common stock par value 0005 per share “common stock” entitled one vote per share matters voted stockholders company currently pay cash dividends common stock also credit arrangement contains negative covenant may limit ability pay dividends following table summarizes transactions relating common stock three years’ ending december 31 2012 1includes 2148434 shares company repurchased directly valueact capital master fund lp “valueact” two separate transactions 2011 total cost shares repurchased directly valueact 752 million share repurchase program company 5000 million share repurchase program 2102 million remained available share repurchases december 31 2012 repurchases may made timetotime open market purchases private transactions tender offers transactions amount timing repurchases subject availability stock prevailing market conditions trading price stock company’s financial performance conditions repurchases may also made timetotime connection settlement company’s sharedbased compensation awards repurchases may funded cash flow operations borrowings company paid cash 1113 million 2120 million 998 million 2012 2011 2010 respectively common stock repurchases 2120 million paid share repurchases 2011 includes cost shares repurchased directly valueact 8 stockbased compensation company grants stockbased compensation awards incentive employees directors contribute company’s longterm success company currently awards stocksettled stock appreciation rights servicebased performancebased restricted stock units common stock equivalents december 31 2012 company 64 million shares common stock available awards stockbased compensation 2003 longterm incentive plan company accounts stockbased compensation awards accordance fasb asc topics 505 718 interpreted sec staff accounting bulletins 107 “sab 107” 110 “sab 110” stockbased compensation expense based fair value award date grant recognized expense related service period net estimated forfeitures service period related service performed generally vesting period currently company issues treasury shares upon exercise release settlement stockbased compensation awards determining appropriate fair value model calculating fair value stockbased compensation awards requires input certain complex subjective assumptions including expected life stockbased compensation awards common stock price volatility addition determining appropriate amount associated periodic expense requires management estimate amount employee forfeitures likelihood achievement certain performance targets assumptions used calculating fair value stockbased compensation awards associated periodic expense represent management’s best estimates involve inherent uncertainties application judgment result factors change company deems necessary future modify assumptions made use different assumptions quantity nature company’s stockbased compensation awards changes amount expense may need adjusted future stockbased compensation expense could materially different recorded current period company recognized following amounts stockbased compensation expense award type years ended december 31 millions 1includes charges 51 million 2012 31 million 2011 2010 awards retirementeligible employees since awards vest accelerated basis stockbased compensation expense recognized line item consolidated statements operations years ended december 31 follows millions december 31 2012 company 385 million total unrecognized stockbased compensation cost expected recognized stockbased compensation expense remaining weightedaverage service period approximately 22 years stockbased compensation awards following disclosures provide information regarding company’s stockbased compensation awards classified equity awards accordance fasb asc topic 505 stock appreciation rights stocksettled stock appreciation rights sars permit holder participate appreciation common stock sars settled shares common stock employee applicable vesting criteria met sars vest ratably fouryear service period expire seven years grant date fair value sars awards recognized compensation expense straightline basis four years sars awarded company’s executive officers sars exercised number shares common stock issued calculated follows 1 total proceeds sars exercise calculated closing price common stock date exercise less exercise price sars multiplied number sars exercised divided 2 closing price common stock reported new york stock exchange exercise date company withholds portion shares common stock issued upon exercise satisfy minimum statutory tax withholding requirements sars recipients stockholder rights actual shares common stock issued respect award subject prior satisfaction vesting criteria relating grants following table summarizes changes sars outstanding year ended december 31 2012 na applicable 1at december 31 2012 12 million sars unvested company expects substantially unvested awards vest future periods 2at december 31 2012 sars outstanding intrinsic value 429 million sars vested exercisable intrinsic value 231 million fair value sars granted estimated date grant using blackscholesmerton valuation model following weightedaverage assumptions years ended december 31 1the dividend yield assumption based history expectation company’s dividend payouts historically company paid cash dividends common stock 2the determination expected stock price volatility based historical common stock prices implied volatility publicly traded options common stock 3the riskfree interest rate based yield us treasury security maturity similar expected life award 4the expected life represents company’s weightedaverage estimate period time sars expected outstanding period service inception date expected exercise date beginning january 1 2012 expected life calculated based company’s historical exercise data previously company determined expected life based simplified calculation permitted sec sab 107 sab 110 since necessary historical exercise data available change methodology insignificant impact calculation expected life restricted stock units restricted stock units rsus give awardee right receive shares common stock vesting conditions met restrictions lapse rsu vests entitles awardee one common share rsu awardees right gartner stockholder including voting rights right receive dividends distributions shares released fair value rsus determined date grant based closing price common stock reported new york stock exchange date servicebased rsus vest ratably four years expensed straightline basis four years performancebased rsus subject performance service conditions vest ratably four years expensed accelerated basis following table summarizes changes rsus outstanding year ended december 31 2012 1the 07 million rsus granted 2012 consisted 03 million performancebased rsus awarded executives 04 million servicebased rsus awarded nonexecutive employees certain board members 03 million performancebased rsus awarded executive personnel represented target amount rsu award year tied increase company’s subscriptionbased research contract value “cv” 2012 final number performancebased rsus granted could range 0 200 target amount final amount dependent actual increase cv year measured december 31 2012 actual cv increase achieved 2012 1043 targeted amount resulted grant 03 million performancebased rsus executives 2the company expects substantially outstanding awards december 31 2012 vest future periods 3the weightedaverage remaining contractual term outstanding rsus approximately 09 years common stock equivalents common stock equivalents cses convertible common stock cse entitles holder one common share members board directors receive directors’ fees payable cses unless opt receive 50 fees cash generally cses defined term converted common shares service director terminates unless director elected accelerated release fair value cses determined date grant based closing price common stock reported new york stock exchange date cses vest immediately result recorded expense date grant following table summarizes changes cses outstanding year ended december 31 2012 stock options historically company granted stock options employees allowed purchase shares common stock certain price company made stock option grants since 2006 outstanding options fully vested remaining unamortized cost company received 86 million 166 million 207 million cash stock option exercises 2012 2011 2010 respectively following table summarizes changes stock options outstanding year ended december 31 2012 nanot applicable employee stock purchase plan company employee stock purchase plan “esp plan” eligible employees permitted purchase common stock payroll deductions may exceed 10 employee’s compensation 23750 calendar year price equal 95 closing price common stock reported new york stock exchange end offering period december 31 2012 company approximately 13 million shares available purchase esp plan esp plan considered noncompensatory fasb asc topic 718 result company record stockbased compensation expense employee share purchases company received 38 million 34 million 28 million cash share purchases esp plan 2012 2011 2010 respectively 9 computation earnings per share basic earnings per share “eps” computed dividing net income weighted average number shares common stock outstanding period diluted eps reflects potential dilution securities could share earnings impact common share equivalents antidilutive excluded calculation following table sets forth reconciliation basic diluted earnings per share computations thousands except per share amounts years ended december 31 1during 2012 2011 2010 company repurchased 27 million 59 million 39 million shares common stock respectively following table presents number common share equivalents included computation diluted eps table effect would antidilutive periods net income common share equivalents antidilutive exercise price greater average market value share common stock period 10 income taxes following summary components income taxes years ended december 31 thousands expense income taxes income consists following components thousands current longterm deferred tax assets liabilities comprised following thousands current net deferred tax assets current net deferred tax liabilities 326 million 13 million december 31 2012 314 million 06 million december 31 2011 respectively included prepaid expenses current assets accounts payable accrued liabilities consolidated balance sheets longterm net deferred tax assets longterm net deferred tax liabilities 225 million 01 million december 31 2012 228 million zero december 31 2011 respectively included assets liabilities consolidated balance sheets likely results future operations generate sufficient taxable income realize deferred tax assets valuation allowances 19 million december 31 2012 19 million december 31 2011 respectively largely relates net operating losses december 31 2012 company state local tax net operating loss carryforwards 1088 million 33 million expire within one five years 997 million expire within six fifteen years 58 million expire within sixteen twenty years addition company nonus net operating loss carryforwards 306 million 21 million expire next 20 years 285 million carried forward indefinitely december 31 2012 company also foreign tax credit carryforwards 67 million majority expire 2018 differences us federal statutory income tax rate company’s effective tax rate income taxes years ended december 31 follow 2012 state income taxes net federal tax benefit include approximately 26 million benefit relating economic development tax credits associated renovation company’s stamford headquarters facility december 31 2012 december 31 2011 company gross unrecognized tax benefits 176 million 183 million respectively decrease primarily attributable reductions tax positions prior years settlements resulting closure tax audits partially offset additions unrecognized tax benefits attributable 2012 reasonably possible gross unrecognized tax benefits decreased 45 million within next 12 months due anticipated closure audits expiration certain statutes limitation unrecognized tax benefits relate primarily utilization certain tax attributes company classifies uncertain tax positions expected settled within one year long term liabilities december 31 2012 december 31 2011 company 131 million 154 million respectively related long term uncertain tax positions included liabilities company accrues interest penalties related unrecognized tax benefits income tax provision december 31 2012 december 31 2011 company 46 million 48 million accrued interest penalties respectively related unrecognized tax benefits amounts addition gross unrecognized tax benefits noted total amount interest penalties recognized consolidated statements operations years ending december 31 2012 december 31 2011 04 million 15 million respectively following reconciliation beginning ending amount unrecognized tax benefits excluding interest penalties years ending december 31 thousands included balance unrecognized tax benefits december 31 2012 potential benefits 126 million recognized would reduce effective tax rate income continuing operations number years open statutes limitation varies depending tax jurisdiction generally company’s statutes open tax years ended december 31 2007 forward exception india open tax years 2003 forward major taxing jurisdictions include us federal state united kingdom canada japan india ireland 2012 company closed internal revenue service “irs” audit 2007 federal income tax return resolution audit material adverse effect consolidated financial position cash flows results operations company 2011 irs commenced audit company’s federal income tax returns 2008 2009 tax years irs proposed adjustments 2008 2009 company expects settle audit early 2013 although audit fully resolved company believes ultimate disposition material adverse effect consolidated financial position cash flows results operations earnings nonus subsidiaries generally subject us taxation repatriated company intends reinvest earnings outside us except instances repatriating earnings would result minimal additional tax company currently plan remit earnings result material tax cost accordingly company recognized additional tax expense may result remittance earnings accumulated undistributed earnings nonus subsidiaries approximated 850 million december 31 2012 estimate income tax liability would payable earnings indefinitely invested 170 million 11 derivatives hedging company enters limited number derivative contracts offset potentially negative economic effects interest rate foreign exchange movements company accounts outstanding derivative contracts accordance fasb asc topic 815 requires derivatives including derivatives designated accounting hedges recorded balance sheet fair value following tables provide information regarding company’s outstanding derivatives contracts years ended thousands except number outstanding contracts december 31 2012 december 31 2011 1the swap designated cash flow hedge forecasted interest payments borrowings result changes fair value swap deferred recorded oci net tax effect see note 5 debt additional information 2the company foreign exchange transaction risk since typically enters transactions normal course business denominated foreign currencies differ local functional currency company enters shortterm foreign currency forward exchange contracts offset economic effects foreign currency transaction risks contracts accounted fair value realized unrealized gains losses recognized income expense net since company designate contracts hedges accounting purposes outstanding contracts december 31 2012 matured end february 2013 3see note 12 fair value disclosures determination fair value instruments 4changes fair value swaps recognized earnings swaps matured january 2012 december 31 2012 company’s derivative counterparties large investment grade financial institutions company collateral arrangements derivative counterparties none derivative contracts contained creditrisk related contingent features following table provides information regarding amounts recognized consolidated statements operations derivative contracts years ended december 31 thousands 1consists interest expense interest rate swap contracts 2consists realized unrealized gains losses foreign currency forward contracts 12 fair value disclosures company’s financial instruments include cash equivalents fees receivable customers accounts payable accruals normally shortterm nature company believes carrying amounts financial instruments reasonably approximates fair value due shortterm nature company’s financial instruments also includes borrowings outstanding 2010 credit agreement december 31 2012 company 2000 million floating rate debt outstanding arrangement carried amortized cost company believes carrying amount outstanding borrowings reasonably approximates fair value since rate interest borrowings reflect current market rates interest similar instruments comparable maturities fasb asc topic 820 provides framework measurement fair value valuation hierarchy based upon transparency inputs used valuation assets liabilities classification within hierarchy based upon lowest level input significant resulting fair value measurement valuation hierarchy contains three levels level 1 measurements consist quoted prices active markets identical assets liabilities level 2 measurements include significant observable inputs quoted prices similar assets liabilities active markets identical assets liabilities inactive markets observable inputs interest rates yield curves marketcorroborated inputs level 3 measurements include significant unobservable inputs internallycreated valuation models company currently utilize level 3 valuation inputs remeasure assets liabilities however level 3 inputs may used company required annual impairment review goodwill information regarding periodic assessment company’s goodwill included note 1 business significant accounting policies january 1 2012 company adopted asu 201104 fair value measurement topic 820 amendments achieve common fair value measurement disclosure requirements us gaap ifrss updates fasb asc topic 820 new requirements include 1 prohibition grouping financial instruments purposes determining fair value except entity manages market credit risks basis entity’s net exposure group 2 extension prohibition use blockage factor fair value measurements prohibition currently applies financial instruments quoted prices active markets 3 requirement recurring level 3 fair value measurements entities disclose additional quantitative information unobservable inputs description valuation process used qualitative details sensitivity measurements potential impact operating results company limited number assets liabilities recorded consolidated balance sheets remeasured fair value recurring basis company currently utilize level 3 valuation inputs remeasure assets liabilities addition company typically transfer assets liabilities different levels fair value hierarchy result adoption asu 201104 result changes company’s processes determining fair values require additional fair value disclosures company’s assets liabilities remeasured fair value presented following table thousands 1the company deferred compensation plan benefit certain highly compensated officers managers key employees see note 13 employee benefits plan’s assets consist investments money market mutual funds companyowned life insurance contracts money market funds consist cash equivalents mutual fund investments consist publiclytraded quoted equity shares company considers fair value assets based level 1 inputs assets fair value 82 million 80 million december 31 2012 2011 respectively carrying amount life insurance contracts equals cash surrender value approximates fair value cash surrender value represents estimated amount company would receive upon termination contract company considers life insurance contracts valued based level 2 input assets fair value 196 million 170 million december 31 2012 2011 respectively related deferred compensation plan liabilities recorded amount needed settle liability approximates fair value based level 2 input 2the company enters foreign currency forward exchange contracts hedge effects adverse fluctuations foreign currency exchange rates see note 11 derivatives hedging valuation foreign currency forward contracts based foreign currency exchange rates active markets company considers level 2 input 3the company enters interest rate swap contracts hedge risk interest rates borrowings see note 11 derivatives hedging determine fair value financial instruments company relies marktomarket valuations prepared thirdparty broker valuation based observable interest rates recently executed market transactions observable market data company considers level 2 inputs company independently corroborates reasonableness valuations prepared thirdparty broker use electronic quotation service 13 employee benefits defined contribution plan company savings investment plan “401k plan” covering substantially us employees company contributions based upon level employee contributions maximum 4 employee’s eligible salary subject annual maximum 2012 maximum match 6800 addition company discretion may also contribute least 1 employee’s base compensation subject irs annual limitation 2500 2012 amounts expensed connection 401k plan totaled 142 million 159 million 146 million 2012 2011 2010 respectively deferred compensation plan company supplemental deferred compensation plan benefit certain highly compensated officers managers key employees structured rabbi trust plan’s investment assets classified assets consolidated balance sheets fair value assets 278 million 251 million december 31 2012 2011 respectively see note 12 fair value disclosures fair value information corresponding deferred compensation liability 313 million 281 million december 31 2012 2011 respectively carried fair value adjusted corresponding charge credit compensation cost reflect fair value amount owed employees classified liabilities consolidated balance sheets total compensation expense recognized plan 04 million 2012 03 million 2011 zero 2010 defined benefit pension plans company definedbenefit pension plans several nonus locations benefits earned plans based years service level employee compensation company accounts defined benefit plans accordance requirements fasb asc topics 715 960 following components defined benefit pension expense years ended december 31 thousands 1pension expense classified sga consolidated statements operations following assumptions used computation pension expense years ended december 31 1discount rates typically determined utilizing yields longterm corporate government bonds relevant country duration consistent expected term underlying pension obligations following table provides information related changes projected benefit obligation years ended december 31 thousands 1the 2012 actuarial loss primarily due decline weightedaverage discount rate 2the company projects following amounts paid future years plan participants 05 million 2013 20 million 2014 08 million 2015 09 million 2016 12 million 2017 70 million five years thereafter 3measured december 31 following table provides information regarding funded status plans related amounts recorded company’s consolidated balance sheets december 31 thousands funded status plans 1 plan assets held thirdparty trustees invested diversified portfolio equities high quality government corporate bonds investments assets primarily valued based level 1 level 2 inputs fair value hierarchy fasb asc topic 820 company considers overall portfolio assets lowtomedium investment risk yearended december 31 2012 company contributed 64 million plans benefits paid participants 07 million actual return plan assets plans effectively zero 2012 company projects future longterm rate return plan assets 36 believes reasonable based composition assets current projected market conditions addition plan assets held thirdparty trustees company also maintains reinsurance asset arrangement large international insurance company reinsurance asset company whose purpose provide funding benefit payments one plans december 31 2012 reinsurance asset carried company’s consolidated balance sheets cash surrender value 88 million classified assets company believes cash surrender value approximates fair value equivalent level 2 input fasb’s fair value framework asc topic 820 2the funded status shortfall represents amount projected benefit obligation company funded thirdparty trustee amount liability company recorded liabilities company’s consolidated balance sheets 3the deferred actuarial loss december 31 2012 recorded accumulated comprehensive income “aoci” reclassified aoci recognized pension expense approximately 14 years subject certain limitations set forth fasb asc topic 715 impact amortization periodic pension expense 2013 immaterial 2012 2011 2010 approximately 02 million 01 million 02 million respectively deferred actuarial pension gains reclassified aoci pension expense company considers impact reclassifications years immaterial 14 segment information company manages business three reportable segments research consulting events research consists primarily subscriptionbased research products access research inquiry peer networking services membership programs consulting consists primarily consulting measurement engagements strategic advisory services events consists various symposia conferences exhibitions company evaluates reportable segment performance allocates resources based gross contribution margin gross contribution presented table defined operating income excluding certain cos sga expenses depreciation acquisition integration charges amortization intangibles certain bonus fringe benefit costs included consolidated cos allocated segment expense accounting policies used reportable segments used company intersegment revenues company earns revenue clients many countries united states individual country revenues external clients represent 10 company’s consolidated revenues additionally single client accounted 10 total revenue loss single client management’s opinion would material adverse effect revenues company identify allocate assets including capital expenditures reportable segment accordingly assets reported segment information available segment reviewed evaluation performance making decisions allocation resources following tables present operating information company’s reportable segments years ended december 31 thousands company’s revenues generated primarily direct sales clients domestic international sales forces network independent international sales agents company’s products services provided integrated worldwide basis integrated delivery practical precisely separate revenues geographic location accordingly separation set forth table based upon internal allocations involve certain management estimates judgments revenues table reported based sale fulfilled “other international” revenues attributable areas located outside united states canada europe middle east africa summarized information geographic location years ended december 31 follows thousands 1excludes goodwill intangible assets 2 2012 balance united states canada includes approximately 170 million additional costs capitalized 2012 connection renovation company’s stamford headquarters facility see note 1 business significant accounting policies additional description 15 valuation qualifying accounts company maintains allowance losses composed bad debt allowance revenue reserve provisions charged earnings either increase expense reduction revenues following table summarizes activity company’s allowance years ended december 31in thousands signatures pursuant requirements securities exchange act 1934 registrant caused report form 10k signed behalf undersigned duly authorized stamford connecticut february 22 2013 power attorney person whose signature appears appoints eugene hall christopher j lafond acting individually attorneyinfact full power substitution capacities sign amendments report form 10k file appropriate exhibits related documents securities exchange commission undersigned ratifies confirms signatures may signed attorneyinfact amendments report pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated name title date eugene hall director chief executive officer february 22 2013 eugene hall principal executive officer christopher j lafond executive vice president chief financial officer february 22 2013 christopher j lafond principal financial accounting officer michael j bingle director february 22 2013 michael j bingle richard j bressler director february 22 2013 richard j bressler raul e cesan director february 22 2013 raul e cesan karen e dykstra director february 22 2013 karen e dykstra anne sutherland fuchs director february 22 2013 anne sutherland fuchs william grabe director february 22 2013 william grabe stephen g pagliuca director february 22 2013 stephen g pagliuca james c smith director february 22 2013 james c smithitem 15 exhibits financial statement schedules 1 2 consolidated financial statements schedules reports independent registered public accounting firm consolidated financial statements listed index consolidated financial statements herein filed part report financial statement schedules listed index omitted information required applicable shown consolidated financial statements notes thereto 3 exhibits index consolidated financial statements gartner inc consolidated financial statements financial statement schedules omitted information required applicable shown consolidated financial statements notes thereto report independent registered public accounting firm board directors stockholders gartner inc audited accompanying consolidated balance sheets gartner inc subsidiaries company december 31 2013 2012 related consolidated statements operations comprehensive income stockholders’ equity cash flows years threeyear period ended december 31 2013 consolidated financial statements responsibility company’s management responsibility express opinion consolidated financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements referred present fairly material respects financial position gartner inc subsidiaries december 31 2013 2012 results operations cash flows years threeyear period ended december 31 2013 conformity us generally accepted accounting principles also audited accordance standards public company accounting oversight board united states company’s internal control financial reporting december 31 2013 based criteria established internal control integrated framework 1992 issued committee sponsoring organizations treadway commission coso report dated february 26 2014 expressed unqualified opinion effectiveness company’s internal control financial reporting kpmg llp logo kpmg llp new york new york february 26 2014 report independent registered public accounting firm board directors stockholders gartner inc audited gartner inc subsidiaries’ company internal control financial reporting december 31 2013 based criteria established internal control integrated framework 1992 issued committee sponsoring organizations treadway commission coso company’s management responsible maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included accompanying management’s annual report internal control financial reporting responsibility express opinion company’s internal control financial reporting based audit conducted audit accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether effective internal control financial reporting maintained material respects audit included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audit also included performing procedures considered necessary circumstances believe audit provides reasonable basis opinion company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate opinion company maintained material respects effective internal control financial reporting december 31 2013 based criteria established internal control integrated framework 1992 issued committee sponsoring organizations treadway commission also audited accordance standards public company accounting oversight board united states consolidated balance sheets gartner inc subsidiaries december 31 2013 2012 related consolidated statements operations comprehensive income stockholders’ equity cash flows years threeyear period ended december 31 2013 report dated february 26 2014 expressed unqualified opinion consolidated financial statements kpmg llp logo kpmg llp new york new york february 26 2014 gartner inc consolidated balance sheets thousands except share data see notes consolidated financial statements gartner inc consolidated statements operations thousands except per share data see notes consolidated financial statements gartner inc consolidated statements comprehensive income thousands see notes consolidated financial statements gartner inc consolidated statements stockholders’ equity thousands see notes consolidated financial statements gartner inc consolidated statements cash flows thousands see notes consolidated financial statements gartner inc notes consolidated financial statements 1 business significant accounting policies business gartner inc global information technology research advisory company founded 1979 headquarters stamford connecticut gartner delivers principal products services three business segments research consulting events used notes terms “gartner” “company” “we” “us” “our” refer gartner inc consolidated subsidiaries basis presentation accompanying consolidated financial statements prepared accordance generally accepted accounting principles united states america “us gaap” defined financial accounting standards board “fasb” accounting standards codification “asc” topic 270 financial information applicable instructions us securities exchange commission “sec” regulation sx fiscal year gartner represents twelvemonth period january 1 december 31 references 2013 2012 2011 herein refer fiscal year unless otherwise indicated principles consolidation accompanying consolidated financial statements include accounts company whollyowned subsidiaries significant intercompany transactions balances eliminated use estimates preparation accompanying consolidated financial statements requires management make estimates assumptions future events estimates underlying assumptions affect amounts assets liabilities reported disclosures contingent assets liabilities reported amounts revenues expenses estimates include valuation accounts receivable goodwill intangible assets longlived assets well tax accruals liabilities addition estimates used revenue recognition income tax expense performancebased compensation charges depreciation amortization allowance losses management believes use estimates accompanying consolidated financial statements reasonable management continuously evaluates revises estimates using historical experience factors including general economic environment actions may take future management adjusts estimates facts circumstances dictate however estimates may involve significant uncertainties judgments cannot determined precision addition estimates based management’s best judgment point time result differences estimates actual results could material would reflected company’s consolidated financial statements future periods acquisitions company accounts acquisitions accordance acquisition method accounting prescribed fasb asc topic 805 business combinations acquisition method accounting requires consideration paid allocated net assets liabilities acquired based estimated fair values acquisition date excess purchase price estimated fair value net assets acquired including identifiable intangible assets must allocated goodwill acquisition method operating results acquired companies included companys consolidated financial statements beginning date acquisition 2012 company acquired 100 outstanding shares ideas international limited “ideas international” publiclyowned australian corporation aggregate cash consideration 188 million operating results ideas international material company’s 2012 results company recorded 75 million goodwill 85 million amortizable intangible assets result acquisition company also recorded 03 million 24 million pretax charges 2013 2012 respectively related acquisition classified acquisition integration charges consolidated statements operations revenues revenue recognized accordance us gaap sec staff accounting bulletin 101 revenue recognition financial statements “sab 101” sec staff accounting bulletin 104 revenue recognition “sab 104” revenues recognized required criteria recognition met accompanying consolidated statements operations presents revenues net sales valueadded taxes collect customers remit government authorities company’s revenues significant source follows research revenues derived annual subscription contracts research products revenues deferred recognized ratably applicable contract term company typically enters annually renewable subscription contracts research products reprint fees recognized reprint shipped majority research contracts billable upon signing absent special terms granted limited basis time research contracts noncancelable nonrefundable except government contracts may cancellation fiscal funding clauses historically produced material cancellations policy record entire amount contract billable fee receivable time contract signed corresponding amount deferred revenue since contract represents legally enforceable claim consulting revenues primarily derived consulting measurement strategic advisory services paid oneday analyst engagements principally generated fixed fee time materials engagements revenues fixed fee engagements recognized proportional performance basis revenues time material engagements recognized work delivered andor services provided revenues related contract optimization engagements contingent nature recognized upon satisfaction conditions related payment unbilled fees receivable associated consulting engagements 370 million december 31 2013 340 million december 31 2012 events revenues deferred recognized upon completion related symposium conference exhibition addition company defers certain costs directly related events expenses costs period related symposium conference exhibition occurs company policy defer costs primarily prepaid site production services costs incremental directly attributable specific event costs organizing producing events primarily company personnel nonevent specific expenses expensed period incurred end fiscal quarter company assesses eventbyevent basis whether expected direct costs producing scheduled event exceed expected revenues costs expected exceed revenues company records expected loss period determined allowance losses company maintains allowance losses composed bad debt allowance sales reserve provisions charged earnings either reduction revenues increase expense amount allowance losses based historical loss experience aging outstanding receivables assessment current economic conditions financial health specific clients cost services product development “cos” cos expense includes direct costs incurred creation delivery products services selling general administrative “sga” sga expense includes direct indirect selling costs general administrative costs charges earnings related uncollectible accounts commission expense company records commission obligations upon signing customer contracts amortizes deferred obligation commission expense period related revenues earned commission expense included sga consolidated statements operations stockbased compensation expense company accounts stockbased compensation accordance fasb asc topics 505 718 interpreted sec staff accounting bulletins 107 “sab 107” 110 “sab 110” stockbased compensation cost based fair value award date grant expensed related service period net estimated forfeitures service period employee performs related services normally vesting period 2013 2012 2011 company recognized 347 million 364 million 329 million respectively stockbased compensation expense portion recorded cos sga consolidated statements operations see note 8 stockbased compensation additional information income tax expense estimate income taxes jurisdictions operate process involves estimating current tax expense together assessing temporary differences resulting differing treatment items tax accounting purposes differences result deferred tax assets liabilities included within consolidated balance sheets record valuation allowance reduce deferred tax assets future realization question consider availability loss carryforwards existing deferred tax liabilities future taxable income ongoing prudent feasible tax planning strategies assessing need valuation allowance event determine able realize deferred tax assets future excess net recorded amount adjustment made reduce valuation allowance increase income period determination made likewise determine able realize part net deferred tax asset future adjustment valuation allowance charged income period determination made cash equivalents includes cash highly liquid investments original maturities three months less considered cash equivalents carrying value cash equivalents approximates fair value due shortterm maturity investments maturities three months classified marketable securities interest earned classified interest income consolidated statements operations property equipment leasehold improvements company leases facilities certain equipment leases classified operating leases accordance fasb asc topic 840 cost operating leases including contractual rent increases rent concessions landlord incentives recognized ratably life related lease agreement lease expense 308 million 303 million 262 million 2013 2012 2011 respectively equipment leasehold improvements fixed assets owned company recorded cost less accumulated depreciation except leasehold improvements fixed assets depreciated using straightline method estimated useful lives assets leasehold improvements amortized using straightline method shorter estimated useful lives improvement remaining term related lease company total depreciation expense 290 million 254 million 255 million 2013 2012 2011 respectively companys total fixed assets less accumulated depreciation amortization consisted following thousands company incurs costs develop internal use software used operations certain costs meeting criteria outlined fasb asc topic 350 capitalized amortized future periods december 31 2013 2012 net capitalized development costs internal use software 141 million 144 million respectively included computer equipment software category amortization capitalized internal software development costs classified depreciation consolidated statements operations totaled 82 million 74 million 78 million 2013 2012 2011 respectively stamford headquarters lease company’s corporate headquarters located 213000 square feet leased office space three buildings stamford connecticut addition companys executive offices facility hosts number business support functions 2010 company entered new lease agreement facility accounted operating lease arrangement total minimum payments company obligated pay lease including contractual escalation clauses reduced rents renovation period see expensed straightline basis lease term lease arrangement landlord provided 250 million tenant improvement allowance used renovate three buildings renovation work began 2011 completed 2013 company paid 77 million 170 million 95 million renovation costs project 2013 2012 2011 respectively recorded leasehold improvement assets amortized useful lives paid renovation costs classified cash outflows investing activities section company’s consolidated statements cash flows company received landlord cash reimbursements expenditures 30 million 130 million 90 million 2013 2012 2011 respectively recorded deferred rent amortized reduction rent expense straightline basis term lease landlord cash reimbursements classified cash inflows operating activities section company’s consolidated statements cash flows intangible assets company amortizable intangible assets amortized earnings using straightline method expected useful lives changes intangible assets subject amortization two year period ended december 31 2013 follows thousands 1 intangible assets amortized earnings following periods trade name 2 5 years customer relationships4 years content4 years software3 years 2 aggregate amortization expense related intangible assets 54 million 44 million 65 million 2013 2012 2011 respectively 3 additions companys acquisition ideas international see acquisitions additional information estimated future amortization expense year amortizable intangibles follows thousands goodwill represents excess purchase price acquired businesses estimated fair value tangible identifiable intangible net assets acquired evaluation recoverability goodwill performed accordance fasb asc topic 350 requires annual assessment potential goodwill impairment reporting unit level whenever events changes circumstances indicate carrying value goodwill may recoverable annual assessment recoverability recorded goodwill based either qualitative assessment combination two methods utilize estimates turn require judgments assumptions regarding future trends events result precision reliability resulting estimates subject uncertainty company conducted qualitative assessment fair value three reporting units september 30 2013 based part demonstrated historical trend fair values company’s reporting units substantially exceeding carrying values companys recent financial performance among factors included company’s qualitative assessment general economic conditions competitive environment actual projected reporting unit financial performance forwardlooking business measurements external market assessments based results qualitative assessment company believes fair values reporting units continue substantially exceed respective carrying values following table presents changes carrying amount goodwill reporting unit two year period ended december 31 2013 thousands 1 company accumulated goodwill impairment loss 2 additions companys acquisition ideas international see acquisitions additional information impairment longlived intangible assets company reviews longlived intangible assets goodwill impairment whenever events changes circumstances indicate carrying amount respective asset may recoverable evaluation may based number factors including current projected operating results cash flows changes management’s strategic direction well external economic market factors company’s policy regarding longlived assets intangible assets goodwill evaluate recoverability assets determining whether balance recovered undiscounted future operating cash flows events circumstances indicate carrying value might recoverable based undiscounted future operating cash flows impairment loss would recognized amount impairment measured based difference projected discounted future operating cash flows using discount rate reflecting company’s average cost funds carrying value asset company record material impairment charges longlived intangible assets three year period ended december 31 2013 pension obligations company definedbenefit pension plans several international locations see note 13 employee benefits earned plans generally based years service level employee compensation company accounts defined benefit plans accordance requirements fasb asc topic 715 company determines periodic pension expense related liabilities plans actuarial assumptions valuations company recognized 38 million 26 million 27 million expense plans 2013 2012 2011 respectively company classifies pension expense sga consolidated statements operations debt company presents amounts borrowed consolidated balance sheets amortized cost accrued interest amounts borrowed classified interest expense consolidated statements operations company 2050 million debt outstanding december 31 2013 2012 see note 5debt additional information foreign currency exposure assets liabilities foreign subsidiaries translated us dollars exchange rates effect balance sheet date income expense items translated average exchange rates year resulting translation adjustments recorded foreign currency translation adjustments component accumulated comprehensive income net within stockholders’ equity section consolidated balance sheets currency transaction gains losses arising transactions denominated currencies functional currency subsidiary recognized results operations expense net within consolidated statements operations net currency transaction losses 09 million 23 million 13 million 2013 2012 2011 respectively company enters foreign currency forward exchange contracts mitigate effects adverse fluctuations foreign currency exchange rates transactions contracts generally short duration recorded fair value realized unrealized gains losses recorded expense net loss gain contracts 01 million 06 million 12 million 2013 2012 2011 respectively comprehensive income company reports comprehensive income separate statement termed consolidated statements comprehensive income included herein additional required comprehensive income disclosures included note 2 comprehensive income fair value disclosures company limited number assets liabilities adjusted fair value balance sheet date company’s fair value disclosures included note 12 fair value disclosures concentrations credit risk assets may subject company concentration credit risk consist primarily shortterm highly liquid investments classified cash equivalents accounts receivable interest rate swaps pension reinsurance asset majority company’s cash equivalent investments interest rate swap contract investment grade commercial banks participants company’s credit facility accounts receivable balances deemed collectible customers limited concentration credit risk due diverse customer base geographic dispersion company’s pension reinsurance asset see note 13 employee benefits maintained large international insurance company rated investment grade december 31 2013 stock repurchase programs company records cost repurchase common shares treasury stock 2013 2012 2011 company recorded 1967 million 1113 million 2120 million respectively stock repurchases see note 7 stockholders’ equity shares repurchased company added treasury shares retired adoption new accounting rules company adopted new accounting rules year ended december 31 2013 related accumulated comprehensive income see note 2 comprehensive income balance sheet offsetting receivables payables arising derivative contracts see note 11 derivatives hedging adoption new rules resulted additional disclosure recent accounting developments accounting rules issued fasb yet become effective may impact company’s consolidated financial statements related disclosures future periods described july 2013 fasb issued asu 201311 presentation unrecognized tax benefit net operating loss carryforward similar tax loss tax credit carryforward exists asu 201311 asu 201311 addresses balance sheet presentation unrecognized tax benefit net operating loss carryforward similar tax loss tax credit carryforward exists asu 201311 requires unrecognized tax benefit portion unrecognized tax benefit presented financial statements reduction deferred tax asset net operating loss carryforward similar tax loss tax credit carryforward asu 201311 effective company’s fiscal quarter ending march 31 2014 impacts balance sheet presentation company believes balance sheet impact material march 2013 fasb issued asu 201305 parent’s accounting cumulative translation adjustment upon derecognition certain subsidiaries groups assets within foreign entity investment foreign entity asu 201305 provides updated guidance resolve diversity practice concerning release cumulative foreign currency translation adjustment net income parent sells part investment foreign entity longer holds controlling financial interest subsidiary group assets within foreign entity company ceases controlling financial interest company recognize related cumulative translation adjustment net income sale transfer results complete substantially complete liquidation foreign entity subsidiary resided upon partial sale company release earnings pro rata portion cumulative translation adjustment asu 201305 effective company’s fiscal quarter ending march 31 2014 guidance asu 201305 impact companys financial statements upon occurrence transaction within scope 2 comprehensive income january 1 2013 company adopted fasb accounting standards update 20132 reporting amounts reclassified accumulated comprehensive income amendment fasb asc topic 220 comprehensive income asu 2013 2 asu 20132 requires entities prospectively disclose changes accumulated comprehensive income “aoci’ component well amounts reclassified aoci income period information required asu 20132 year ended december 31 2013 presented following table net tax thousands 1 amounts parentheses represent deferred losses 2 interest rate swap accounted cash flow hedge reclassified amount resulted additional expense period recorded interest expense consolidated statements operations net 16 million related tax benefit reflected provision income taxes see note 11 derivatives hedging additional information regarding swap companys hedging activities 3 pension reclassification amount recorded sga expense consolidated statements operations immaterial tax effect see note 13 employee benefits additional information regarding companys defined benefit pension plans 3 assets consist following thousands 4 accounts payable accrued liabilities accounts payable accrued liabilities consist following thousands liabilities consist following thousands 1 represents remaining unamortized longterm deferred rent 250 million tenant improvement allowance company’s stamford headquarters facility see note 1 business significant accounting policies additional information 5 debt 2013 credit agreement company entered new credit arrangement early 2013 “2013 credit agreement” take advantage favorable credit conditions 2013 credit agreement provides fiveyear 1500 million term loan 6000 million revolving credit facility addition 2013 credit agreement contains expansion feature term loan revolving credit facility may increased company’s option certain conditions additional 2500 million aggregate term loan repaid 16 consecutive quarterly installments commenced june 30 2013 plus final payment due march 2018 may prepaid time without penalty premium applicable breakage costs company’s option revolving credit facility may used loans 400 million may used letters credit revolving loans may borrowed repaid reborrowed march 2018 time amounts borrowed must repaid company recorded charge 03 million capitalized debt issuance costs related termination previous credit arrangement recorded interest expense net condensed consolidated statements operations company incurred 36 million debt issuance costs related new credit facility capitalized amortized interest expense term 2013 credit agreement amounts borrowed 2013 credit agreement bear interest rate equal gartner’s option either 1 greatest administrative agent’s prime rate average rate overnight federal funds plus 12 1 eurodollar rate adjusted statutory reserves plus 1 case plus margin equal 025 075 depending gartner’s leverage ratio end four consecutive fiscal quarters recently ended 2 eurodollar rate adjusted statutory reserves plus margin equal 125 175 depending gartner’s leverage ratio end four consecutive fiscal quarters recently ended 2013 credit agreement contains certain customary restrictive loan covenants including among others financial covenants requiring maximum leverage ratio minimum interest expense coverage ratio covenants limiting gartner’s ability incur indebtedness grant liens make acquisitions acquired dispose assets pay dividends repurchase stock make capital expenditures make investments enter certain transactions affiliates company full compliance loan covenants december 31 2013 following table summarizes company’s total outstanding borrowings thousands 1 contractual annual interest rate december 31 2013 term loan revolver 162 consisted floating eurodollar base rate 024 plus margin 138 however company interest rate swap contract converts floating eurodollar base rate 226 fixed base rate first 2000 million company borrowings see result company’s effective annual interest rate 2000 million outstanding debt 2013 credit facility december 31 2013 including margin 364 2 company 5411 million available borrowing capacity revolver including expansion feature december 31 2013 3 consists 50 million state connecticut economic development loan 30 fixed rate interest loan originated 2012 10 year maturity principal payments deferred first five years loan may repaid point company without penalty loan principal forgiveness provision 25 million loan may forgiven company meets certain employment targets first five years loan 4 december 31 2013 687 million debt classified short term 1363 million classified long term consolidated balance sheets interest rate hedge company 2000 million notional fixedforfloating interest rate swap contract designates hedge forecasted interest payments company’s variable rate borrowings swap terms company pays base fixed rate 226 return receives floating eurodollar rate company accounts interest rate swap cash flow hedge accordance fasb asc topic 815 since swap hedging forecasted interest payments changes fair value swap recorded oci long swap continues highly effective hedge designated interest rate risk ineffective portion change fair value hedge recorded earnings december 31 2013 ineffective portion hedge interest rate swap negative fair value company 65 million recorded liabilities consolidated balance sheets letters credit company 98 million letters credit related guarantees outstanding yearend 2013 company issues instruments ordinary course business facilitate transactions customers others 6 commitments contingencies contractual lease commitments company leases various facilities computer office equipment furniture assets noncancelable operating lease agreements expiring 2014 2027 future minimum annual cash payments operating lease agreements december 31 2013 follows thousands 1 excludes 12 million future contractual sublease rental income legal matters involved various legal administrative proceedings litigation arising ordinary course business outcome individual matters predictable time however believe ultimate resolution matters considering amounts already accrued insurance coverage material adverse effect financial position results operations cash flows future periods indemnifications company various agreements may obligate us indemnify party respect certain matters generally indemnification clauses included contracts arising normal course business customarily agree hold party harmless losses arising breach representations related matters title assets sold licensed certain intellectual property rights possible predict maximum potential amount future payments indemnification agreements due conditional nature company’s obligations unique facts particular agreement historically payments made us agreements material december 31 2013 indemnification agreements could require material payments 7 stockholders’ equity common stock holders gartner’s common stock par value 0005 per share “common stock” entitled one vote per share matters voted stockholders company currently pay cash dividends common stock also credit arrangement contains negative covenant may limit ability pay dividends following table summarizes transactions relating common stock three years’ ending december 31 2013 1 total cost repurchased shares 2013 1967 million 1817 million paid 2013 150 million paid early 2014 total cost repurchased shares 2012 2011 1113 million 2120 million respectively share repurchase authorization february 4 2014 company’s board directors authorized 8000 million repurchase companys common stock authorization succeeds company’s prior 5000 million share repurchase authorization substantially utilized company may repurchase common stock time amounts prices company deems appropriate subject availability stock prevailing market conditions trading price stock company’s financial performance conditions repurchases may made open market purchases private transactions funded cash hand borrowings company’s credit agreement 8 stockbased compensation company grants stockbased compensation awards incentive employees directors contribute company’s longterm success company currently awards stocksettled stock appreciation rights servicebased performancebased restricted stock units common stock equivalents december 31 2013 company 64 million shares common stock available awards stockbased compensation 2003 longterm incentive plan february 4 2014 board directors approved new 2014 longterm incentive plan adoption subject approval 2014 annual meeting stockholders 2014 plan substantially similar 2003 plan shares remaining 2003 plan carried forward 2014 plan addition company seek approval additional shares determined total available shares 2014 plan within acceptable parameters set institutional shareholder services equity plans awards discussed available grant 2003 plan 2014 plan company accounts stockbased compensation awards accordance fasb asc topics 505 718 interpreted sec staff accounting bulletins 107 “sab 107” 110 “sab 110” stockbased compensation expense based fair value award date grant recognized expense related service period net estimated forfeitures service period related service performed generally vesting period currently company issues treasury shares upon exercise release settlement stockbased compensation awards determining appropriate fair value model calculating fair value stockbased compensation awards requires input certain complex subjective assumptions including expected life stockbased compensation awards common stock price volatility addition determining appropriate amount associated periodic expense requires management estimate amount employee forfeitures likelihood achievement certain performance targets assumptions used calculating fair value stockbased compensation awards associated periodic expense represent management’s best estimates involve inherent uncertainties application judgment result factors change company deems necessary future modify assumptions made use different assumptions quantity nature company’s stockbased compensation awards changes amount expense may need adjusted future stockbased compensation expense could materially different recorded current period company recognized following amounts stockbased compensation expense award type years ended december 31 millions 1 includes charges 125 million 51 million 31 million 2013 2012 2011 respectively awards retirementeligible employees since awards vest accelerated basis stockbased compensation expense recognized line item consolidated statements operations years ended december 31 millions december 31 2013 company 410 million total unrecognized stockbased compensation cost expected recognized stockbased compensation expense remaining weightedaverage service period approximately 22 years stockbased compensation awards following disclosures provide information regarding company’s stockbased compensation awards classified equity awards accordance fasb asc topic 505 stock appreciation rights stocksettled stock appreciation rights sars permit holder participate appreciation common stock sars settled shares common stock employee applicable vesting criteria met sars vest ratably fouryear service period expire seven years grant date fair value sars awards recognized compensation expense straightline basis four years sars awarded company’s executive officers sars exercised number shares common stock issued calculated follows 1 total proceeds sars exercise calculated closing price common stock date exercise less exercise price sars multiplied number sars exercised divided 2 closing price common stock reported new york stock exchange exercise date company withholds portion shares common stock issued upon exercise satisfy minimum statutory tax withholding requirements sars recipients stockholder rights actual shares common stock issued respect award subject prior satisfaction vesting criteria relating grants following table summarizes changes sars outstanding year ended december 31 2013 na applicable 1 december 31 2013 10 million sars unvested company expects substantially unvested awards vest future periods 2 december 31 2013 sars outstanding intrinsic value 591 million sars vested exercisable intrinsic value 290 million fair value sars granted estimated date grant using blackscholesmerton valuation model following weightedaverage assumptions years ended december 31 1 dividend yield assumption based history expectation company’s dividend payouts historically company paid cash dividends common stock 2 determination expected stock price volatility based historical common stock prices implied volatility publicly traded options common stock 3 riskfree interest rate based yield us treasury security maturity similar expected life award 4 expected life represents company’s weightedaverage estimate period time sars expected outstanding period service inception date expected exercise date restricted stock units restricted stock units rsus give awardee right receive shares common stock vesting conditions met restrictions lapse rsu vests entitles awardee one common share rsu awardees right gartner stockholder including voting rights right receive dividends distributions shares released fair value rsus determined date grant based closing price common stock reported new york stock exchange date servicebased rsus vest ratably four years expensed straightline basis four years performancebased rsus subject performance service conditions vest ratably four years expensed accelerated basis following table summarizes changes rsus outstanding year ended december 31 2013 1 07 million rsus granted 2013 consisted 03 million performancebased rsus awarded executives 04 million servicebased rsus awarded nonexecutive employees certain board members target number performancebased rsus awarded executives 2013 02 million final amount could range 0 200 target amount final amount dependent increase companys subscriptionbased contract value cv year measured december 31 2013 actual cv increase achieved 2013 1171 resulted grant 03 million performancebased rsus 2 company expects substantially outstanding awards december 31 2013 vest future periods 3 weightedaverage remaining contractual term outstanding rsus approximately 1 year common stock equivalents common stock equivalents cses convertible common stock cse entitles holder one common share members board directors receive directors’ fees payable cses unless opt receive 50 fees cash generally cses defined term converted common shares service director terminates unless director elected accelerated release fair value cses determined date grant based closing price common stock reported new york stock exchange date cses vest immediately result recorded expense date grant following table summarizes changes cses outstanding year ended december 31 2013 stock options company made stock option grants 2006 december 31 2013 less 02 million remaining outstanding unexercised options fully vested expire 2015 company received cash options exercises amount 17 million 86 million 166 million 2013 2012 2011 respectively employee stock purchase plan company employee stock purchase plan “esp plan” eligible employees permitted purchase common stock payroll deductions may exceed 10 employee’s compensation 23750 calendar year price equal 95 closing price common stock reported new york stock exchange end offering period december 31 2013 company approximately 12 million shares available purchase esp plan esp plan considered noncompensatory fasb asc topic 718 result company record stockbased compensation expense employee share purchases company received 44 million 38 million 34 million cash share purchases esp plan 2013 2012 2011 respectively 9 computation earnings per share basic earnings per share “eps” computed dividing net income weighted average number shares common stock outstanding period diluted eps reflects potential dilution securities could share earnings impact common share equivalents antidilutive excluded calculation following table sets forth reconciliation basic diluted earnings per share computations years ended december 31 thousands except per share amounts 1 company repurchased 34 million 27 million 59 million shares common stock 2013 2012 2011 respectively following table presents number common share equivalents included computation diluted eps table effect would antidilutive periods net income common share equivalents antidilutive exercise price greater average market value share common stock period 10 income taxes following summary components income taxes years ended december 31 thousands expense income taxes income consists following components thousands current longterm deferred tax assets liabilities comprised following thousands current net deferred tax assets current net deferred tax liabilities 195 million 87 million december 31 2013 326 million 13 million december 31 2012 respectively included prepaid expenses current assets accounts payable accrued liabilities consolidated balance sheets longterm net deferred tax assets longterm net deferred tax liabilities 244 million 02 million december 31 2013 225 million 01 million december 31 2012 respectively included assets liabilities consolidated balance sheets likely results future operations generate sufficient taxable income realize deferred tax assets valuation allowances 06 million december 31 2013 19 million december 31 2012 largely relate net operating losses december 31 2013 company state local tax net operating loss carryforwards 913 million 29 million expire within one five years 873 million expire within six fifteen years 11 million expire within sixteen twenty years company also state tax credits 29 million expire within two five years december 31 2013 company nonus net operating loss carryforwards 303 million 10 million expire next 20 years 293 million carried forward indefinitely addition company also foreign tax credit carryforwards 13 million majority expire 2017 differences us federal statutory income tax rate company’s effective tax rate income taxes years ended december 31 follow 2013 2012 state income taxes net federal tax benefit include approximately 13 million 26 million respectively benefit relating economic development tax credits associated renovation company’s stamford headquarters facility december 31 2013 december 31 2012 company unrecognized tax benefits 145 million 176 million respectively decrease primarily attributable reductions tax positions prior years settlements resulting closure tax audits partially offset additions unrecognized tax benefits attributable 2013 reasonably possible unrecognized tax benefits decreased 31 million within next 12 months due anticipated closure audits expiration certain statutes limitation unrecognized tax benefits relate primarily utilization certain tax attributes company classifies uncertain tax positions expected settled within one year long term liabilities december 31 2013 december 31 2012 company 114 million 131 million respectively related long term uncertain tax positions included liabilities following reconciliation beginning ending amount unrecognized tax benefits excluding interest penalties years ending december 31 thousands included balance unrecognized tax benefits december 31 2013 potential benefits 118 million recognized would reduce effective tax rate income continuing operations also included balance unrecognized tax benefits december 31 2013 potential benefits 27 million recognized would result adjustments tax accounts primarily deferred taxes company accrues interest penalties related unrecognized tax benefits income tax provision december 31 2013 december 31 2012 company 33 million 46 million accrued interest penalties respectively related unrecognized tax benefits amounts addition unrecognized tax benefits disclosed total amount interest penalties recognized consolidated statements operations years ending december 31 2013 december 31 2012 03 million 04 million respectively number years open statutes limitation varies depending tax jurisdiction generally company’s statutes open tax years ended december 31 2008 forward exception india open tax years 2003 forward major taxing jurisdictions include us federal state united kingdom canada japan italy india ireland 2013 company closed internal revenue service “irs” audit 2008 2009 federal income tax returns resolution audit material adverse effect consolidated financial position cash flows results operations company late 2013 company received notice irs intends conduct audit companys 2010 2011 tax years audits years commenced early stages examination although final resolution audits uncertain company believes ultimate disposition material adverse effect consolidated financial position cash flows results operations earnings nonus subsidiaries generally subject us taxation repatriated company intends reinvest earnings outside us except instances repatriating earnings would result minimal additional tax company currently plan remit earnings result material tax cost accordingly company recognized additional tax expense may result remittance earnings accumulated undistributed earnings nonus subsidiaries approximately 1400 million december 31 2013 estimate income tax liability would payable earnings indefinitely invested 330 million 11 derivatives hedging company enters limited number derivative contracts offset potentially negative economic effects interest rate foreign exchange movements company accounts outstanding derivative contracts accordance fasb asc topic 815 requires derivatives including derivatives designated accounting hedges recorded balance sheet fair value following tables provide information regarding company’s outstanding derivatives contracts years ended thousands except number outstanding contracts december 31 2013 december 31 2012 1 swap designated cash flow hedge forecasted interest payments borrowings result changes fair value swap deferred recorded oci net tax effect see note 5 debt additional information 2 company foreign exchange transaction risk since typically enters transactions normal course business denominated foreign currencies differ local functional currency company enters shortterm foreign currency forward exchange contracts offset economic effects foreign currency transaction risks contracts accounted fair value realized unrealized gains losses recognized expense net since company designate contracts hedges accounting purposes substantially outstanding contracts december 31 2013 matured end january 2014 3 see note 12 fair value disclosures determination fair value instruments december 31 2013 company’s derivative counterparties large investment grade financial institutions company collateral arrangements derivative counterparties none derivative contracts contained creditrisk related contingent features following table provides information regarding amounts recognized consolidated statements operations derivative contracts years ended december 31 thousands 1 consists interest expense interest rate swap contracts 2 consists realized unrealized gains losses foreign currency forward contracts 12 fair value disclosures company’s financial instruments include cash equivalents fees receivable customers accounts payable accruals normally shortterm nature company believes carrying amounts financial instruments reasonably approximates fair value due shortterm nature company’s financial instruments also includes borrowings outstanding 2013 credit agreement december 31 2013 company 2000 million floating rate debt outstanding arrangement carried amortized cost company believes carrying amount outstanding borrowings reasonably approximates fair value since rate interest borrowings reflect current market rates interest similar instruments comparable maturities fasb asc topic 820 provides framework measurement fair value valuation hierarchy based upon transparency inputs used valuation assets liabilities classification within hierarchy based upon lowest level input significant resulting fair value measurement valuation hierarchy contains three levels level 1 measurements consist quoted prices active markets identical assets liabilities level 2 measurements include significant observable inputs quoted prices similar assets liabilities active markets identical assets liabilities inactive markets observable inputs interest rates yield curves marketcorroborated inputs level 3 measurements include significant unobservable inputs internallycreated valuation models company currently utilize level 3 valuation inputs remeasure assets liabilities however level 3 inputs may used company required annual impairment review goodwill information regarding periodic assessment company’s goodwill included note 1 business significant accounting policies company typically transfer assets liabilities different levels fair value hierarchy company’s assets liabilities remeasured fair value presented following table thousands 1 company deferred compensation plan benefit certain highly compensated officers managers key employees see note 13 employee benefits plan’s assets consist investments money market mutual funds companyowned life insurance contracts money market funds consist cash equivalents mutual fund investments consist publiclytraded quoted equity shares company considers fair value assets based level 1 inputs assets fair value 78 million 82 million december 31 2013 2012 respectively carrying amount life insurance contracts equals cash surrender value cash surrender value represents estimated amount company would receive upon termination contract approximates fair value company considers life insurance contracts valued based level 2 input assets fair value 248 million 196 million december 31 2013 2012 respectively related deferred compensation plan liabilities recorded amount needed settle liability approximates fair value based level 2 input 2 company enters foreign currency forward exchange contracts hedge effects adverse fluctuations foreign currency exchange rates see note 11 derivatives hedging valuation foreign currency forward contracts based foreign currency exchange rates active markets company considers level 2 input 3 company interest rate swap contract hedges risk variability interest rates borrowings see note 11 derivatives hedging fair value swap based marktomarket valuation prepared thirdparty broker valuation based observable interest rates recently executed market transactions observable market data company considers level 2 inputs company independently corroborates reasonableness valuation prepared thirdparty broker use electronic quotation service disclosures offsetting assets liabilities january 1 2013 company adopted fasb asu 20131 clarifying scope disclosures offsetting assets liabilities updates fasb asu 201111 disclosures offsetting assets liabilities rules require certain disclosures assets liabilities resulting derivative transactions repurchase agreements securities lending arrangements among required disclosures gross amounts assets liabilities resulting transactions amounts potentially subject offset master netting arrangements resulting amounts recorded balance sheets company enters limited number derivatives transactions enter repurchase agreements securities lending transactions addition company enter master netting arrangements receivables payables result derivatives transactions recorded gross company’s consolidated balance sheets information regarding company’s derivatives contracts related amounts recorded consolidated balance sheets december 31 2013 2012 included fair value table 13 employee benefits defined contribution plan company savings investment plan “401k plan” covering substantially us employees company contributions based upon level employee contributions maximum 4 employee’s eligible salary subject annual maximum 2013 maximum match 7000 amounts expensed connection 401k plan totaled 158 million 142 million 159 million 2013 2012 2011 respectively deferred compensation plan company supplemental deferred compensation plan benefit certain highly compensated officers managers key employees structured rabbi trust plan’s investment assets classified assets consolidated balance sheets fair value assets 326 million 278 million december 31 2013 2012 respectively see note 12 fair value disclosures fair value information corresponding deferred compensation liability 364 million 313 million december 31 2013 2012 respectively carried fair value adjusted corresponding charge credit compensation cost reflect fair value amount owed employees classified liabilities consolidated balance sheets total compensation expense recognized plan 04 million 2013 2012 03 million 2011 defined benefit pension plans company definedbenefit pension plans several nonus locations benefits earned plans based years service level employee compensation company accounts defined benefit plans accordance requirements fasb asc topics 715 960 following components defined benefit pension expense years ended december 31 thousands 1 higher 2013 service cost primarily due additional employees covered plans 2 pension expense classified sga consolidated statements operations following assumptions used computation pension expense years ended december 31 1 discount rates typically determined utilizing yields longterm corporate government bonds relevant country duration consistent expected term underlying pension obligations following table provides information related changes projected benefit obligation years ended december 31 thousands 1 2012 actuarial loss primarily due decline weightedaverage discount rate 2 company projects following approximate amounts paid future years plan participants 06 million 2014 18 million 2015 07 million 2016 11 million 2017 10 million 2018 75 million five years thereafter 3 measured december 31 following table provides information regarding funded status plans related amounts recorded company’s consolidated balance sheets december 31 thousands funded status plans 1 plan assets held thirdparty trustees invested diversified portfolio equities high quality government corporate bonds investments assets primarily valued based level 1 level 2 inputs fair value hierarchy fasb asc topic 820 company considers overall portfolio assets lowtomedium investment risk company projects future longterm rate return plan assets 38 believes reasonable based composition assets current projected market conditions yearended december 31 2013 company contributed 59 million plans benefits paid participants 13 million addition plan assets held thirdparty trustees company also maintains reinsurance asset arrangement large international insurance company reinsurance asset company whose purpose provide funding benefit payments one plans december 31 2013 reinsurance asset carried company’s consolidated balance sheets cash surrender value 93 million classified assets company believes cash surrender value approximates fair value equivalent level 2 input fasb’s fair value framework asc topic 820 2 funded status shortfall represents amount projected benefit obligation company funded thirdparty trustee amount liability company recorded liabilities company’s consolidated balance sheets 3 deferred actuarial loss december 31 2013 recorded accumulated comprehensive income “aoci” reclassified aoci recognized pension expense approximately 15 years subject certain limitations set forth fasb asc topic 715 impact amortization periodic pension expense 2014 projected less 01 million actual amortization deferred actuarial losses gains aoci pension expense less 01 million 2013 02 million 2012 01 million 2011 14 segment information company manages business three reportable segments research consulting events research consists primarily subscriptionbased research products access research inquiry peer networking services membership programs consulting consists primarily consulting measurement engagements strategic advisory services events consists various symposia conferences exhibitions company evaluates reportable segment performance allocates resources based gross contribution margin gross contribution presented table defined operating income excluding certain cos expenses sga expense depreciation acquisition integration charges amortization intangibles certain bonus fringe benefit costs included consolidated cos allocated segment expense accounting policies used reportable segments used company intersegment revenues company earns revenue clients many countries united states individual country revenues external clients represent 10 company’s consolidated revenues additionally single client accounted 10 total revenue loss single client management’s opinion would material adverse effect revenues company identify allocate assets including capital expenditures reportable segment accordingly assets reported segment information available segment reviewed evaluation performance making decisions allocation resources following tables present operating information company’s reportable segments years ended december 31 thousands following table provides reconciliation total segment gross contribution net income periods indicated thousands 1 unallocated amounts consist certain bonus related fringe costs recorded consolidated cost services product development expense allocated segment expense companys policy allocate bonus related fringe charges segments 100 segment employees target bonus amounts 100 absorbed corporate company’s revenues generated primarily direct sales clients domestic international sales forces network independent international sales agents company’s products services provided integrated worldwide basis integrated delivery practical precisely separate revenues geographic location accordingly separation set forth table based upon internal allocations involve certain management estimates judgments revenues table reported based sale fulfilled “other international” revenues attributable areas located outside united states canada europe middle east africa summarized information geographic location years ended december 31 follows thousands 1 excludes goodwill intangible assets 2 united states canada balances include costs capitalized connection renovation company’s stamford headquarters facility see note 1 business significant accounting policies additional description capitalized costs amounted 77 million 2013 170 million 2012 95 million 2011 15 valuation qualifying accounts company maintains allowance losses composed bad debt allowance revenue reserve provisions charged earnings either increase expense reduction revenues following table summarizes activity company’s allowance years ended december 31in thousands 16 subsequent event february 4 2014 company’s board directors authorized 8000 million repurchase companys common stock authorization succeeds company’s prior 5000 million share repurchase authorization substantially utilized see note 7 stockholders equity additional information regarding 8000 million share repurchase authorization companys share repurchase activity signatures pursuant requirements securities exchange act 1934 registrant caused report form 10k signed behalf undersigned duly authorized stamford connecticut february 26 2014 power attorney person whose signature appears appoints eugene hall christopher j lafond acting individually attorneyinfact full power substitution capacities sign amendments report form 10k file appropriate exhibits related documents securities exchange commission undersigned ratifies confirms signatures may signed attorneyinfact amendments report pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicateditem 15 exhibits financial statement schedules 1 2 consolidated financial statements schedules reports independent registered public accounting firm consolidated financial statements listed index consolidated financial statements herein filed part report financial statement schedules listed index omitted information required applicable shown consolidated financial statements notes thereto 3 exhibits index consolidated financial statements gartner inc consolidated financial statements financial statement schedules omitted information required applicable shown consolidated financial statements notes thereto report independent registered public accounting firm board directors stockholders gartner inc audited accompanying consolidated balance sheets gartner inc subsidiaries company december 31 2014 2013 related consolidated statements operations comprehensive income stockholders’ equity cash flows years threeyear period ended december 31 2014 consolidated financial statements responsibility company’s management responsibility express opinion consolidated financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements referred present fairly material respects financial position gartner inc subsidiaries december 31 2014 2013 results operations cash flows years threeyear period ended december 31 2014 conformity us generally accepted accounting principles also audited accordance standards public company accounting oversight board united states company’s internal control financial reporting december 31 2014 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission coso report dated february 27 2015 expressed unqualified opinion effectiveness company’s internal control financial reporting kpmg llp logo kpmg llp new york new york february 27 2015 report independent registered public accounting firm board directors stockholders gartner inc audited gartner inc subsidiaries’ company internal control financial reporting december 31 2014 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission coso company’s management responsible maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included accompanying management’s annual report internal control financial reporting responsibility express opinion company’s internal control financial reporting based audit conducted audit accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether effective internal control financial reporting maintained material respects audit included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audit also included performing procedures considered necessary circumstances believe audit provides reasonable basis opinion company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate opinion company maintained material respects effective internal control financial reporting december 31 2014 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission coso also audited accordance standards public company accounting oversight board united states consolidated balance sheets gartner inc subsidiaries december 31 2014 2013 related consolidated statements operations comprehensive income stockholders’ equity cash flows years threeyear period ended december 31 2014 report dated february 27 2015 expressed unqualified opinion consolidated financial statements kpmg llp logo kpmg llp new york new york february 27 2015 gartner inc consolidated balance sheets thousands except share data see notes consolidated financial statements gartner inc consolidated statements operations thousands except per share data see notes consolidated financial statements gartner inc consolidated statements comprehensive income thousands see notes consolidated financial statements gartner inc consolidated statements stockholders’ equity thousands see notes consolidated financial statements gartner inc consolidated statements cash flows thousands see notes consolidated financial statements gartner inc notes consolidated financial statements 1 business significant accounting policies business gartner inc global information technology research advisory company founded 1979 headquarters stamford connecticut gartner delivers principal products services three business segments research consulting events used notes terms “gartner” “company” “we” “us” “our” refer gartner inc consolidated subsidiaries basis presentation accompanying consolidated financial statements prepared accordance generally accepted accounting principles united states america “us gaap” defined financial accounting standards board “fasb” accounting standards codification “asc” topic 270 financial information applicable instructions us securities exchange commission “sec” regulation sx fiscal year gartner represents twelvemonth period january 1 december 31 references 2014 2013 2012 herein refer fiscal year unless otherwise indicated principles consolidation accompanying consolidated financial statements include accounts company whollyowned subsidiaries significant intercompany transactions balances eliminated use estimates preparation accompanying consolidated financial statements requires management make estimates assumptions future events estimates underlying assumptions affect amounts assets liabilities reported disclosures contingent assets liabilities reported amounts revenues expenses estimates include valuation fees receivable goodwill intangible assets longlived assets well tax accruals liabilities addition estimates used revenue recognition income tax expense performancebased compensation charges depreciation amortization allowance losses fees receivable management believes use estimates accompanying consolidated financial statements reasonable management continuously evaluates revises estimates using historical experience factors including general economic environment actions may take future management adjusts estimates facts circumstances dictate however estimates may involve significant uncertainties judgments cannot determined precision addition estimates based management’s best judgment point time result differences estimates actual results could material would reflected company’s consolidated financial statements future periods acquisitions company accounts acquisitions accordance acquisition method accounting prescribed fasb asc topic 805 business combinations acquisition method accounting requires company record net assets liabilities acquired based estimated fair values acquisition date excess consideration transferred estimated fair value net assets acquired including identifiable intangible assets recorded goodwill acquisition method operating results acquired companies included companys consolidated financial statements beginning date acquisition company acquisitions 2014 2012 discussed note 2 acquisitions revenue recognition revenue recognized accordance us gaap sec staff accounting bulletin 104 revenue recognition “sab 104” revenues recognized required criteria recognition met accompanying consolidated statements operations presents revenues net sales valueadded taxes collect customers remit government authorities company’s revenues significant source follows research revenues derived subscription contracts research products revenues deferred recognized ratably applicable contract term company typically enters twelvemonth subscription contracts research products although multiyear contracts entered greater frequency reprint fees recognized reprint delivered majority research contracts billable upon signing absent special terms granted limited basis time research contracts noncancelable nonrefundable except government contracts may cancellation fiscal funding clauses historically produced material cancellations policy record entire amount contract billable fee receivable time contract signed corresponding amount deferred revenue since contract represents legally enforceable claim consulting revenues primarily derived consulting measurement strategic advisory services paid oneday analyst engagements principally generated fixed fee time materials engagements revenues fixed fee engagements recognized proportional performance basis revenues time material engagements recognized work delivered andor services provided revenues related contract optimization engagements contingent nature recognized upon satisfaction conditions related payment unbilled fees receivable associated consulting engagements 440 million december 31 2014 370 million december 31 2013 events revenues deferred recognized upon completion related symposium conference exhibition addition company defers certain costs directly related events expenses costs period related symposium conference exhibition occurs companys policy defer costs primarily prepaid site production services costs incremental directly attributable specific event costs organizing producing events primarily company personnel nonevent specific expenses expensed period incurred end fiscal quarter company assesses eventbyevent basis whether expected direct costs producing scheduled event exceed expected revenues costs expected exceed revenues company records expected loss period determined allowance losses company maintains allowance losses composed bad debt allowance sales reserve provisions charged earnings either reduction revenues increase expense amount allowance losses based historical loss experience aging outstanding receivables assessment current economic conditions financial health specific clients cost services product development “cos” cos expense includes direct costs incurred creation delivery products services costs primarily relate personnel selling general administrative “sga” sga expense includes direct indirect selling costs general administrative costs charges earnings related uncollectible accounts commission expense company records commission obligations upon signing customer contracts amortizes deferred obligation commission expense period related revenues earned commission expense included sga consolidated statements operations stockbased compensation expense company accounts stockbased compensation accordance fasb asc topics 505 718 interpreted sec staff accounting bulletins 107 “sab 107” 110 “sab 110” stockbased compensation cost based fair value award date grant expensed related service period net estimated forfeitures service period employee performs related services normally vesting period 2014 2013 2012 company recognized 388 million 347 million 364 million respectively stockbased compensation expense portion recorded cos sga consolidated statements operations see note 8 stockbased compensation additional information income tax expense company uses asset liability method accounting income taxes estimate income taxes jurisdictions operate process involves estimating current tax expense together assessing temporary differences resulting differing treatment items tax accounting purposes differences result deferred tax assets liabilities included within consolidated balance sheets assessing realizability deferred tax assets management considers likely deferred tax assets realized consider availability loss carryforwards projected reversal deferred tax liabilities projected future taxable income ongoing prudent feasible tax planning strategies making assessment company recognizes tax benefit uncertain tax position likely tax position sustained based technical merits position cash equivalents includes cash highly liquid investments original maturities three months less considered cash equivalents carrying value cash equivalents approximates fair value due shortterm maturity investments maturities three months classified marketable securities interest earned classified interest income consolidated statements operations property equipment leasehold improvements company leases facilities certain equipment leases classified operating leases accordance fasb asc topic 840 cost operating leases including contractual rent increases rent concessions landlord incentives recognized ratably life related lease agreement lease expense 315 million 308 million 303 million 2014 2013 2012 respectively equipment leasehold improvements fixed assets owned company recorded cost less accumulated depreciation except leasehold improvements fixed assets depreciated using straightline method estimated useful lives assets leasehold improvements amortized using straightline method shorter estimated useful lives improvement remaining term related lease company total depreciation expense 312 million 290 million 254 million 2014 2013 2012 respectively companys total fixed assets less accumulated depreciation amortization consisted following thousands company incurs costs develop internal use software used operations certain costs meeting criteria outlined fasb asc topic 350 capitalized amortized future periods net capitalized development costs internal use software 141 million december 31 2014 2013 included computer equipment software category amortization capitalized internal software development costs classified depreciation consolidated statements operations totaled 82 million 2014 2013 74 million 2012 intangible assets company amortizable intangible assets amortized earnings using straightline method expected useful lives changes intangible assets subject amortization twoyear period ended december 31 2014 follows thousands 1 additions due companys 2014 acquisitions see note 2 acquisitions additional information 2 noncompetition intangible relates separation agreement companys former cfo 3 intangible assets amortized earnings following periods trade name2 5 years customer relationships 4 7 years content15 4 years software3 years noncompete4 5 years 4 aggregate amortization expense related intangible assets 82 million 54 million 44 million 2014 2013 2012 respectively estimated future amortization expense year amortizable intangibles follows thousands goodwill represents excess purchase price acquired businesses estimated fair value tangible identifiable intangible net assets acquired evaluation recoverability goodwill performed accordance fasb asc topic 350 requires annual assessment potential goodwill impairment reporting unit level whenever events changes circumstances indicate carrying value goodwill may recoverable annual assessment recoverability recorded goodwill based either qualitative quantitative assessment combination two methods utilize estimates turn require judgments assumptions regarding future trends events result precision reliability resulting estimates subject uncertainty company conducted qualitative assessment fair value reporting units september 30 2014 based part demonstrated historical trend fair values company’s reporting units substantially exceeding carrying values companys recent financial performance among factors included company’s qualitative assessment general economic conditions competitive environment actual projected reporting unit financial performance forwardlooking business measurements external market assessments based results qualitative assessment company believes fair values reporting units continue exceed respective carrying values following table presents changes carrying amount goodwill segment twoyear period ended december 31 2014 thousands 1 company accumulated goodwill impairment loss 2 addition due 2014 acquisitions see note 2acquisitions additional discussion recorded goodwill acquisitions included research segment impairment longlived intangible assets company reviews longlived intangible assets goodwill impairment whenever events changes circumstances indicate carrying amount respective asset may recoverable evaluation may based number factors including current projected operating results cash flows changes management’s strategic direction well external economic market factors company’s policy regarding longlived assets intangible assets goodwill evaluate recoverability assets determining whether balance recovered undiscounted future operating cash flows events circumstances indicate carrying value might recoverable based undiscounted future operating cash flows impairment loss would recognized amount impairment measured based difference projected discounted future operating cash flows using discount rate reflecting company’s average cost funds carrying value asset company record material impairment charges longlived intangible assets three year period ended december 31 2014 pension obligations company definedbenefit pension plans several international locations see note 13 employee benefits earned plans generally based years service level employee compensation company accounts defined benefit plans accordance requirements fasb asc topic 715 company determines periodic pension expense related liabilities plans actuarial assumptions valuations company recognized 34 million 38 million 26 million expense plans 2014 2013 2012 respectively company classifies pension expense sga consolidated statements operations debt company presents amounts borrowed consolidated balance sheets amortized cost interest accrued amounts borrowed classified interest expense consolidated statements operations company refinanced debt 2014 4050 million debt outstanding december 31 2014 see note 5debt additional information foreign currency exposure functional currency foreign subsidiaries typically local currency assets liabilities foreign subsidiaries translated us dollars exchange rates effect balance sheet date income expense items translated average exchange rates year resulting translation adjustments recorded foreign currency translation adjustments component accumulated comprehensive income net within stockholders’ equity section consolidated balance sheets currency transaction gains losses arising transactions denominated currencies functional currency subsidiary recognized results operations expense net within consolidated statements operations net currency transaction losses 17 million 09 million 23 million 2014 2013 2012 respectively company enters foreign currency forward exchange contracts mitigate effects adverse fluctuations foreign currency exchange rates transactions contracts generally short duration recorded fair value realized unrealized gains losses recorded expense net gain loss contracts 06 million 01 million 06 million 2014 2013 2012 respectively comprehensive income company reports comprehensive income separate statement termed consolidated statements comprehensive income included herein companys comprehensive income disclosures included note 7 stockholders equity fair value disclosures company limited number assets liabilities adjusted fair value balance sheet date company’s fair value disclosures included note 12 fair value disclosures concentrations credit risk assets may subject company concentration credit risk consist primarily shortterm highly liquid investments classified cash equivalents accounts receivable interest rate swaps pension reinsurance asset majority company’s cash equivalent investments interest rate swap contract investment grade commercial banks accounts receivable balances deemed collectible customers limited concentration credit risk due diverse customer base geographic dispersion company’s pension reinsurance asset see note 13 employee benefits maintained large international insurance company rated investment grade december 31 2014 stock repurchase programs company records cost repurchase common shares treasury stock 2014 2013 2012 company used 4320 million 1817 million 1113 million respectively cash stock repurchases see note 7 stockholders’ equity shares repurchased company added treasury shares retired adoption new accounting rules company adopted following accounting rules year ended december 31 2014 unrecognized tax benefits company adopted asu 201311 presentation unrecognized tax benefit net operating loss carryforward similar tax loss tax credit carryforward exists asu 201311 january 1 2014 asu 201311 addresses balance sheet presentation unrecognized tax benefit net operating loss carryforward similar tax loss tax credit carryforward exists asu 201311 requires unrecognized tax benefit portion unrecognized tax benefit presented financial statements reduction deferred tax asset net operating loss carryforward similar tax loss tax credit carryforward balance sheet impact adoption asu 201311 material company cumulative translation adjustments company adopted asu 201305 parent’s accounting cumulative translation adjustment upon derecognition certain subsidiaries groups assets within foreign entity investment foreign entity asu 201305 january 1 2014 asu 201305 provides updated guidance resolve diversity practice concerning release cumulative foreign currency translation adjustment net income parent sells part investment foreign entity longer holds controlling financial interest subsidiary group assets within foreign entity company ceases controlling financial interest company recognize related cumulative translation adjustment net income sale transfer results complete substantially complete liquidation foreign entity subsidiary resided upon partial sale company release earnings pro rata portion cumulative translation adjustment adoption asu 201305 impact companys financial statements impact upon occurrence transaction within scope recent accounting developments accounting rules issued fasb yet become effective may impact company’s consolidated financial statements related disclosures future periods described revenue recognition may 2014 fasb issued accounting standards update asu 201409 revenue contracts customers asu 201409 asu 2014 09 intended clarify principles recognizing revenue removing inconsistencies weaknesses revenue recognition requirements providing robust framework addressing revenue issues improving comparability revenue recognition practices across entities industries jurisdictions capital markets providing useful information users financial statements improved revenue disclosure requirements provisions new rule effective gartner january 1 2017 early adoption permitted continue evaluate impact asu 201409 discontinued operations may 2014 fasb issued asu 201408 reporting discontinued operations disclosures disposals components entity asu 201408 changes criteria determining disposal transactions presented discontinued operations modifies related disclosure requirements new guidance discontinued operation defined disposal component group components disposed classified held sale represents strategic shift major effect entity’s operations financial results company adopted new rule january 1 2015 impact companys consolidated financial statements fasb also continues work number significant accounting rules may impact company’s accounting disclosures future periods since rules yet issued effective dates potential impact unknown 2 acquisitions company completed three acquisitions year ended december 31 2014 acquisitions one acquisition 2012 discussed march 2014 company acquired software advice inc “software advice” privatelyowned company based austin texas 120 employees software advice assists customers software purchases closing company paid 1032 million cash 100 outstanding shares software advice company also obligated pay additional 319 million cash related acquisition includes 135 million placed escrow security potential losses release escrowed funds also subject achievement certain employment conditions escrow amount considered restricted cash recorded assets consolidated balance sheets additional 184 million payable contingent achievement certain employment conditions amount also subject indemnified losses excess escrowed funds 319 million obligation adjusted indemnified losses recognized compensation expense twoyear service period relevant employees acquisition integration charges consolidated statements operations employment conditions met expense previously accrued reversed period employment terminates may 2014 company acquired 100 outstanding shares marketvisio oy marketvisio privatelyowned finnish company 68 employees named gartner finland oy marketvisio previously independent sales agent gartner research products well locallycreated research content finland russia gartner finland oy conducts operations russia whollyowned operating subsidiary named gartner rus llc company paid total 65 million cash marketvisio included 41 million paid close may 24 million paid october working capital adjustments june 2014 company acquired 100 outstanding shares sircleit inc developer cloudbased knowledge automation software 57 million cash sircleit inc domestic company conducts operations principally senexx israel ltd whollyowned subsidiary israel 2 employees gartner paid 49 million cash close additional 08 million placed escrow security certain indemnity claims payable 18 months date close companys financial statements include operating results businesses beginning respective dates acquisition operating results businesses material companys consolidated segment operating results fiscal year ended december 31 2014 addition company acquired businesses prior periods impact companys operating results prior periods would material result pro forma financial information prior periods presented company recorded 219 million pretax acquisition integration charges fiscal year ended december 31 2014 related acquisitions classified acquisition integration charges condensed consolidated statements operations acquisition integration charges directlyrelated acquisitions primarily include amounts accrued payments contingent achievement certain employment conditions legal consulting severance costs following table summarizes preliminary allocation purchase price fair value assets acquired liabilities assumed 2014 acquisitions thousands 1 includes sircleit inc marketvisio acquisitions 2 see note 1 business significant accounting policies additional information regarding types amounts amortizable intangibles recorded 2014 acquisitions 3 2014 subsequent 2014 acquisitions company recorded certain working capital tax minor adjustments decreased recorded goodwill resulting marketvisio sircleit inc acquisitions approximately 01 million 02 million respectively addition recorded amount amortizable intangible asset resulting software advice acquisition reduced 27 million goodwill increased amount due change underlying assumptions used value amortizable intangible asset based consideration additional information became available 4 company paid 1146 million cash gross basis net assets acquired december 31 2014 net basis cash flow reporting company paid 1099 million cash december 31 2014 represents 1146 million cash paid gross basis minus 47 million cash acquired purchased companies determination fair value amortizable intangibles required management judgment consideration number factors significant among historical financial performance acquired businesses projected performance estimates surrounding customer turnover well assumptions regarding level competition cost reproduce certain assets determining fair value intangibles management primarily relied income methodologies particular discounted cash flow approach establishing useful lives amortizable intangibles also required management judgment evaluation number factors among projected cash flows likelihood competition company considers allocation purchase price 2014 acquisitions preliminary respect certain tax contingencies majority recorded goodwill intangibles transactions deductible tax purposes 15 years recorded goodwill 2014 acquisitions included company’s research segment company believes recorded goodwill supported anticipated revenue synergies customer retention cost savings resulting combined operations 2012 company acquired 100 outstanding shares ideas international limited “ideas international” publiclyowned australian corporation aggregate cash consideration 188 million operating results ideas international material company’s 2012 results company recorded 75 million goodwill 85 million amortizable intangible assets result acquisition company also recorded 03 million 24 million pretax charges 2013 2012 respectively related acquisition classified acquisition integration charges consolidated statements operations 3 assets consist following thousands 4 accounts payable accrued liabilities accounts payable accrued liabilities consist following thousands liabilities consist following thousands 5 debt 2014 credit agreement company entered new credit arrangement december 2014 “2014 credit agreement” take advantage favorable credit conditions 2014 credit agreement provides fiveyear 4000 million term loan 11 billion revolving credit facility addition 2014 credit agreement contains expansion feature term loan revolving credit facility may increased company’s option certain conditions additional 5000 million aggregate term loan repaid 16 consecutive quarterly installments commence march 31 2015 plus final payment due december 2019 may prepaid time without penalty premium applicable breakage costs company’s option revolving credit facility may used loans 400 million may used letters credit revolving loans may borrowed repaid reborrowed december 2019 time amounts borrowed must repaid company recorded charge 05 million capitalized debt issuance costs related termination previous credit arrangement included interest expense net condensed consolidated statements operations company incurred 46 million debt issuance costs related new credit facility capitalized amortized interest expense term 2014 credit agreement amounts borrowed 2014 credit agreement bear interest rate equal gartner’s option either 1 greatest administrative agent’s prime rate ii average rate overnight federal funds plus 12 1 iii eurodollar rate adjusted statutory reserves plus 1 case plus margin equal 0125 050 depending gartner’s consolidated leverage ratio end four consecutive fiscal quarters recently ended 2 eurodollar rate adjusted statutory reserves plus margin equal 1125 150 depending gartner’s leverage ratio end four consecutive fiscal quarters recently ended 2014 credit agreement contains certain customary restrictive loan covenants including among others financial covenants requiring maximum leverage ratio minimum interest expense coverage ratio covenants limiting gartner’s ability incur indebtedness grant liens make acquisitions acquired dispose assets pay dividends repurchase stock make capital expenditures make investments enter certain transactions affiliates company full compliance loan covenants december 31 2014 following table summarizes company’s total outstanding borrowings thousands 1 contractual annual interest rate december 31 2014 term loan 142 consisted floating eurodollar base rate 017 plus margin 125 however company interest rate swap contract converts floating eurodollar base rate 226 fixed base rate first 2000 million company borrowings see result company’s weightedaverage annual interest rate 4000 million outstanding debt 2014 credit facility december 31 2014 including margin approximately 246 2 company approximately 11 billion available borrowing capacity revolver including expansion feature december 31 2014 3 consists 50 million state connecticut economic development loan 30 fixed rate interest loan originated 2012 10 year maturity principal payments deferred first five years loan may repaid point company without penalty loan principal forgiveness provision 25 million loan may forgiven company meets certain employment targets first five years loan 4 december 31 2014 200 million debt classified short term 3850 million classified long term consolidated balance sheets interest rate hedge company 2000 million notional fixedforfloating interest rate swap contract designates hedge forecasted interest payments company’s variable rate borrowings swap terms company pays base fixed rate 226 return receives floating eurodollar rate swap contract expires late 2015 company accounts interest rate swap cash flow hedge accordance fasb asc topic 815 since swap hedging forecasted interest payments changes fair value swap recorded oci long swap continues highly effective hedge designated interest rate risk ineffective portion change fair value hedge recorded earnings december 31 2014 ineffective portion hedge interest rate swap negative fair value liability company 29 million 65 million december 31 2014 2013 respectively recorded liabilities consolidated balance sheets subsequent yearend 2014 company entered additional 2000 million notional fixedforfloating interest rate swap also hedge forecasted interest payments companys variable rate borrowings swap contract requires company pay fixed rate 16 return receive floating eurodollar rate swap contract expires september 2019 letters credit company 93 million letters credit related guarantees outstanding yearend 2014 company issues instruments ordinary course business facilitate transactions customers others 6 commitments contingencies contractual lease commitments company leases various facilities computer office equipment furniture assets noncancelable operating lease agreements expiring 2015 2030 future minimum annual cash payments operating lease agreements december 31 2014 follows thousands 1 excludes 01 million future contractual sublease rental income legal matters involved various legal administrative proceedings litigation arising ordinary course business outcome individual matters predictable time however believe ultimate resolution matters considering amounts already accrued insurance coverage material adverse effect financial position results operations cash flows future periods indemnifications company various agreements may obligate us indemnify party respect certain matters generally indemnification clauses included contracts arising normal course business customarily agree hold party harmless losses arising breach representations related matters title assets sold licensed certain intellectual property rights possible predict maximum potential amount future payments indemnification agreements due conditional nature company’s obligations unique facts particular agreement historically payments made us agreements material december 31 2014 indemnification agreements could require material payments 7 stockholders’ equity common stock holders gartner’s common stock par value 0005 per share “common stock” entitled one vote per share matters voted stockholders company currently pay cash dividends common stock also credit arrangement contains negative covenant may limit ability pay dividends following table summarizes transactions relating common stock three years’ ending december 31 2014 1 company used total 4320 million 1817 million 1113 million cash share repurchases 2014 2013 2012 respectively share repurchase authorization february 4 2014 company’s board directors authorized 8000 million repurchase companys common stock authorization succeeded company’s prior 5000 million share repurchase authorization substantially utilized company may repurchase common stock time amounts prices company deems appropriate subject availability stock prevailing market conditions trading price stock company’s financial performance conditions repurchases may made open market purchases private transactions funded cash hand borrowings company’s credit agreement december 31 2014 approximately 4133 million authorization remained available repurchases accumulated comprehensive income net following tables disclose information changes accumulated comprehensive income aoci component equity component related amounts reclassified aoci income years indicated net tax thousands 1 amounts parentheses represent debits deferred losses 2 reclassifications related interest rate swap cash flow hedge recorded interest expense net tax effect see note 11 derivatives hedging information regarding hedge 3 reclassifications related defined benefit pension plans recorded selling general administrative expense net tax effect see note 13 employee benefits information regarding company’s defined benefit pension plans 8 stockbased compensation company grants stockbased compensation awards incentive employees directors contribute company’s longterm success company currently awards stocksettled stock appreciation rights servicebased performancebased restricted stock units common stock equivalents december 31 2014 company 80 million shares common stock available awards stockbased compensation 2014 longterm incentive plan company accounts stockbased compensation awards accordance fasb asc topics 505 718 interpreted sec staff accounting bulletins 107 “sab 107” 110 “sab 110” stockbased compensation expense based fair value award date grant recognized expense related service period net estimated forfeitures service period related service performed generally vesting period currently company issues treasury shares upon exercise release settlement stockbased compensation awards determining appropriate fair value model calculating fair value stockbased compensation awards requires input certain complex subjective assumptions including expected life stockbased compensation awards common stock price volatility addition determining appropriate amount associated periodic expense requires management estimate amount employee forfeitures likelihood achievement certain performance targets assumptions used calculating fair value stockbased compensation awards associated periodic expense represent management’s best estimates involve inherent uncertainties application judgment result factors change company deems necessary future modify assumptions made use different assumptions quantity nature company’s stockbased compensation awards changes amount expense may need adjusted future stockbased compensation expense could materially different recorded current period company recognized following amounts stockbased compensation expense award type years ended december 31 millions 1 includes charges 148 million 125 million 51 million 2014 2013 2012 respectively awards retirementeligible employees since awards vest accelerated basis stockbased compensation expense recognized line item consolidated statements operations years ended december 31 millions december 31 2014 company 449 million total unrecognized stockbased compensation cost expected recognized stockbased compensation expense remaining weightedaverage service period approximately 22 years stockbased compensation awards following disclosures provide information regarding company’s stockbased compensation awards classified equity awards accordance fasb asc topic 505 stock appreciation rights stocksettled stock appreciation rights sars permit holder participate appreciation common stock sars settled shares common stock employee applicable vesting criteria met sars vest ratably fouryear service period expire seven years grant date fair value sars awards recognized compensation expense straightline basis four years sars awarded company’s executive officers sars exercised number shares common stock issued calculated follows 1 total proceeds sars exercise calculated closing price common stock date exercise less exercise price sars multiplied number sars exercised divided 2 closing price common stock reported new york stock exchange exercise date company withholds portion shares common stock issued upon exercise satisfy minimum statutory tax withholding requirements sars recipients stockholder rights actual shares common stock issued respect award subject prior satisfaction vesting criteria relating grants following table summarizes changes sars outstanding year ended december 31 2014 na applicable 1 december 31 2014 08 million sars unvested company expects substantially unvested awards vest future periods 2 december 31 2014 sars outstanding intrinsic value 585 million sars vested exercisable intrinsic value 308 million fair value sars granted estimated date grant using blackscholesmerton valuation model following weightedaverage assumptions years ended december 31 1 dividend yield assumption based history expectation company’s dividend payouts historically company paid cash dividends common stock 2 determination expected stock price volatility based historical common stock prices implied volatility publicly traded options common stock 3 riskfree interest rate based yield us treasury security maturity similar expected life award 4 expected life represents company’s weightedaverage estimate period time sars expected outstanding period service inception date expected exercise date restricted stock units restricted stock units rsus give awardee right receive shares common stock vesting conditions met restrictions lapse rsu vests entitles awardee one common share rsu awardees right gartner stockholder including voting rights right receive dividends distributions shares released fair value rsus determined date grant based closing price common stock reported new york stock exchange date servicebased rsus vest ratably four years expensed straightline basis four years performancebased rsus subject performance service conditions vest ratably four years expensed accelerated basis following table summarizes changes rsus outstanding year ended december 31 2014 1 06 million rsus granted 2014 consisted 03 million performancebased rsus awarded executives 03 million servicebased rsus awarded nonexecutive employees nonmanagement board members aggregate target number performancebased rsus awarded 2014 02 million subject adjustment 0 200 target number depending upon increase companys subscriptionbased contract value cv measured december 31 2014 compared december 31 2013 actual cv increase achieved 2014 1726 resulted final grant approximately 03 million performancebased rsus executives 2 company expects substantially outstanding awards december 31 2014 vest future periods 3 weightedaverage remaining contractual term outstanding rsus approximately 1 year common stock equivalents common stock equivalents cses convertible common stock cse entitles holder one common share members board directors receive directors’ fees payable cses unless opt receive 50 fees cash generally cses defined term converted common shares service director terminates unless director elected accelerated release fair value cses determined date grant based closing price common stock reported new york stock exchange date cses vest immediately result recorded expense date grant following table summarizes changes cses outstanding year ended december 31 2014 employee stock purchase plan company employee stock purchase plan “esp plan” eligible employees permitted purchase common stock payroll deductions may exceed 10 employee’s compensation 23750 calendar year price equal 95 closing price common stock reported new york stock exchange end offering period december 31 2014 company approximately 11 million shares available purchase esp plan esp plan considered noncompensatory fasb asc topic 718 result company record stockbased compensation expense employee share purchases company received 78 million 60 million 124 million cash share purchases esp plan exercises stock options 2014 2013 2012 respectively 9 computation earnings per share basic earnings per share “eps” computed dividing net income weighted average number shares common stock outstanding period diluted eps reflects potential dilution securities could share earnings impact common share equivalents antidilutive excluded calculation following table sets forth reconciliation basic diluted earnings per share computations years ended december 31 thousands except per share amounts 1 company repurchased 59 million 34 million 27 million shares common stock 2014 2013 2012 respectively following table presents number common share equivalents included computation diluted eps table effect would antidilutive periods net income common share equivalents antidilutive exercise price greater average market value share common stock period 10 income taxes following summary components income taxes years ended december 31 thousands expense income taxes income consists following components thousands current longterm deferred tax assets liabilities comprised following thousands current net deferred tax assets current net deferred tax liabilities 175 million 21 million december 31 2014 195 million 87 million december 31 2013 respectively included prepaid expenses current assets accounts payable accrued liabilities consolidated balance sheets longterm net deferred tax assets longterm net deferred tax liabilities 180 million 06 million december 31 2014 244 million 02 million december 31 2013 respectively included assets liabilities consolidated balance sheets based assessment management concluded likely reversal deferred tax liabilities results future operations generate sufficient taxable income realize deferred tax assets net valuation allowance december 31 2014 valuation allowances 06 million december 31 2014 2013 largely relate certain net operating losses december 31 2014 company state local tax net operating loss carryforwards 78 million 07 million expire within one five years 63 million expire within six fifteen years 08 million expire within sixteen twenty years company also state tax credits 16 million expire within two five years amounts reduced unrecognized tax benefits consistent fasb asu 201311 december 31 2014 company nonus net operating loss carryforwards 302 million 26 million expire next 20 years 276 million carried forward indefinitely addition company also foreign tax credit carryforwards 34 million approximately half expire end 2017 remainder end 2024 differences us federal statutory income tax rate company’s effective tax rate income taxes years ended december 31 follow 1 includes effect foreign income taxed different rates us tax actual deemed distributions foreign tax credits 2014 2013 state income taxes net federal tax benefit include approximately 13 million 13 million respectively benefit relating economic development tax credits associated renovation company’s stamford headquarters facility december 31 2014 december 31 2013 company unrecognized tax benefits 206 million 145 million respectively increase primarily attributable positions taken respect state income tax apportionment realizability certain refund claims reasonably possible unrecognized tax benefits decreased 49 million within next 12 months due anticipated closure audits expiration certain statutes limitation unrecognized tax benefits relate primarily utilization certain tax attributes state income tax positions intercompany transactions company classifies uncertain tax positions expected settled within one year long term liabilities december 31 2014 december 31 2013 company 157 million 114 million respectively related long term uncertain tax positions following reconciliation beginning ending amount unrecognized tax benefits excluding interest penalties years ending december 31 thousands included balance unrecognized tax benefits december 31 2014 potential benefits 165 million recognized would reduce effective tax rate income continuing operations also included balance unrecognized tax benefits december 31 2014 potential benefits 41 million recognized would result adjustments tax accounts primarily deferred taxes company accrues interest penalties related unrecognized tax benefits income tax provision december 31 2014 december 31 2013 company 33 million accrued interest penalties related unrecognized tax benefits amounts addition unrecognized tax benefits disclosed total amount interest penalties recognized consolidated statements operations years ending december 31 2014 december 31 2013 01 million 03 million respectively number years open statutes limitation varies depending tax jurisdiction generally company’s statutes open tax years ended december 31 2010 forward exception india open tax years 2003 forward major taxing jurisdictions include us federal state united kingdom canada japan italy india france ireland 2014 internal revenue service closed audit companys 2010 2011 federal income tax returns resolution audit material adverse effect consolidated financial position cash flows results operations company us accounting rules provision income taxes may result remittance earnings held overseas required company intends reinvest funds overseas current plans demonstrate need repatriate undistributed earnings fund us operations otherwise satisfy liquidity needs us operations intend reinvest earnings nonus operations except instances repatriation earnings would result minimal additional tax result company recognized additional income tax expense may result remittance earnings accumulated undistributed earnings nonus subsidiaries approximately 1865 million december 31 2014 estimate income tax liability would payable earnings indefinitely invested 358 million 11 derivatives hedging company enters limited number derivative contracts offset potentially negative economic effects interest rate foreign exchange movements company accounts outstanding derivative contracts accordance fasb asc topic 815 requires derivatives including derivatives designated accounting hedges recorded balance sheet fair value following tables provide information regarding company’s outstanding derivatives contracts years ended thousands except number outstanding contracts december 31 2014 december 31 2013 1 swap designated cash flow hedge forecasted interest payments borrowings result changes fair value swap deferred recorded oci net tax effect see note 5 debt additional information 2 company foreign exchange transaction risk since typically enters transactions normal course business denominated foreign currencies differ local functional currency company enters shortterm foreign currency forward exchange contracts offset economic effects foreign currency transaction risks contracts accounted fair value realized unrealized gains losses recognized expense net since company designate contracts hedges accounting purposes substantially outstanding contracts december 31 2014 matured end january 2015 3 see note 12 fair value disclosures determination fair value instruments december 31 2014 company’s derivative counterparties large investment grade financial institutions company collateral arrangements derivative counterparties none derivative contracts contained creditrisk related contingent features following table provides information regarding amounts recognized consolidated statements operations derivative contracts years ended december 31 thousands 1 consists interest expense interest rate swap contracts 2 consists realized unrealized gains losses foreign currency forward contracts 12 fair value disclosures company’s financial instruments include cash equivalents fees receivable customers accounts payable accruals normally shortterm nature company believes carrying amounts financial instruments reasonably approximates fair value due shortterm nature company’s financial instruments also includes borrowings outstanding 2014 credit agreement december 31 2014 company 4000 million floating rate debt outstanding arrangement carried amortized cost company believes carrying amount outstanding borrowings reasonably approximates fair value since rate interest borrowings reflect current market rates interest similar instruments comparable maturities fasb asc topic 820 provides framework measurement fair value valuation hierarchy based upon transparency inputs used valuation assets liabilities classification within hierarchy based upon lowest level input significant resulting fair value measurement valuation hierarchy contains three levels level 1 measurements consist quoted prices active markets identical assets liabilities level 2 measurements include significant observable inputs quoted prices similar assets liabilities active markets identical assets liabilities inactive markets observable inputs interest rates yield curves marketcorroborated inputs level 3 measurements include significant unobservable inputs internallycreated valuation models company currently utilize level 3 valuation inputs remeasure assets liabilities however level 3 inputs may used company required annual impairment review goodwill information regarding periodic assessment company’s goodwill included note 1 business significant accounting policies company typically transfer assets liabilities different levels fair value hierarchy company enters limited number derivatives transactions enter repurchase agreements securities lending transactions master netting arrangements receivables payables result derivatives transactions recorded gross company’s consolidated balance sheets company’s assets liabilities remeasured fair value presented following table thousands 1 company deferred compensation plan benefit certain highly compensated officers managers key employees see note 13 employee benefits plan’s assets consist investments money market mutual funds companyowned life insurance contracts money market funds consist cash equivalents mutual fund investments consist publiclytraded quoted equity shares company considers fair value assets based level 1 inputs assets fair value 77 million 78 million december 31 2014 2013 respectively carrying amount life insurance contracts equals cash surrender value cash surrender value represents estimated amount company would receive upon termination contract approximates fair value company considers life insurance contracts valued based level 2 input assets fair value 270 million 248 million december 31 2014 2013 respectively related deferred compensation plan liabilities recorded amount needed settle liability approximates fair value based level 2 input 2 company enters foreign currency forward exchange contracts hedge effects adverse fluctuations foreign currency exchange rates see note 11 derivatives hedging valuation foreign currency forward contracts based foreign currency exchange rates active markets company considers level 2 input 3 company interest rate swap contract hedges risk variability interest rates borrowings see note 11 derivatives hedging fair value swap based marktomarket valuation prepared thirdparty broker valuation based observable interest rates recently executed market transactions observable market data company considers level 2 inputs company independently corroborates reasonableness valuation prepared thirdparty broker use electronic quotation service 13 employee benefits defined contribution plan company savings investment plan “401k plan” covering substantially us employees company contributions based upon level employee contributions maximum 4 employee’s eligible salary subject annual maximum 2014 maximum match 7000 amounts expensed connection 401k plan totaled 174 million 158 million 142 million 2014 2013 2012 respectively deferred compensation plan company supplemental deferred compensation plan benefit certain highly compensated officers managers key employees structured rabbi trust plan’s investment assets classified assets consolidated balance sheets fair value assets 347 million 326 million december 31 2014 2013 respectively see note 12 fair value disclosures detailed fair value information corresponding deferred compensation liability 391 million 364 million december 31 2014 2013 respectively carried fair value adjusted corresponding charge credit compensation cost reflect fair value amount owed employees classified liabilities consolidated balance sheets total compensation expense recognized plan 06 million 2014 04 million 2013 2012 defined benefit pension plans company definedbenefit pension plans several nonus locations benefits earned plans based years service level employee compensation company accounts defined benefit plans accordance requirements fasb asc topics 715 960 following components defined benefit pension expense years ended december 31 thousands 1 higher service cost beginning 2013 primarily due additional employees covered plans 2 pension expense classified sga consolidated statements operations following assumptions used computation pension expense years ended december 31 1 discount rates typically determined utilizing yields longterm corporate government bonds relevant country duration consistent expected term underlying pension obligations following table provides information related changes projected benefit obligation years ended december 31 thousands 1 2014 2012 actuarial losses primarily due significant declines weightedaverage discount rate 2 company projects following approximate amounts paid future years plan participants 10 million 2015 19 million 2016 14 million years 2017 2018 2019 96 million total five years thereafter 3 measured december 31 following table provides information regarding funded status plans related amounts recorded company’s consolidated balance sheets december 31 thousands funded status plans 1 plan assets held thirdparty trustees invested diversified portfolio equities high quality government corporate bonds investments assets primarily valued based level 1 level 2 inputs fair value hierarchy fasb asc topic 820 majority invested assets considered lowtomedium investment risk company projects future longterm rate return plan assets 27 believes reasonable based composition assets current projected market conditions yearended december 31 2014 company contributed 28 million plans benefits paid participants 14 million addition plan assets held thirdparty trustees company also maintains reinsurance asset arrangement large international insurance company reinsurance asset company whose purpose provide funding benefit payments one plans december 31 2014 reinsurance asset carried company’s consolidated balance sheets cash surrender value 85 million classified assets company believes cash surrender value approximates fair value equivalent level 2 input fasb’s fair value framework asc topic 820 2 funded status shortfall represents amount projected benefit obligation company funded thirdparty trustee amount liability company recorded liabilities company’s consolidated balance sheets 3 deferred actuarial loss december 31 2014 recorded accumulated comprehensive income “aoci” reclassified aoci recognized pension expense approximately 14 years subject certain limitations set forth fasb asc topic 715 impact amortization periodic pension expense 2015 projected approximately 04 million actual amortization deferred actuarial losses gains aoci pension expense less 01 million 2014 2013 02 million 2012 14 segment information company manages business three reportable segments research consulting events research consists primarily subscriptionbased research products access research inquiry peer networking services membership programs consulting consists primarily consulting measurement engagements strategic advisory services events consists various symposia conferences exhibitions company evaluates reportable segment performance allocates resources based gross contribution margin gross contribution presented table defined operating income excluding certain cos expenses sga expense depreciation acquisition integration charges amortization intangibles certain bonus fringe benefit costs included consolidated cos allocated segment expense accounting policies used reportable segments used company intersegment revenues company earns revenue clients many countries united states individual country revenues external clients represent 10 company’s consolidated revenues additionally single client accounted 10 total revenue loss single client management’s opinion would material adverse effect revenues company identify allocate assets including capital expenditures reportable segment accordingly assets reported segment information available segment reviewed evaluation performance making decisions allocation resources following tables present operating information company’s reportable segments years ended december 31 thousands following table provides reconciliation total segment gross contribution net income periods indicated thousands 1 unallocated amounts consist certain bonus related fringe costs recorded consolidated cost services product development expense allocated segment expense companys policy allocate bonus related fringe charges segments 100 segment employees target bonus amounts 100 absorbed corporate company’s revenues generated primarily direct sales clients domestic international sales forces network independent international sales agents company’s products services provided integrated worldwide basis integrated delivery practical precisely separate revenues geographic location accordingly separation set forth table based upon internal allocations involve certain management estimates judgments revenues table reported based sale fulfilled “other international” revenues attributable areas located outside united states canada well europe middle east africa summarized information geographic location years ended december 31 follows thousands 1 excludes goodwill intangible assets 15 valuation qualifying accounts company maintains allowance losses composed bad debt allowance revenue reserve provisions charged earnings either increase expense reduction revenues following table summarizes activity company’s allowance years ended december 31in thousands signatures pursuant requirements securities exchange act 1934 registrant caused report form 10k signed behalf undersigned duly authorized stamford connecticut february 27 2015 power attorney person whose signature appears appoints eugene hall craig w safian acting individually attorneyinfact full power substitution capacities sign amendments report form 10k file appropriate exhibits related documents securities exchange commission undersigned ratifies confirms signatures may signed attorneyinfact amendments report pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicateditem 15 exhibits financial statement schedules 1 2 consolidated financial statements schedules reports independent registered public accounting firm consolidated financial statements listed index consolidated financial statements herein filed part report financial statement schedules listed index omitted information required applicable shown consolidated financial statements notes thereto 3 exhibits index consolidated financial statements gartner inc consolidated financial statements financial statement schedules omitted information required applicable shown consolidated financial statements notes thereto report independent registered public accounting firm board directors stockholders gartner inc audited accompanying consolidated balance sheets gartner inc subsidiaries company december 31 2016 2015 related consolidated statements operations comprehensive income stockholders’ equity deficit cash flows years threeyear period ended december 31 2016 consolidated financial statements responsibility company’s management responsibility express opinion consolidated financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements referred present fairly material respects financial position gartner inc subsidiaries december 31 2016 2015 results operations cash flows years threeyear period ended december 31 2016 conformity us generally accepted accounting principles also audited accordance standards public company accounting oversight board united states company’s internal control financial reporting december 31 2016 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission coso report dated february 22 2017 expressed unqualified opinion effectiveness company’s internal control financial reporting kpmg llp logo kpmg llp new york new york february 22 2017 report independent registered public accounting firm board directors stockholders gartner inc audited gartner inc subsidiaries’ company internal control financial reporting december 31 2016 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission coso company’s management responsible maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included accompanying management’s annual report internal control financial reporting responsibility express opinion company’s internal control financial reporting based audit conducted audit accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether effective internal control financial reporting maintained material respects audit included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audit also included performing procedures considered necessary circumstances believe audit provides reasonable basis opinion company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate opinion company maintained material respects effective internal control financial reporting december 31 2016 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission coso also audited accordance standards public company accounting oversight board united states consolidated balance sheets gartner inc subsidiaries december 31 2016 2015 related consolidated statements operations comprehensive income stockholders’ equity deficit cash flows years threeyear period ended december 31 2016 report dated february 22 2017 expressed unqualified opinion consolidated financial statements kpmg llp logo kpmg llp new york new york february 22 2017 gartner inc consolidated balance sheets thousands except share data see notes consolidated financial statements gartner inc consolidated statements operations thousands except per share data see notes consolidated financial statements gartner inc consolidated statements comprehensive income thousands see notes consolidated financial statements gartner inc consolidated statements stockholders’ equity deficit thousands see notes consolidated financial statements gartner inc consolidated statements cash flows thousands see notes consolidated financial statements gartner inc notes consolidated financial statements 1 business significant accounting policies business gartner inc global information technology research advisory company founded 1979 headquarters stamford connecticut gartner delivers principal products services three business segments research consulting events used notes terms “gartner” “company” “we” “us” “our” refer gartner inc consolidated subsidiaries basis presentation accompanying consolidated financial statements prepared accordance generally accepted accounting principles united states america “us gaap” defined financial accounting standards board “fasb” accounting standards codification “asc” topic 270 financial information applicable instructions us securities exchange commission “sec” regulation sx fiscal year gartner represents twelvemonth period january 1 december 31 references 2016 2015 2014 herein refer fiscal year unless otherwise indicated certain prior year balance sheet amounts reclassified conform current year presentation principles consolidation accompanying consolidated financial statements include accounts company whollyowned subsidiaries significant intercompany transactions balances eliminated use estimates preparation accompanying consolidated financial statements requires management make estimates assumptions future events estimates underlying assumptions affect amounts assets liabilities reported disclosures contingent assets liabilities reported amounts revenues expenses estimates include valuation fees receivable goodwill intangible assets longlived assets well tax accruals liabilities addition estimates used revenue recognition income tax expense performancebased compensation charges depreciation amortization management believes use estimates accompanying consolidated financial statements reasonable management continuously evaluates revises estimates using historical experience factors including general economic environment actions may take future management adjusts estimates facts circumstances dictate however estimates may involve significant uncertainties judgments cannot determined precision addition estimates based management’s best judgment point time result differences estimates actual results could material would reflected company’s consolidated financial statements future periods business acquisitions company completed acquisitions three years ended december 31 2016 detailed information related acquisitions included note 2 acquisitions company accounts acquisitions accordance acquisition method accounting prescribed fasb asc topic 805 business combinations acquisition method accounting requires company record net assets liabilities acquired based estimated fair values acquisition date excess consideration transferred estimated fair value net assets acquired including identifiable intangible assets recorded goodwill acquisition method operating results acquired companies included companys consolidated financial statements beginning date acquisition determination fair values intangible assets acquired acquisitions requires management judgment consideration number factors significant among historical financial performance acquired businesses projected performance estimates surrounding customer turnover well assumptions regarding level competition cost reproduce certain assets establishing useful lives intangibles also requires management judgment evaluation number factors among projected cash flows likelihood competition company classifies charges directlyrelated acquisitions line acquisition integration charges consolidated statements operations company recorded 426 million 262 million 219 million charges 2016 2015 2014 respectively included directlyrelated incremental charges legal consulting retention severance accruals cash payments subject continuing employment certain key employees acquired companies revenue recognition revenue recognized accordance us gaap sec staff accounting bulletin 104 revenue recognition “sab 104” revenues recognized required criteria recognition met accompanying consolidated statements operations present revenues net sales valueadded taxes collect customers remit government authorities company’s revenues significant source follows research revenues mainly derived subscription contracts research products related revenues deferred recognized ratably applicable contract term fees derived assisting organizations selecting right business software needs recognized earned leads provided vendors company typically enters subscription contracts research products twelvemonth periods longer majority research contracts billable upon signing absent special terms granted limited basis time research contracts noncancelable nonrefundable except government contracts may cancellation fiscal funding clauses historically produced material cancellations policy record amount contract billable fee receivable time contract signed corresponding amount deferred revenue since contract represents legally enforceable claim consulting revenues primarily derived consulting measurement strategic advisory services paid oneday analyst engagements principally generated fixed fee time materials engagements revenues fixed fee engagements recognized proportional performance basis revenues time material engagements recognized work delivered andor services provided revenues related contract optimization engagements contingent nature recognized upon satisfaction conditions related payment unbilled fees receivable associated consulting engagements 457 million december 31 2016 432 million december 31 2015 events revenues deferred recognized upon completion related symposium conference exhibition addition company defers certain costs directly related events expenses costs period related symposium conference exhibition occurs companys policy defer costs primarily prepaid site production services costs incremental directly attributable specific event costs organizing producing events primarily company personnel nonevent specific expenses expensed period incurred end fiscal quarter company assesses eventbyevent basis whether expected direct costs producing scheduled event exceed expected revenues costs expected exceed revenues company records expected loss period determined allowance losses company maintains allowance losses composed bad debt allowance sales reserve provisions charged earnings either reduction revenues increase expense determination allowance losses based historical loss experience assessment current economic conditions aging outstanding receivables financial health specific clients probable losses cost services product development “cos” cos expense includes direct costs incurred creation delivery products services costs primarily relate personnel selling general administrative “sga” sga expense includes direct indirect selling costs general administrative costs charges earnings related uncollectible accounts commission expense company records commission obligations upon signing customer contracts amortizes deferred obligation commission expense period related revenues earned commission expense included sga consolidated statements operations stockbased compensation expense company accounts stockbased compensation accordance fasb asc topics 505 718 sec staff accounting bulletins 107 “sab 107” 110 “sab 110” stockbased compensation cost based fair value award date grant expensed related service period net estimated forfeitures service period employee performs related services normally vesting period 2016 2015 2014 company recognized 467 million 461 million 388 million respectively stockbased compensation expense portion recorded cos sga consolidated statements operations 2016 company early adopted fasb accounting standards update asu 201609 improvements employee sharebased payment accounting see adoption new accounting standards section additional information income taxes expense company uses asset liability method accounting income taxes estimate income taxes jurisdictions operate process involves estimating current tax expense together assessing temporary differences resulting differing treatment items tax accounting purposes differences result deferred tax assets liabilities included within consolidated balance sheets assessing realizability deferred tax assets management considers likely deferred tax assets realized consider availability loss carryforwards projected reversal deferred tax liabilities projected future taxable income ongoing prudent feasible tax planning strategies making assessment company recognizes tax benefit uncertain tax position likely tax position sustained based technical merits position cash equivalents includes cash highly liquid investments original maturities three months less considered cash equivalents carrying value cash equivalents approximates fair value due shortterm maturity investments maturities three months classified marketable securities interest earned classified interest income consolidated statements operations property equipment leasehold improvements company leases facilities certain equipment leases classified operating leases accordance fasb asc topic 840 cost operating leases including contractual rent increases rent concessions landlord incentives recognized ratably life related lease agreement lease expense 380 million 338 million 315 million 2016 2015 2014 respectively equipment leasehold improvements fixed assets owned company recorded cost less accumulated depreciation except leasehold improvements fixed assets depreciated using straightline method estimated useful lives assets leasehold improvements amortized using straightline method shorter estimated useful lives improvement remaining term related lease company total depreciation expense 372 million 338 million 312 million 2016 2015 2014 respectively companys total fixed assets less accumulated depreciation amortization consisted following thousands company incurs costs develop internal use software used operations certain costs meeting criteria outlined fasb asc topic 350 capitalized amortized future periods net capitalized development costs internal use software 166 million 141 million december 31 2016 2015 respectively included computer equipment software category amortization capitalized internal software development costs classified depreciation consolidated statements operations totaled 88 million 82 million 2016 2015 respectively intangible assets company finitelived intangible assets amortized earnings using straightline method expected useful lives changes intangible assets subject amortization twoyear period ended december 31 2016 follows thousands 1 additions due companys acquisitions see note 2 acquisitions additional information 2 intangible assets amortized earnings following periods trade name2 4 years customer relationships 4 7 years content15 4 years software3 years noncompete3 5 years 3 aggregate amortization expense related intangible assets 248 million 133 million 82 million 2016 2015 2014 respectively estimated future amortization expense year finitelived intangibles follows thousands goodwill represents excess purchase price acquired businesses estimated fair value tangible identifiable intangible net assets acquired evaluation recoverability goodwill performed accordance fasb asc topic 350 requires annual assessment potential goodwill impairment reporting unit level whenever events changes circumstances indicate carrying value goodwill may recoverable annual assessment recoverability recorded goodwill based either qualitative quantitative assessment combination two methods utilize estimates turn require judgments assumptions regarding future trends events result precision reliability resulting estimates subject uncertainty annual goodwill impairment evaluation determines fair value reporting unit less related carrying amount may recognize impairment charge earnings connection recent annual impairment test goodwill performed third quarter 2016 company utilized qualitative approach assessing fair value reporting units relative respective carrying values indicated impairment recorded goodwill following table presents changes carrying amount goodwill segment twoyear period ended december 31 2016 thousands 1 company accumulated goodwill impairment losses 2 additions due companys acquisitions see note 2acquisitions additional information impairment longlived assets companys longlived assets primarily consist intangible assets goodwill property equipment leasehold improvements company reviews longlived asset groups impairment whenever events changes circumstances indicate carrying amount respective asset may recoverable evaluation may based number factors including current projected operating results cash flows changes management’s strategic direction well external economic market factors company evaluates recoverability assets determining whether carrying value recovered undiscounted future operating cash flows events circumstances indicate carrying value might recoverable based undiscounted future operating cash flows impairment loss would recognized amount impairment measured based difference projected discounted future operating cash flows using discount rate reflecting company’s average cost funds carrying value asset company record impairment charges longlived asset groups three year period ended december 31 2016 pension obligations company definedbenefit pension plans several international locations see note 13 employee benefits earned plans generally based years service level employee compensation company accounts defined benefit plans accordance requirements fasb asc topic 715 company determines periodic pension expense related liabilities plans actuarial assumptions valuations company recognized 35 million 35 million 34 million expense plans 2016 2015 2014 respectively company classifies pension expense sga consolidated statements operations debt company presents amounts borrowed consolidated balance sheets amortized cost net deferred financing fees interest accrued amounts borrowed classified interest expense consolidated statements operations company refinanced debt 2016 7025 million debt outstanding december 31 2016 see note 5debt additional information foreign currency exposure functional currency foreign subsidiaries typically local currency assets liabilities foreign subsidiaries translated us dollars exchange rates effect balance sheet date income expense items translated average exchange rates year resulting translation adjustments recorded foreign currency translation adjustments component accumulated comprehensive loss income net within stockholders’ equity deficit section consolidated balance sheets currency transaction gains losses arising transactions denominated currencies functional currency subsidiary recognized results operations income expense net within consolidated statements operations company net currency transaction losses 04 million 26 million 17 million 2016 2015 2014 respectively company enters foreign currency forward exchange contracts mitigate effects adverse fluctuations foreign currency exchange rates transactions contracts generally short duration recorded fair value realized unrealized gains losses recorded income expense net loss gain contracts 03 million 01 million 06 million 2016 2015 2014 respectively comprehensive income company reports comprehensive income separate statement called consolidated statements comprehensive income included herein companys comprehensive income disclosures included note 7 stockholders equity deficit fair value disclosures company limited number assets liabilities adjusted fair value balance sheet date company’s fair value disclosures included note 12 fair value disclosures concentrations credit risk assets may subject company concentration credit risk consist primarily shortterm highly liquid investments classified cash equivalents fees receivable interest rate swaps pension reinsurance asset majority company’s cash equivalent investments interest rate swap contracts investment grade commercial banks fees receivable balances deemed collectible customers limited concentration credit risk due diverse customer base geographic dispersion company’s pension reinsurance asset see note 13 employee benefits maintained large international insurance company rated investment grade december 31 2016 stock repurchase programs company records cost repurchase common shares treasury stock 2016 2015 2014 company used 590 million 5090 million 4320 million respectively cash stock repurchases see note 7 stockholders’ equity deficit shares repurchased company added treasury shares retired adoption new accounting standards company adopted following new accounting standards year ended december 31 2016 extraordinary items company adopted fasb asu 201501 simplifying income statement presentation eliminating concept extraordinary items asu 201501 january 1 2016 asu 201501 eliminated concept extraordinary items historically concept caused uncertainty somewhat unclear item considered unusual infrequent rare transaction event met requirements adoption asu 201501 impact company’s consolidated financial statements cloud computing arrangement fees company adopted fasb asu 201505 customer’s accounting fees paid cloud computing arrangement asu 201505 january 1 2016 asu 201505 provides guidance regarding costs related cloud computing hosting arrangements identifying portion cost relates purchased software portion relates paying service adoption asu 201505 impact company’s consolidated financial statements business combinations company adopted fasb asu 201516 business combinations simplifying accounting measurementperiod adjustments asu 201516 january 1 2016 asu 201516 requires recognition adjustments business combination provisional amounts identified measurement period reporting period adjustments determined effects adjustments provisional amounts depreciation amortization income effects required recognized currentperiod earnings accounting completed acquisition date certain disclosures also required adoption asu 201516 impact company’s consolidated financial statements debt issuance cost presentation company adopted fasb asu 201503 “simplifying presentation debt issuance costs” asu 201503 january 1 2016 asu 201503 required certain debt issuance costs presented balance sheet direct deduction carrying amount liability rather deferred assets company reclassified current prior year debt issuance costs required rule stockbased compensation accounting company early adopted fasb asu 201609 improvements employee sharebased payment accounting asu 201609 third quarter 2016 required effective date adoption rule january 1 2017 company elected early adopt asu 201609 permitted amendment asu 201609 requires certain changes accounting stockbased compensation required applied beginning companys fiscal year beginning january 1 2016 financial results periods prior 2016 impacted among changes required asu 201609 excess tax benefits deficiencies resulting stockbased compensation awards must recognized income tax expense consolidated statement operations prior asu 201609 excess tax benefits deficiencies recorded additional paidin capital stockholders equity deficit consolidated balance sheet result benefit approximately 100 million excess tax benefits stock compensation awards recognized income tax expense 2016 benefit increased 2016 basic diluted income per share 012 per share addition asu 201609 also requires excess tax benefits related stockbased compensation awards reported cash flows operating activities along income tax cash flows consolidated statement cash flows previously excess tax benefits reported cash flows financing activities asu 201609 allows companies elect either prospective retrospective application cash flow classification change company elected apply classification amendment prospectively effective january 1 2016 adoption asu 201609 increased companys 2016 operating cash flow 100 million corresponding decrease financing activities asu 201609 also permits companies make entitywide accounting policy election recognize forfeitures sharebased compensation awards occur make estimate applying forfeiture rate quarter company previously estimated forfeitures optionally elected change accounting policy account forfeitures occur asu 201609 requires change accounting policy applied using cumulativeeffect adjustment accumulated earnings beginning period rule adopted accordingly company recorded 03 million decrease opening accumulated earnings effective january 1 2016 accounting standards issued yet adopted fasb issued several accounting standards yet become effective may impact company’s consolidated financial statements related disclosures future periods standards potential impact discussed business combinations january 2017 fasb issued asu 201701 clarifying definition business asu 201701 effective gartner january 1 2018 asu 201701 changes gaap definition business impact accounting asset purchases acquisitions goodwill impairment assessments currently evaluating impact asu 201701 companys consolidated financial statements statement cash flows november 2016 fasb issued asu 201618 restricted cash asu 201618 asu 201618 requires amounts generally described restricted cash restricted cash equivalents presented cash equivalents reconciling beginningofperiod endofperiod total amounts shown statement cash flows different reconciliation cash balances reported cash flow statement balance sheet would need provided along explanatory information asu 201618 effective gartner january 1 2018 currently evaluating impact asu 201618 companys consolidated financial statements income taxes october 2016 fasb issued asu 201616 intraentity transfers assets inventory asu 201616 asu 201616 accelerates recognition taxes certain intraentity transactions effective gartner january 1 2018 current gaap requires deferral income tax implications intercompany sale assets sold third party recovered use new rule seller’s tax effects buyer’s deferred taxes immediately recognized upon sale completed initial evaluation impact asu 201616 expect material impact consolidated financial statements adopted could impact timing recognition taxes future intraentity transfers statement cash flows august 2016 fasb issued asu 201615 classification certain cash receipts cash payments asu 201615 asu 201615 sets forth classification requirements certain cash flow transactions asu 201615 effective gartner january 1 2018 early adoption permitted completed initial evaluation impact asu 201615 expect material impact consolidated financial statements financial instrument credit losses june 2016 fasb issued asu 201613 financial instrumentscredit losses asu 201613 asu 201613 amends current financial instrument impairment model requiring entities use forwardlooking approach based expected losses estimate credit losses certain types financial instruments including trade receivables asu 201613 effective gartner january 1 2020 early adoption permitted currently evaluating potential impact asu 201613 consolidated financial statements leases february 2016 fasb issued asu 201602 leases asu 201602 require significant changes accounting disclosure lease arrangements currently us gaap lease arrangements meet certain criteria considered operating leases recorded balance sheet companys existing lease arrangements accounted operating leases thus recorded companys balance sheet asu 201602 significantly change accounting leases since rightofuse rou model must used lessee must record rou asset lease liability balance sheet leases terms longer 12 months leases classified either finance operating arrangements classification affecting pattern expense recognition income statement asu 201602 also requires expanded disclosures leasing arrangements asu 201602 effective gartner january 1 2019 currently evaluating impact asu 201602 consolidated financial statements financial instruments recognition measurement january 2016 fasb issued asu 201601 financial instruments overall recognition measurement financial assets liabilities asu 201601 address certain aspects recognition measurement presentation disclosure financial instruments among significant changes required asu 201601 equity investments measured fair value changes fair value recognized net income asu 201601 effective gartner january 1 2018 completed initial evaluation impact asu 201601 expect material impact consolidated financial statements may require additional disclosures revenue may 2014 fasb issued asu 201409 revenue contracts customers asu 201409 asu 201409 related amendments require changes revenue recognition policies well enhanced disclosures asu 201409 intended clarify principles recognizing revenue removing inconsistencies weaknesses existing revenue recognition rules provide robust framework addressing revenue recognition issues improve comparability revenue recognition practices across entities industries jurisdictions capital markets provide useful information users financial statements improved disclosures company completed initial assessment impact asu 201409 existing revenue recognition policies plans adopt rule january 1 2018 using cumulative effect method adoption asu 201409 also requires significantly expanded disclosures around nature amount timing uncertainty revenue cash flows arising contracts customers company currently compiling company completed assessment impact asu 201409 based analysis completed date company currently anticipate new rule material impact consolidated financial statements fasb also continues work number significant accounting standards issued could materially impact companys accounting policies disclosures future periods however since standards yet issued effective dates potential impact unknown 2 acquisitions company accounts business acquisitions accordance acquisition method accounting prescribed fasb asc topic 805 business combinations acquisition method accounting requires company record net assets liabilities acquired based estimated fair values acquisition date excess consideration transferred estimated fair value net assets acquired including identifiable intangible assets recorded goodwill acquisition method operating results acquired companies included companys consolidated financial statements beginning date acquisition company completed following business acquisitions years ended december 31 november 9 2016 company acquired 100 outstanding capital stock machina research limited machina privatelyheld firm based london 16 employees company paid approximately 45 million cash close machina provides clients subscriptionbased research provides strategic insight market intelligence areas iot internet things june 28 2016 company acquired 100 outstanding capital stock newco 5cl limited operates trade name scm world privatelyheld firm based london 60 employees 342 million cash paid close scm world leading crossindustry peer network learning community providing subscriptionbased research conferences supply chain executives net cash acquired business cash flow reporting purposes company paid approximately 279 million cash scm world acquisition scm world also included earnout provision fair value earnout recorded acquisition date part cost acquisition earnout liability subsequently adjusted fair value charge expense september 30 2016 december 31 2016 company determined final amount earnout adjusted liability additional charge expense total company recognized 65 million expense related earnout 2016 company expects pay earnout cash early 2017 addition earnout company may also required pay additional 54 million cash future contingent achievement certain employment conditions several key employees also former shareholders scm world recognized expense related service period twoyears reported acquisition integration charges consolidated statements operations company recorded 324 million goodwill 59 million amortizable intangible assets two acquisitions immaterial amount assets net basis operating results related goodwill reported part companys research events segments goodwill resulting acquisitions deductible tax purposes company considers allocation purchase price preliminary respect completion certain tax contingencies company believes recorded goodwill supported anticipated revenue synergies resulting acquisitions companys financial statements include operating results acquired businesses beginning respective acquisition dates material either companys consolidated operating results segment results 2016 company acquired businesses prior periods impact companys operating results prior periods would material result pro forma financial information prior periods presented company also recorded additional 19 million goodwill 2016 related prior year acquisition capterra inc goodwill increase resulted certain measurement period adjustments well payments related settlement working capital provisions company acquired 100 outstanding shares nubera ebusiness sl capterra inc 2015 businesses assist clients selecting business software aggregate purchase price 2069 million cash included 256 million placed escrow company expects pay late 2017 net cash acquired businesses cash flow reporting purposes company paid 1962 million cash 2015 company may also required pay additional 320 million cash future subject continuing employment certain key employees 320 million recognized compensation expense three years reported acquisition integration charges consolidated statements operations company recorded 796 million 1381 million amortizable intangible assets goodwill respectively 108 million liabilities net basis acquisitions company acquired 100 outstanding shares three companies 2014 software advice inc marketvisio oy sircleit inc software advice inc assists clients software purchases marketvisio oy previously independent sales agent gartner research products sircleit inc developer cloudbased knowledge automation software aggregate purchase price businesses 1154 million cash net cash acquired businesses cash flow reporting purposes company paid 1099 million company also placed additional 144 million escrow 08 million paid 2015 company recorded 1103 million goodwill intangible assets 51 million assets net basis acquisitions company also paid additional 319 million cash related continuing employment certain key employees recognized compensation expense twoyear service period employees classified acquisition integration charges consolidated statements operations company paid 92 million 319 million 2015 227 million 2016 136 million paid escrow 3 assets consist following thousands 4 accounts payable accrued liabilities accounts payable accrued liabilities consist following thousands liabilities consist following thousands 5 debt 2016 credit agreement company 18 billion credit arrangement entered mid2016 “2016 credit agreement” provides fiveyear 6000 million term loan 12 billion revolving credit facility term loan repaid 16 consecutive quarterly installments commenced september 30 2016 plus final payment due june 2021 may prepaid time without penalty premium applicable breakage costs option company revolving credit facility may used loans 500 million may used letters credit revolving loans may borrowed repaid reborrowed june 2021 time amounts borrowed must repaid amounts borrowed 2016 credit agreement bear interest rate equal gartner’s option either 1 greater administrative agent’s prime rate ii average rate overnight federal funds plus 12 1 iii eurodollar rate adjusted statutory reserves plus 1 case plus margin equal 0125 050 depending gartner’s consolidated leverage ratio end four consecutive fiscal quarters recently ended 2 eurodollar rate adjusted statutory reserves plus margin equal 1125 300 depending gartner’s leverage ratio end four consecutive fiscal quarters recently ended 2016 credit agreement contains certain customary restrictive loan covenants including among others financial covenants requiring maximum leverage ratio minimum interest expense coverage ratio covenants limiting gartner’s ability incur indebtedness grant liens make acquisitions acquired dispose assets pay dividends repurchase stock make capital expenditures make investments enter certain transactions affiliates company full compliance loan covenants december 31 2016 credit agreement amended january 20 2017 permit acquisition ceb see note 16subsequent events incurrence additional 1375 billion senior secured term loan b facility 3000 million 364day senior unsecured bridge facility senior unsecured highyield bridge facility 6000 million issuance corresponding amount debt securities finance part acquisition repay certain debt ceb modify certain covenants following table summarizes company’s total outstanding borrowings thousands 1 contractual annual interest rate december 31 2016 term loan revolver 215 consisted floating eurodollar base rate 077 plus margin 138 however company interest rate swap contracts effectively convert floating eurodollar base rate fixed base rate 7000 million borrowings see 2 company 11 billion available borrowing capacity revolver including expansion feature december 31 2016 3 consists state connecticut economic development loan 30 fixed rate interest matures 2022 2016 25 million 50 million original balance extinguished company met certain employment targets result loan extinguishment company recorded gain 25 million recorded income expense net consolidated statements operations 4 december 31 2016 300 million debt classified shortterm 6725 million classified long term consolidated balance sheet 5 weightedaverage annual interest rate companys outstanding debt december 31 2016 280 includes impact companys interest swap contracts discussed interest rate hedges december 31 2016 company three fixedforfloating interest rate swap contracts swaps total notional value 7000 million mature late 2019 company designates swaps accounting hedges forecasted interest payments 7000 million company’s variable rate borrowings company pays base fixed rates swaps ranging 153 160 return receives floating eurodollar base rate 7000 million 30day notional borrowings company accounts interest rate swaps cash flow hedges accordance fasb asc topic 815 since swaps hedge forecasted interest payments changes fair value swaps recorded accumulated comprehensive loss income component equity long swaps continue highly effective hedges designated interest rate risk ineffective portion change fair value hedges recorded earnings swaps highly effective hedges forecasted interest payments december 31 2016 interest rate swaps total negative fair value company december 31 2016 2015 23 million 51 million respectively deferred classified accumulated comprehensive loss income net tax effect letters credit company 85 million letters credit related guarantees outstanding yearend 2016 company issues instruments ordinary course business facilitate transactions customers others 6 commitments contingencies contractual lease commitments company leases various facilities computer office equipment furniture assets noncancelable operating lease agreements expiring 2017 2032 future minimum annual cash payments operating lease agreements december 31 2016 follows thousands legal matters involved various legal administrative proceedings litigation arising ordinary course business outcome individual matters predictable time however believe ultimate resolution matters considering amounts already accrued insurance coverage material adverse effect financial position results operations cash flows future periods indemnifications company various agreements may obligate us indemnify party respect certain matters generally indemnification clauses included contracts arising normal course business customarily agree hold party harmless losses arising breach representations related matters title assets sold licensed certain intellectual property rights possible predict maximum potential amount future payments indemnification agreements due conditional nature company’s obligations unique facts particular agreement historically payments made us agreements material december 31 2016 indemnification agreements could require material payments 7 stockholders’ equity deficit common stock holders gartner’s common stock par value 0005 per share “common stock” entitled one vote per share matters voted stockholders company currently pay cash dividends common stock also 2016 credit agreement contains negative covenant may limit ability pay dividends following table summarizes transactions relating common stock three years ended december 31 2016 1 company used total 590 million 5090 million 4320 million cash share repurchases 2016 2015 2014 respectively share repurchase authorization company 12 billion board authorization repurchase companys common stock company may repurchase common stock timetotime amounts prices company deems appropriate subject availability stock prevailing market conditions trading price stock company’s financial performance conditions repurchases may made open market purchases private transactions funded cash hand borrowings company’s 2016 credit agreement december 31 2016 approximately 11 billion authorization remained available repurchases opening adjustment accumulated earnings company early adopted fasb asu 201609 improvements employee sharebased payment accounting 2016 adoption asu 201609 resulted 03 million decrease companys opening accumulated earnings balance effective january 1 2016 note 1 business significant accounting policies provides additional information regarding asu 201609 accumulated comprehensive loss income net following tables disclose information changes accumulated comprehensive loss income aocli component equity component related amounts reclassified aocli income years indicated net tax thousands 1 amounts parentheses represent debits deferred losses 2 reclassifications related interest rate swaps cash flow hedges recorded interest expense net tax effect see note 11 derivatives hedging information regarding hedges 3 reclassifications related defined benefit pension plans recorded selling general administrative expense net tax effect see note 13 employee benefits information regarding company’s defined benefit pension plans 8 stockbased compensation company grants stockbased compensation awards incentive employees directors contribute company’s longterm success company currently awards stocksettled stock appreciation rights servicebased performancebased restricted stock units common stock equivalents december 31 2016 company 62 million shares common stock par value 0005 per share available stockbased compensation awards 2014 longterm incentive plan company accounts stockbased compensation awards accordance fasb asc topics 505 718 interpreted sec staff accounting bulletins 107 “sab 107” 110 “sab 110” stockbased compensation expense based fair value award date grant recognized expense related service period service period related service performed generally vesting period currently company issues treasury shares upon exercise release settlement stockbased compensation awards determining appropriate fair value model calculating fair value stockbased compensation awards requires input certain complex subjective assumptions including expected life stockbased compensation awards common stock price volatility addition determining appropriate amount associated periodic expense requires management estimate likelihood achievement certain performance targets assumptions used calculating fair value stockbased compensation awards associated periodic expense represent management’s best estimates involve inherent uncertainties application judgment result factors change company deems necessary future modify assumptions made use different assumptions quantity nature company’s stockbased compensation awards changes amount expense may need adjusted future stockbased compensation expense could materially different recorded current period adoption asu 201609 company early adopted fasb asu 201609 improvements employee sharebased payment accounting third quarter 2016 asu 201609 requires certain changes accounting stock compensation fasb asc topic 718 among changes required asu 201609 excess tax benefits deficiencies resulting stockbased compensation awards must recognized income tax expense consolidated statements operations prior asu 201609 excess tax benefits deficiencies recorded additional paidin capital stockholders equity deficit consolidated balance sheets asu 201609 also requires excess tax benefits related stockbased compensation awards reported cash flows operating activities consolidated statements cash flows previously excess tax benefits reported cash flows financing activities asu 201609 allows companies elect either prospective retrospective application cash flow classification change company elected apply classification amendment prospectively effective january 1 2016 asu 201609 also permits companies make entitywide accounting policy election recognize forfeitures stockbased compensation awards occur make estimate applying forfeiture rate quarter company previously estimated forfeitures optionally selected change accounting policy account forfeitures occur impact material adoption asu 201609 increased companys diluted net income per share 2016 012 per share addition asu 201609 increased companys operating cash flow 2016 100 million corresponding decrease financing activities cash flow companys financial results periods prior 2016 impacted stockbased compensation expense company recognized following amounts stockbased compensation expense award type years ended december 31 millions stockbased compensation expense recognized line item consolidated statements operations years ended december 31 follows millions 1 includes charges 194 million 201 million 148 million 2016 2015 2014 respectively awards retirementeligible employees awards vest accelerated basis december 31 2016 company 494 million total unrecognized stockbased compensation cost expected recognized stockbased compensation expense remaining weightedaverage service period approximately 23 years stockbased compensation awards following disclosures provide information regarding company’s stockbased compensation awards classified equity awards accordance fasb asc topic 505 stock appreciation rights stocksettled stock appreciation rights sars permit holder participate appreciation common stock sars settled shares common stock employee applicable vesting criteria met sars vest ratably fouryear service period expire seven years grant date fair value sars awards recognized compensation expense straightline basis four years sars awarded company’s executive officers sars exercised number shares common stock issued calculated follows 1 total proceeds sars exercise calculated closing price common stock date exercise less exercise price sars multiplied number sars exercised divided 2 closing price common stock reported new york stock exchange exercise date company withholds portion shares common stock issued upon exercise satisfy statutory tax withholding requirements sars recipients stockholder rights actual shares common stock issued respect award subject prior satisfaction vesting criteria relating grants following table summarizes changes sars outstanding year ended december 31 2016 na applicable 1 december 31 2016 08 million sars unvested company expects substantially unvested awards vest future periods 2 december 31 2016 sars outstanding intrinsic value 468 million sars vested exercisable intrinsic value 251 million fair value sars determined date grant using blackscholesmerton valuation model following weightedaverage assumptions years ended december 31 1 dividend yield assumption based history expectation company’s dividend payouts historically company paid cash dividends common stock 2 determination expected stock price volatility based historical common stock prices implied volatility publicly traded options common stock 3 riskfree interest rate based yield us treasury security maturity similar expected life award 4 expected life represents company’s weightedaverage estimate period time sars expected outstanding period service inception date expected exercise date restricted stock units restricted stock units rsus give awardee right receive shares common stock vesting conditions met restrictions lapse rsu vests entitles awardee one common share rsu awardees rights gartner stockholder including voting rights right receive dividends distributions shares released fair value rsus determined date grant based closing price common stock reported new york stock exchange date servicebased rsus vest ratably four years expensed straightline basis four years performancebased rsus subject satisfaction performance service conditions vest ratably four years expensed accelerated basis following table summarizes changes rsus outstanding year ended december 31 2016 1 06 million rsus granted 2016 consisted 03 million performancebased rsus awarded executives 03 million servicebased rsus awarded nonexecutive employees nonmanagement board members 03 million performancebased rsus determined based achievement increase companys total contract value 2016 total contract value represents value attributable subscriptionrelated contracts 2 company expects substantially outstanding awards december 31 2016 vest future periods 3 weightedaverage remaining contractual term outstanding rsus approximately 11 years common stock equivalents common stock equivalents cses convertible common stock cse entitles holder one common share members board directors receive directors’ fees payable cses unless opt receive 50 fees cash generally cses defined term converted common shares service director terminates unless director elected accelerated release fair value cses determined date grant based closing price common stock reported new york stock exchange date cses vest immediately result recorded expense date grant following table summarizes changes cses outstanding year ended december 31 2016 employee stock purchase plan company employee stock purchase plan “esp plan” eligible employees permitted purchase common stock payroll deductions may exceed 10 employee’s compensation 23750 calendar year price equal 95 closing price common stock reported new york stock exchange end offering period december 31 2016 company approximately 09 million shares available purchase esp plan esp plan considered noncompensatory fasb asc topic 718 result company record stockbased compensation expense employee share purchases company received 93 million 75 million 78 million cash share purchases esp plan 2016 2015 2014 respectively 9 computation earnings per share basic earnings per share “eps” computed dividing net income weighted average number shares common stock outstanding period diluted eps reflects potential dilution securities could share earnings impact common share equivalents antidilutive excluded calculation following table sets forth reconciliation basic diluted earnings per share computations years ended december 31 thousands except per share amounts 1 company repurchased 06 million 62 million 59 million shares common stock 2016 2015 2014 respectively following table presents number common share equivalents included computation diluted eps table effect would antidilutive periods net income common share equivalents antidilutive exercise price greater average market value share common stock period 10 income taxes following summary components companys income taxes years ended december 31 thousands expense income taxes income consists following components thousands longterm deferred tax assets liabilities comprised following thousands net deferred tax assets net deferred tax liabilities 273 million 225 million december 31 2016 respectively 264 million 234 million december 31 2015 respectively reported assets liabilities consolidated balance sheets management concluded likely reversal deferred tax liabilities results future operations generate sufficient taxable income realize deferred tax assets net valuation allowance december 31 2016 valuation allowances 14 million december 31 2016 18 million 2015 primarily relate net operating losses likely realized december 31 2016 company state local tax net operating loss carryforwards 24 million 01 million expire within one five years 23 million expire within six fifteen years company also state tax credits 19 million majority expire five six years december 31 2016 company nonus net operating loss carryforwards 195 million 09 million expire next 20 years 186 million carried forward indefinitely addition company also foreign tax credit carryforwards 06 million majority expire end 2027 amounts reduced associated unrecognized tax benefits consistent fasb asu 201311 differences us federal statutory income tax rate company’s effective tax rate income taxes years ended december 31 follow disclosed note 1 business significant accounting policies company adopted fasb asu 201609 third quarter 2016 effect adoption reduced provision income taxes 100 million twelve months ended december 31 2016 2015 state income taxes net federal tax benefit include approximately 03 million 16 million respectively benefitexpense relating economic development tax credits associated renovation company’s stamford headquarters facility july 2015 united states tax court “court” issued opinion relating treatment stockbased compensation expense intercompany costsharing arrangement opinion court held affiliated companies may exclude stockbased compensation expense costsharing arrangement internal revenue service appealing decision uncertainty related final resolution litigation recognition potential benefits company recorded financial statement benefit associated decision company monitor developments related case potential impact developments company’s consolidated financial statements december 31 2016 december 31 2015 company unrecognized tax benefits 371 million 259 million respectively increase primarily attributable positions taken respect exclusion stockbased compensation expense companys costsharing arrangement certain state refund claims unrecognized tax benefits december 31 2016 related primarily utilization certain tax attributes state income tax positions ability realize certain refund claims intercompany transactions reasonably possible unrecognized tax benefits decreased 17 million within next 12 months due anticipated closure audits expiration certain statutes limitation included balance unrecognized tax benefits december 31 2016 potential benefits 334 million recognized would reduce effective tax rate income continuing operations also included balance unrecognized tax benefits december 31 2016 potential benefits 37 million recognized would result adjustments tax accounts primarily deferred taxes following reconciliation beginning ending amount unrecognized tax benefits excluding interest penalties years ended december 31 thousands company accrues interest penalties related unrecognized tax benefits income tax provision december 31 2016 2015 company 43 million 37 million respectively accrued interest penalties related unrecognized tax benefits amounts addition unrecognized tax benefits disclosed total amount interest penalties recognized income tax provision years ended december 31 2016 december 31 2015 09 million number years open statutes limitation varies depending tax jurisdiction company’s statutes open respect us federal jurisdiction 2013 forward india 2003 forward major taxing jurisdictions including us states united kingdom canada japan france ireland companys statutes vary open far back 2009 us gaap rules provision income taxes may result remittance earnings held overseas required company ability intent indefinitely reinvest funds overseas current plans demonstrate need repatriate undistributed earnings fund us operations otherwise satisfy liquidity needs us operations intend reinvest earnings nonus operations except instances repatriation earnings would result minimal additional tax result company recognized income tax expense may result remittance earnings accumulated undistributed earnings nonus subsidiaries approximately 3400 million december 31 2016 income tax would payable earnings indefinitely invested estimated 690 million 11 derivatives hedging company enters limited number derivative contracts mitigate cash flow risk associated changes interest rates variable rate debt changes foreign exchange rates forecasted foreign currency transactions company accounts outstanding derivative contracts accordance fasb asc topic 815 requires derivatives including derivatives designated accounting hedges recorded balance sheet fair value following tables provide information regarding company’s outstanding derivatives contracts years ended december 31 thousands except number outstanding contracts 1 swaps designated accounted cash flow hedges forecasted interest payments borrowings result changes fair value swaps deferred recorded aocli net tax effect see note 5 debt additional information 2 company foreign exchange transaction risk since typically enters transactions normal course business denominated foreign currencies differ local functional currency company enters shortterm foreign currency forward exchange contracts mitigate cash flow risk associated changes foreign currency rates forecasted foreign currency transactions contracts accounted fair value realized unrealized gains losses recognized expense net since company designate contracts hedges accounting purposes outstanding contracts december 31 2016 matured end january 2017 3 see note 12 fair value disclosures determination fair value instruments december 31 2016 company’s derivative counterparties investment grade financial institutions company collateral arrangements derivative counterparties none derivative contracts contained creditrisk related contingent features following table provides information regarding amounts recognized consolidated statements operations derivative contracts years ended december 31 millions 1 consists interest expense interest rate swap contracts 2 consists realized unrealized gains losses foreign currency forward contracts 12 fair value disclosures company’s financial instruments include cash equivalents fees receivable customers accounts payable accruals normally shortterm nature company believes carrying amounts financial instruments reasonably approximates fair value due shortterm nature company’s financial instruments also include outstanding borrowings 2016 credit agreement december 31 2016 company 7000 million floating rate debt outstanding arrangement carried amortized cost company believes carrying amount outstanding borrowings reasonably approximates fair value since rate interest variable rate borrowings reflect current market rates interest similar instruments comparable maturities company enters limited number derivatives transactions enter repurchase agreements securities lending transactions master netting arrangements receivables payables result derivatives transactions recorded gross company’s consolidated balance sheets fasb asc topic 820 provides framework measurement fair value valuation hierarchy based upon transparency inputs used valuation assets liabilities classification within hierarchy based upon lowest level input significant resulting fair value measurement valuation hierarchy contains three levels level 1 measurements consist quoted prices active markets identical assets liabilities level 2 measurements include significant observable inputs quoted prices similar assets liabilities active markets identical assets liabilities inactive markets observable inputs interest rates yield curves marketcorroborated inputs level 3 measurements include significant unobservable inputs internallycreated valuation models company currently utilize level 3 valuation inputs remeasure assets liabilities however level 3 inputs may used company required annual impairment review goodwill information regarding companys periodic assessment goodwill included note 1 business significant accounting policies company typically transfer assets liabilities different levels fair value hierarchy company’s assets liabilities remeasured fair value presented following table thousands 1 company deferred compensation plan benefit certain highly compensated officers managers key employees see note 13 employee benefits assets consist investments money market mutual funds companyowned life insurance contracts money market funds consist cash equivalents mutual fund investments consist publiclytraded quoted equity shares company considers fair value assets based level 1 inputs assets fair value 102 million 87 million december 31 2016 2015 respectively carrying amount life insurance contracts equals cash surrender value cash surrender value represents estimated amount company would receive upon termination contract approximates fair value company considers life insurance contracts valued based level 2 input assets fair value 278 million 255 million december 31 2016 2015 respectively related deferred compensation plan liabilities recorded fair value estimated amount needed settle liability company considers level 2 input 2 company enters foreign currency forward exchange contracts hedge effects adverse fluctuations foreign currency exchange rates see note 11 derivatives hedging valuation foreign currency forward contracts based foreign currency exchange rates active markets company considers level 2 input 3 company interest rate swap contracts hedge variability interest payments borrowings see note 11 derivatives hedging fair value swaps based marktomarket valuations provided thirdparty broker valuations based observable interest rates recently executed market transactions observable market data company considers level 2 inputs company independently corroborates reasonableness valuations prepared thirdparty broker use electronic quotation service 13 employee benefits defined contribution plan company savings investment plan “401k plan” covering substantially us employees company contributions based upon level employee contributions maximum 4 employee’s eligible salary subject annual maximum 2016 maximum match 7200 amounts expensed connection 401k plan totaled 229 million 200 million 174 million 2016 2015 2014 respectively deferred compensation plan company supplemental deferred compensation plan benefit certain highly compensated officers managers key employees structured rabbi trust plan’s investment assets recorded assets consolidated balance sheets fair value assets 381 million 341 million december 31 2016 2015 respectively see note 12 fair value disclosures fair value information corresponding deferred compensation liability 431 million 391 million december 31 2016 2015 respectively carried fair value adjusted corresponding charge credit compensation expense reflect fair value amount owed employees classified liabilities consolidated balance sheets compensation expense recognized plan 01 million 05 million 06 million 2016 2015 2014 respectively defined benefit pension plans company definedbenefit pension plans several international locations benefits paid plans based years service level employee compensation companys defined benefit pension plans accounted accordance fasb asc topics 715 960 following components defined benefit pension expense years ended december 31 thousands 1 pension expense classified sga consolidated statements operations following key assumptions used computation pension expense years ended december 31 1 discount rates typically determined utilizing yields longterm corporate government bonds relevant country duration consistent expected term underlying pension obligations following table provides information related changes projected benefit obligation years ended december 31 thousands 1 company projects following benefit payments made future years plan participants 14 million 2017 20 million 2018 11 million 2019 15 million 2020 15 million 2021 95 million total five years thereafter 2 measured december 31 following table provides information regarding funded status plans related amounts recorded company’s consolidated balance sheets december 31 thousands 1 pension plan assets held thirdparty trustees invested diversified portfolio equities high quality government corporate bonds investments assets primarily valued based level 1 level 2 inputs fair value hierarchy fasb asc topic 820 majority invested assets considered lowtomedium investment risk company projects future longterm rate return plan assets 27 believes reasonable based composition assets current projected market conditions yearended december 31 2016 company contributed 24 million plans benefits paid participants 16 million 2 funded status shortfall represents amount projected benefit obligation company funded thirdparty trustee amount liability company recorded liabilities company’s consolidated balance sheets 3 deferred actuarial loss december 31 2016 recorded aocli reclassified aocli recognized pension expense approximately 13 years subject certain limitations set forth fasb asc topic 715 impact amortization pension expense 2017 projected result approximately 03 million additional expense amortization deferred actuarial losses aocli pension expense three years ended december 31 2016 immaterial company also maintains reinsurance asset arrangement large international insurance company whose purpose provide funding benefit payments one plans reinsurance asset pension plan asset company december 31 2016 2015 reinsurance asset recorded cash surrender value 78 million 79 million respectively classified assets companys consolidated balance sheets company believes cash surrender value approximates fair value equivalent level 2 input fasb’s fair value framework asc topic 820 14 segment information company manages business three reportable segments research consulting events research primarily consists subscriptionbased research products access research inquiry peer networking services membership programs consulting consists consulting measurement engagements strategic advisory services events consists various symposia conferences exhibitions company evaluates reportable segment performance allocates resources based gross contribution margin gross contribution presented table defined operating income excluding certain cost services product development expenses selling general administrative expenses depreciation amortization intangibles acquisition integration charges certain bonus fringe benefit costs included consolidated cost services product development allocated segment expense accounting policies used reportable segments used company intersegment revenues company identify allocate assets including capital expenditures reportable segment accordingly assets reported segment information available segment reviewed evaluation segment performance making decisions allocation resources company earns revenue clients many countries united states individual country revenues external clients represent 10 company’s consolidated revenues additionally single client accounted 10 total revenue loss single client management’s opinion would material adverse effect revenues following tables present operating results company’s reportable segments years ended december 31 thousands following table provides reconciliation total segment gross contribution net income periods indicated thousands 1 unallocated amounts consist certain bonus related fringe costs recorded consolidated cost services product development expense allocated segment expense companys policy allocate bonus related fringe charges segments 100 segment employees target bonus amounts 100 absorbed corporate company’s revenues generated primarily direct sales clients domestic international sales forces network independent international sales agents company’s products services provided integrated worldwide basis integrated delivery practical precisely separate revenues geographic location accordingly separation set forth table based upon internal allocations involve certain management estimates judgments revenues table reported based sale fulfilled “other international” revenues attributable areas located outside united states canada well europe middle east africa summarized information geographic location years ended december 31 follows thousands 1 excludes goodwill intangible assets 15 valuation qualifying accounts company maintains allowance losses composed bad debt allowance revenue reserve provisions charged earnings either increase expense reduction revenues following table summarizes activity company’s allowance years ended december 31 thousands 16 subsequent events january 5 2017 gartner ceb inc nyse ceb industry leader providing best practice talent management insights announced entered definitive agreement whereby gartner acquire outstanding shares ceb cash stock transaction valued approximately 26 billion gartner also assume refinance approximately 09 billion ceb debt transaction unanimously approved boards directors companies closing transaction subject approval ceb shareholders satisfaction customary closing conditions including applicable regulatory approvals february 1 2017 federal trade commission granted early termination waiting period hartscottrodino antitrust improvements act 1976 amended applicable proposed transaction closing transaction expected completed first half 2017 connection proposed acquisition company entered commitment letter purposes financing majority cash consideration payable refinance ceb’s indebtedness commitment letter provides total 2275 billion additional financing includes sevenyear senior secured term loan b facility 1375 billion 364day senior unsecured bridge facility 3000 million senior unsecured highyield bridge facility 6000 million expected prior closing ceb acquisition senior unsecured notes issued sold pursuant offering pursuant rule 144a private placement lieu portion drawings highyield bridge facility company expects proceeds additional financing described together balance sheet cash available borrowing capacity revolving credit facility sufficient pay aggregate cash consideration refinance cebs indebtedness well pay certain fees expenses incurred connection acquisition february 6 2017 company filed registration statement form s4 sec pertaining shares gartner common stock issued connection proposed transaction prospectus relating special meeting ceb stockholders called purposes voting proposed transaction signatures pursuant requirements securities exchange act 1934 registrant caused report form 10k signed behalf undersigned duly authorized stamford connecticut february 22 2017 power attorney person whose signature appears appoints eugene hall craig w safian acting individually attorneyinfact full power substitution capacities sign amendments report form 10k file appropriate exhibits related documents securities exchange commission undersigned ratifies confirms signatures may signed attorneyinfact amendments report pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicateditem 15 exhibits financial statement schedules 1 2 consolidated financial statements schedules reports independent registered public accounting firm consolidated financial statements listed index consolidated financial statements herein filed part report financial statement schedules listed index omitted information required applicable shown consolidated financial statements notes thereto 3 exhibits index consolidated financial statements gartner inc consolidated financial statements financial statement schedules omitted information required applicable shown consolidated financial statements notes thereto report independent registered public accounting firm stockholders board directors gartner inc opinion consolidated financial statements audited accompanying consolidated balance sheets gartner inc subsidiaries company december 31 2017 2016 related consolidated statements operations comprehensive income stockholders’ equity deficit cash flows years threeyear period ended december 31 2017 related notes collectively consolidated financial statements opinion consolidated financial statements present fairly material respects financial position company december 31 2017 2016 results operations cash flows years threeyear period ended december 31 2017 conformity us generally accepted accounting principles also audited accordance standards public company accounting oversight board united states pcaob company’s internal control financial reporting december 31 2017 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission” report dated february 22 2018 expressed unqualified opinion effectiveness company’s internal control financial reporting basis opinion consolidated financial statements responsibility company’s management responsibility express opinion consolidated financial statements based audits public accounting firm registered pcaob required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audits accordance standards pcaob standards require plan perform audit obtain reasonable assurance whether consolidated financial statements free material misstatement whether due error fraud audits included performing procedures assess risks material misstatement consolidated financial statements whether due error fraud performing procedures respond risks procedures included examining test basis evidence regarding amounts disclosures consolidated financial statements audits also included evaluating accounting principles used significant estimates made management well evaluating overall presentation consolidated financial statements believe audits provide reasonable basis opinion kpmg llp served company’s auditor since 1996 new york new york february 22 2018 report independent registered public accounting firm stockholders board directors gartner inc opinion internal control financial reporting audited gartner inc subsidiaries’ company internal control financial reporting december 31 2017 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission opinion company maintained material respects effective internal control financial reporting december 31 2017 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission also audited accordance standards public company accounting oversight board united states pcaob consolidated balance sheets company december 31 2017 2016 related consolidated statements operations comprehensive income stockholders’ equity deficit cash flows years threeyear period ended december 31 2017 related notes collectively consolidated financial statements report dated february 22 2018 expressed unqualified opinion consolidated financial statements company acquired l2 inc march 9 2017 ceb inc april 5 2017 management excluded businesses assessment effectiveness company’s internal control financial reporting december 31 2017 l2 inc ceb inc represented approximately 12 16 company’s total consolidated assets total consolidated revenues respectively year ended december 31 2017 audit internal control financial reporting gartner inc subsidiaries also excluded evaluation internal control financial reporting l2 inc ceb inc basis opinion company’s management responsible maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included accompanying management’s annual report internal control financial reporting responsibility express opinion company’s internal control financial reporting based audit public accounting firm registered pcaob required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audit accordance standards pcaob standards require plan perform audit obtain reasonable assurance whether effective internal control financial reporting maintained material respects audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audit also included performing procedures considered necessary circumstances believe audit provides reasonable basis opinion definition limitations internal control financial reporting company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate kpmg llp new york new york february 22 2018 gartner inc consolidated balance sheets thousands except share data see notes consolidated financial statements gartner inc consolidated statements operations thousands except per share data see notes consolidated financial statements gartner inc consolidated statements comprehensive income thousands see notes consolidated financial statements gartner inc consolidated statements stockholders’ equity deficit thousands see notes consolidated financial statements gartner inc consolidated statements cash flows thousands see notes consolidated financial statements gartner inc notes consolidated financial statements 1 business significant accounting policies business gartner inc nyseit world’s leading research advisory company member sp 500 equip business leaders indispensable insights advice tools achieve missioncritical priorities build successful organizations tomorrow believe unmatched combination expertled practitionersourced datadriven research steers clients toward right decisions issues matter we’re trusted objective resource critical partner 12000 organizations 100 countries across major functions every industry enterprise size learn help decision makers fuel future business visit gartnercom basis presentation accompanying consolidated financial statements prepared accordance generally accepted accounting principles united states america “us gaap” defined financial accounting standards board “fasb” accounting standards codification “asc” topic 270 financial information applicable instructions us securities exchange commission “sec” regulation sx fiscal year gartner twelvemonth period january 1 december 31 references 2017 2016 2015 herein refer fiscal year unless otherwise indicated gartner delivers principal products services globally four business segments research consulting events talent assessment company acquired two businesses 2017 l2 inc l2 ceb inc ceb note 2 acquisitions divestiture provides additional information regarding acquisitions used notes terms “gartner” “company” “we” “us” “our” refer gartner inc consolidated subsidiaries principles consolidation accompanying consolidated financial statements include accounts company whollyowned subsidiaries significant intercompany transactions balances eliminated use estimates preparation accompanying consolidated financial statements requires management make estimates assumptions future events estimates underlying assumptions affect amounts assets liabilities reported disclosures contingent assets liabilities reported amounts revenues expenses estimates include valuation fees receivable goodwill intangible assets longlived assets well tax accruals liabilities addition estimates used revenue recognition income tax expense performancebased compensation charges depreciation amortization management believes use estimates accompanying consolidated financial statements reasonable management continually evaluates revises estimates using historical experience factors including general economic environment actions may take future management adjusts estimates facts circumstances dictate however estimates may involve significant uncertainties judgments cannot determined precision addition estimates based management’s best judgment point time result differences estimates actual results could material would reflected company’s consolidated financial statements future periods business acquisitions company completed acquisitions three years ended december 31 2017 detailed information related acquisitions included note 2 acquisitions divestiture company accounts acquisitions accordance acquisition method accounting prescribed fasb asc topic 805 business combinations acquisition method accounting requires company record net assets liabilities acquired based estimated fair values acquisition date excess consideration transferred estimated fair value net assets acquired including identifiable intangible assets recorded goodwill acquisition method operating results acquired companies included companys consolidated financial statements beginning date acquisition determination fair values intangible assets acquired acquisitions requires management judgment consideration number factors significant among historical financial performance acquired businesses projected performance estimates surrounding customer turnover well assumptions regarding level competition cost reproduce certain assets establishing useful lives intangibles also requires management judgment evaluation number factors among projected cash flows likelihood competition company classifies charges directlyrelated acquisitions line acquisition integration charges consolidated statements operations company recorded 1585 million 426 million 262 million charges 2017 2016 2015 respectively included directlyrelated incremental charges legal consulting retention severance accruals cash payments subject continuing employment certain key employees acquired companies revenue recognition revenue recognized accordance us gaap sec staff accounting bulletin 104 revenue recognition “sab 104” revenues recognized required criteria recognition met accompanying consolidated statements operations present revenues net sales valueadded taxes collect customers remit government authorities january 1 2018 company adopted fasb accounting standards update asu 201409 revenue contracts customers asu 201409 requires changes revenue recognition policies well enhanced disclosures adoption asu 201409 material impact company’s consolidated financial statements additional information regarding companys adoption asu 201409 provided section titled accounting standards issued yet adopted company’s revenues significant source follows research revenues mainly derived subscription contracts research products related revenues deferred recognized ratably applicable contract term fees derived assisting organizations selecting right business software needs recognized earned leads provided vendors company typically enters subscription contracts research products twelvemonth periods longer majority research contracts billable upon signing absent special terms granted limited basis time research contracts noncancelable nonrefundable except government contracts may cancellation fiscal funding clauses historically produced material cancellations policy record amount contract billable fee receivable time contract signed corresponding amount deferred revenue since contract represents legally enforceable claim consulting revenues primarily derived custom consulting measurement services principally generated fixed fee time materials engagements revenues fixed fee engagements recognized proportional performance basis revenues time material engagements recognized work delivered andor services provided revenues related contract optimization engagements contingent nature recognized upon satisfaction conditions related payment unbilled fees receivable associated consulting engagements 662 million december 31 2017 457 million december 31 2016 events revenues deferred recognized upon completion related symposium conference exhibition addition company defers certain costs directly related events expenses costs period related symposium conference exhibition occurs companys policy defer costs primarily prepaid site production services costs incremental directly attributable specific event costs organizing producing events primarily company personnel nonevent specific expenses expensed period incurred end fiscal quarter company assesses eventbyevent basis whether expected direct costs producing scheduled event exceed expected revenues costs expected exceed revenues company records expected loss period determined talent assessment talent assessment revenues arising knowledge skill assessment services recognized depending nature underlying contract ratably term service period ii upon delivery iii proportional performance basis revenues training programs survey questionnaire products primarily recognized upon delivery service allowance losses company maintains allowance losses composed bad debt allowance sales reserve provisions charged earnings either reduction revenues increase expense determination allowance losses based historical loss experience assessment current economic conditions aging outstanding receivables financial health specific clients probable losses cost services product development “cos” cos expense includes direct costs incurred creation delivery products services costs primarily relate personnel selling general administrative “sga” sga expense includes direct indirect selling costs general administrative costs charges earnings related uncollectible accounts commission expense company records deferred commissions upon signing customer contracts amortizes deferred amount commission expense period related revenues earned commission expense included sga consolidated statements operations stockbased compensation expense company accounts stockbased compensation awards accordance fasb asc topics 505 718 sec staff accounting bulletins 107 110 stockbased compensation expense based fair value award date grant company recognizes stockbased compensation expense period related service performed generally vesting period underlying award 2017 2016 2015 company recognized 789 million 467 million 461 million respectively stockbased compensation expense effective january 1 2016 company adopted fasb asu 201609 improvements employee sharebased payment accounting asu 201609 asu 201609 mandated certain changes accounting stockbased compensation including requirement excess tax benefits deficiencies resulting stockbased compensation awards recognized income tax expense benefit subsequent date adopting new accounting standard previously entity’s excess tax benefits deficiencies recorded additional paidin capital asu 201609 also requires excess tax benefits related stockbased compensation awards reported operating activity entity’s statement cash flows previously excess tax benefits reported financing activities permitted asu 201609 company elected apply changes prospectively commencing january 1 2016 provisions asu 201609 impact financial results periods prior 2016 company applied asu 201609 2015 income tax expense would declined 139 million ii basic diluted income per share would increased 017 016 respectively iii cash provided operating activities would increased 139 million asu 201609 also permits companies make entitywide accounting policy election recognize forfeitures sharebased compensation awards occur make estimate applying forfeiture rate quarter company previously estimated forfeitures optionally elected change accounting policy account forfeitures occur asu 201609 requires change accounting policy applied using cumulative effect adjustment accumulated earnings beginning period rule adopted accordingly company recorded 03 million decrease opening accumulated earnings effective january 1 2016 income taxes company uses asset liability method accounting income taxes estimate income taxes jurisdictions operate process involves estimating current tax expense together assessing temporary differences resulting differing treatment items tax accounting purposes differences result deferred tax assets liabilities included within consolidated balance sheets assessing realizability deferred tax assets management considers likely deferred tax assets realized consider availability loss carryforwards projected reversal deferred tax liabilities projected future taxable income ongoing prudent feasible tax planning strategies making assessment company recognizes tax benefit uncertain tax position likely tax position sustained based technical merits position cash equivalents includes cash highly liquid investments original maturities three months less considered cash equivalents carrying value cash equivalents approximates fair value due shortterm maturity investments maturities three months classified marketable securities interest earned classified interest income consolidated statements operations december 31 2017 company 5389 million cash equivalents additional 100 million cash classified heldforsale consolidated balance sheet total cash balance 5489 million reported ending cash balance consolidated statement cash flows property equipment leasehold improvements company leases facilities certain equipment leases classified operating leases accordance fasb asc topic 840 cost operating leases including contractual rent increases rent concessions landlord incentives recognized ratably life related lease agreement lease expense 879 million 380 million 338 million 2017 2016 2015 respectively equipment leasehold improvements fixed assets owned company recorded cost less accumulated depreciation except leasehold improvements fixed assets depreciated using straightline method estimated useful lives assets leasehold improvements amortized using straightline method shorter estimated useful lives improvement remaining term related lease company total depreciation expense 639 million 372 million 338 million 2017 2016 2015 respectively companys total fixed assets less accumulated depreciation amortization consisted following thousands company incurs costs develop internal use software used operations certain costs meeting criteria outlined fasb asc topic 350 capitalized amortized future periods net capitalized development costs internal use software 269 million 166 million december 31 2017 2016 respectively included computer equipment software category amortization capitalized internal software development costs classified depreciation consolidated statements operations totaled 99 million 88 million 82 million 2017 2016 2015 respectively finitelived intangible assets company finitelived intangible assets amortized earnings using straightline method expected useful lives changes intangible assets subject amortization twoyear period ended december 31 2017 follows thousands 1 additions primarily due companys acquisitions ceb l2 april 2017 march 2017 respectively see note 2 acquisitions divestiture additional information 2 represents amounts reclassified net heldforsale assets related ceb talent assessment business see note 2 acquisitions divestiture additional information 3 finitelived intangible assets amortized using straightline method following periods customer relationships4 13 years software 3 7 years content15 5 years 2 5 years amortization expense related finitelived intangible assets 1763 million 248 million 133 million 2017 2016 2015 respectively estimated future amortization expense year finitelived intangibles follows thousands goodwill represents excess purchase price acquired businesses estimated fair value tangible identifiable intangible net assets acquired evaluations recoverability goodwill performed accordance fasb asc topic 350 requires annual assessment potential goodwill impairment reporting unit level whenever events changes circumstances indicate carrying value goodwill may recoverable annual assessment recoverability recorded goodwill based either qualitative quantitative assessment combination two approaches methods utilize estimates turn require judgments assumptions regarding future trends events result precision reliability resulting estimates subject uncertainty annual goodwill impairment evaluation determines fair value reporting unit less related carrying amount may recognize impairment charge connection recent annual impairment test goodwill third quarter 2017 indicated impairment recorded goodwill company utilized qualitative approach assessing fair values reporting units relative respective carrying values following table presents changes carrying amount goodwill segment twoyear period ended december 31 2017 thousands 1 company accumulated goodwill impairment losses 2 2017 goodwill additions due acquisitions ceb l2 april 2017 march 2017 respectively see note 2acquisitions divestiture additional information 3 represents amounts reclassified heldforsale assets related ceb talent assessment business see note 2 acquisitions divestiture additional information impairment longlived assets companys longlived assets primarily consist intangible assets goodwill property equipment leasehold improvements company reviews longlived asset groups impairment whenever events changes circumstances indicate carrying amount respective asset may recoverable evaluation may based number factors including current projected operating results cash flows changes management’s strategic direction well external economic market factors company evaluates recoverability assets determining whether carrying value recovered undiscounted future operating cash flows events circumstances indicate carrying value might recoverable based undiscounted future operating cash flows impairment loss would recognized amount impairment measured based difference projected discounted future operating cash flows using discount rate reflecting company’s average cost funds carrying value asset company record impairment charges longlived asset groups three year period ended december 31 2017 pension obligations company definedbenefit pension plans several international locations see note 13 employee benefits earned plans generally based years service level employee compensation company accounts defined benefit plans accordance requirements fasb asc topic 715 company determines periodic pension expense related liabilities plans actuarial assumptions valuations company recognized approximately 35 million pension expense years ended 2017 2016 2015 company classifies pension expense sga consolidated statements operations debt company presents amounts borrowed consolidated balance sheets amortized cost net deferred financing fees interest accrued amounts borrowed classified interest expense consolidated statements operations company amended credit facility 2017 borrowed additional amounts related acquisitions company 33 billion principal amount debt outstanding december 31 2017 compared 7025 million december 31 2016 note 5 debt provides information regarding companys debt foreign currency exposure functional currency foreign subsidiaries typically local currency assets liabilities foreign subsidiaries translated us dollars exchange rates effect balance sheet date income expense items translated average exchange rates year resulting translation adjustments recorded foreign currency translation adjustments component accumulated comprehensive income loss net within stockholders’ equity section consolidated balance sheets currency transaction gains losses arising transactions denominated currencies functional currency subsidiary recognized results operations income net within consolidated statements operations company net currency transaction losses 55 million 04 million 26 million 2017 2016 2015 respectively company enters foreign currency forward exchange contracts mitigate effects adverse fluctuations foreign currency exchange rates transactions contracts generally short duration recorded fair value realized unrealized gains losses recorded income net gain loss contracts 08 million 03 million 01 million 2017 2016 2015 respectively comprehensive income company reports comprehensive income separate statement called consolidated statements comprehensive income included herein companys comprehensive income disclosures included note 7 stockholders equity fair value disclosures company limited number assets liabilities adjusted fair value balance sheet date company’s fair value disclosures included note 12 fair value disclosures concentrations credit risk assets may subject company concentration credit risk consist primarily shortterm highly liquid investments classified cash equivalents fees receivable interest rate swaps pension reinsurance asset majority company’s cash equivalent investments interest rate swap contracts investment grade commercial banks fees receivable balances deemed collectible customers limited concentration credit risk due diverse customer base geographic dispersion company’s pension reinsurance asset see note 13 employee benefits maintained large international insurance company rated investment grade december 31 2017 2016 stock repurchase programs company records cost repurchase common shares treasury stock 2017 2016 2015 company used 413 million 590 million 5090 million respectively cash stock repurchases see note 7 stockholders’ equity additional information shares repurchased company added treasury shares retired adoption new accounting standards company adopt significant new accounting standards 2017 accounting standards issued yet adopted fasb issued accounting standards yet become effective may impact company’s consolidated financial statements related disclosures future periods standards potential impact discussed accounting standards effective 2018 stock compensation award modifications may 2017 fasb issued asu 201709 compensationstock compensation scope modification accounting asu 201709 asu 201709 provides guidance changes terms conditions sharebased payment award require entity apply modification accounting asu 201709 effective gartner january 1 2018 concluded adoption asu 201709 material impact companys consolidated financial statements retirement benefits cost presentation march 2017 fasb issued asu 201707 compensationretirement benefits asu 201707 asu 201707 improves reporting net benefit cost financial statements provides additional guidance presentation net benefit cost income statement clarifies components eligible capitalization asu 201707 effective gartner january 1 2018 concluded adoption asu 201707 material impact companys consolidated financial statements partial sales nonfinancial assets february 2017 fasb issued asu 201705 clarifying scope asset derecognition guidance accounting partial sales nonfinancial assets asu 201705 asu 201705 clarifies scope fasb’s recently established guidance nonfinancial asset derecognition well accounting partial sales nonfinancial assets conforms derecognition guidance nonfinancial assets model revenue transactions asu 201705 effective gartner january 1 2018 concluded adoption asu 201705 material impact companys consolidated financial statements definition business january 2017 fasb issued asu 201701 clarifying definition business asu 201701 effective gartner january 1 2018 asu 201701 changes us gaap definition business impact accounting asset purchases acquisitions goodwill impairment assessments concluded adoption asu 201701 material impact companys consolidated financial statements presentation restricted cash november 2016 fasb issued asu 201618 restricted cash asu 201618 asu 201618 requires amounts generally described restricted cash restricted cash equivalents presented cash equivalents reconciling beginningofperiod endofperiod total amounts shown statement cash flows different reconciliation cash balances reported cash flow statement balance sheet would need provided along explanatory information asu 201618 effective gartner january 1 2018 adoption asu 201618 require company disclose restricted cash result change presentation consolidated statements cash flows income taxes october 2016 fasb issued asu 201616 intraentity transfers assets inventory asu 201616 asu 201616 accelerates recognition taxes certain intraentity transactions effective gartner january 1 2018 current us gaap requires deferral income tax implications intercompany sale assets sold third party recovered use new rule seller’s tax effects buyer’s deferred taxes postadoption asset transfers immediately recognized upon sale date adoption asu 201616 taxes attributable pre2018 intraentity transfers previously deferred accelerated recorded accumulated earnings permitted transition rules asu 201616 could material impact consolidated financial statements future depending nature size tax consequences future intraentity transfers statement cash flows august 2016 fasb issued asu 201615 classification certain cash receipts cash payments asu 201615 asu 201615 sets forth classification requirements certain cash flow transactions asu 201615 effective gartner january 1 2018 concluded adoption asu 201615 material impact companys consolidated financial statements financial instruments recognition measurement january 2016 fasb issued asu 201601 financial instruments overall recognition measurement financial assets liabilities asu 201601 address certain aspects recognition measurement presentation disclosure financial instruments among significant changes required asu 201601 equity investments measured fair value changes fair value recognized net income asu 201601 effective gartner january 1 2018 concluded adoption asu 201601 material impact companys consolidated financial statements revenue recognition may 2014 fasb issued asu 201409 revenue contracts customers asu 201409 asu 201409 related amendments require changes revenue recognition policies well enhanced disclosures asu 201409 intended clarify principles recognizing revenue removing inconsistencies weaknesses existing revenue recognition rules provide robust framework addressing revenue recognition issues improve comparability revenue recognition practices across entities industries jurisdictions capital markets provide useful information users financial statements improved disclosures asu 201409 also requires significantly expanded disclosures around nature amount timing uncertainty revenue cash flows arising contracts customers entity may adopt asu 201409 using either full retrospective approach prior reporting period presented modified retrospective approach cumulative effect method company adopted asu 201409 january 1 2018 using cumulative effect method adoption asu 201409 material impact company’s consolidated financial statements adoption standard require company reclassify certain immaterial amounts company’s consolidated balance sheet well provide enhanced disclosures required standard provided companys form 10q filing quarterly period ending march 31 2018 accounting standards effective 2019 targeted improvements accounting hedging activities august 2017 fasb issued asu 201712 derivatives hedging asu 201712 asu 201712 intended improve financial reporting hedging relationships better portray economic results entity’s risk management activities financial statements addition main objective standard makes certain targeted improvements simplify application hedge accounting guidance current us gaap asu 201712 effective gartner january 1 2019 currently evaluating impact asu 201712 companys consolidated financial statements distinguishing liabilities equity july 2017 fasb issued asu 201711 earnings per share distinguishing liabilities equity derivatives hedging asu 201711 asu 201711 intended simplify accounting financial instruments characteristics liabilities equity among issues addressed determining whether instrument embedded feature indexed entity’s stock ii distinguishing liabilities equity mandatorily redeemable financial instruments certain nonpublic entities iii identifying mandatorily redeemable noncontrolling interests asu 201711 effective gartner january 1 2019 currently evaluating potential impact asu 201711 companys consolidated financial statements leases february 2016 fasb issued asu 201602 leases asu 201602 require significant changes accounting disclosure lease arrangements currently us gaap lease arrangements meet certain criteria considered operating leases recorded balance sheet companys existing lease arrangements accounted operating leases thus recorded companys balance sheet asu 201602 significantly change accounting leases since rightofuse rou model must used lessee must record rou asset lease liability balance sheet leases terms longer 12 months leases classified either finance operating arrangements classification affecting pattern expense recognition income statement asu 201602 also requires expanded disclosures leasing arrangements asu 201602 effective gartner january 1 2019 currently evaluating potential impact asu 201602 consolidated financial statements accounting standards effective 2020 goodwill impairment january 2017 fasb issued asu 201704 intangiblesgoodwill simplifying test goodwill impairment asu 201704 asu 201704 simplifies determination amount goodwill potentially charged eliminating step 2 current goodwill impairment test asu 201704 effective gartner january 1 2020 concluded adoption asu 201704 material impact companys consolidated financial statements financial instrument credit losses june 2016 fasb issued asu 201613 financial instrumentscredit losses asu 201613 asu 201613 amends current financial instrument impairment model requiring entities use forwardlooking approach based expected losses estimate credit losses certain types financial instruments including trade receivables asu 201613 effective gartner january 1 2020 early adoption permitted currently evaluating potential impact asu 201613 consolidated financial statements fasb also continues work number significant accounting standards issued could materially impact companys accounting policies disclosures future periods however since standards yet issued effective dates potential impact unknown 2 acquisitions divestiture acquisitions company accounts business acquisitions accordance acquisition method accounting prescribed fasb asc topic 805 business combinations acquisition method accounting requires company record net assets liabilities acquired based estimated fair values acquisition date excess consideration transferred estimated fair value net assets acquired including identifiable intangible assets recorded goodwill acquisition method operating results acquired companies included companys consolidated financial statements beginning date acquisition company completed following business acquisitions year ended december 31 2017 ceb april 5 2017 company acquired 100 outstanding capital stock ceb aggregate purchase price 35 billion consideration transferred gartner included approximately 27 billion cash 8187 million fair value gartner common shares ceb publiclyheld company headquartered arlington virginia approximately 4900 employees cebs primary business serve leading provider subscriptionbased best practice research analysis focusing human resources sales finance legal ceb served executives professionals corporate middle market institutions 70 countries l2 march 9 2017 company acquired 100 outstanding capital stock l2 privatelyheld firm based new york city 150 employees aggregate purchase price 1342 million l2 subscriptionbased research business benchmarks digital performance brands total consideration transferred following table summarizes aggregate consideration paid acquisitions thousands 1 includes total consideration transferred 100 outstanding capital stock acquired businesses 2 cash paid close represents gross contractual amount paid company paid additional 125 million cash third quarter 2017 net cash acquired businesses cash flow reporting purposes company paid total 263 billion cash 3 company borrowed total approximately 28 billion conjunction ceb acquisition see note 7 debt additional information 4 consists fair value gartner common stock issued see note 7 stockholders equity additional information ii stockbased compensation replacement awards 5 company may also required pay additional 208 million cash l2 contingent achievement certain employment conditions several key employees amount recognized compensation expense approximately three years preliminary allocation purchase price following table summarizes preliminary allocation purchase price fair value assets acquired liabilities assumed acquisitions l2 ceb thousands 1 company believes goodwill resulting acquisitions supportable based anticipated synergies ceb among factors contributing anticipated synergies broader market presence expanded product offerings market opportunities acceleration cebs growth leveraging gartners global infrastructure best practices sales productivity areas none recorded goodwill expected deductible tax purposes company recorded certain measurement period adjustments ceb preliminary purchase price allocation 2017 primarily related tenant improvement incentives tax liabilities adjustments resulted net increase recorded goodwill approximately 320 million december 31 2017 allocation purchase price l2 ceb acquisitions preliminary respect certain tax matters contingencies company resolve remaining matters complete allocation purchase price end accounting measurement period respective acquisition 2 acquired intangible assets finitelived determination fair value finitelived intangible assets required management judgment consideration number factors determining fair values management primarily relied income valuation methodologies particular discounted cash flow models use discounted cash flow models required use estimates significant among projected cash flows related particular asset useful lives particular assets selection royalty discount rates used models certain published industry benchmark data establishing estimated useful lives finitelived intangible assets company relied internallygenerated data similar assets well certain published industry benchmark data believe values assigned finitelived intangible assets reasonable supportable 3 companys financial statements include operating results ceb beginning april 5 2017 date acquisition cebs operating results related goodwill reported part companys research events talent assessment segments company acquired ceb prior periods impact companys operating results would material result following pro forma consolidated financial information presented ceb acquired company january 1 2016 thousands except per share amounts pro forma results prepared accordance us gaap include following pro forma adjustments increase interest expense amortization debt issuance costs related financing ceb acquisition note 5 debt provides information regarding companys borrowings related ceb acquisition b change revenue result required fair value adjustment deferred revenue c adjustment additional depreciation amortization expense result preliminary purchase price allocation finitelived intangible assets property equipment leasehold improvements 4 companys financial statements include operating results l2 beginning march 9 2017 acquisition date l2s operating results material companys consolidated operating segment results 2017 company acquired l2 prior periods impact companys operating results would material result pro forma financial information l2 prior periods presented l2s operating results related goodwill reported part companys research segment company recognized 1585 million acquisition integration charges 2017 compared 426 million 2016 additional charges 2017 primarily consisted higher professional fees severance stockbased compensation charges accruals exit costs certain office space company intend occupy arlington virginia related ceb acquisition following table presents summary activity related space year ended december 31 2017 thousands year ended december 31 2016 november 9 2016 company acquired 100 outstanding capital stock machina research limited machina privatelyheld firm based london 16 employees company paid approximately 45 million cash close machina provides clients subscriptionbased research provides strategic insight market intelligence areas iot internet things june 28 2016 company acquired 100 outstanding capital stock newco 5cl limited operates trade name scm world privatelyheld firm based london 60 employees 342 million cash paid close scm world leading crossindustry peer network learning community providing subscriptionbased research conferences supply chain executives net cash acquired business cash flow reporting purposes company paid approximately 279 million cash scm world acquisition scm world also included earnout provision fair value earnout recorded acquisition date part cost acquisition subsequently adjusted charge earnings company recorded 324 million goodwill 59 million amortizable intangible assets two acquisitions immaterial amount assets net basis operating results related goodwill reported part companys research events segments company also recorded additional 19 million additional goodwill 2016 related prior year acquisition year ended december 31 2015 company acquired 100 outstanding shares nubera ebusiness sl capterra inc 2015 businesses assist clients selecting business software aggregate purchase price 2069 cash net cash acquired businesses cash flow reporting purposes company paid 1962 million cash company recorded 796 million 1381 million amortizable intangible assets goodwill respectively 108 million liabilities net basis acquisitions operating results related goodwill reported part companys research segment planned divestiture ceb talent assessment business february 6 2018 company announced reached definitive agreement sell ceb talent assessment business approximately 4000 million agreement result previously announced process evaluate strategic alternatives business purchase price subject typical adjustments among things working capital business transaction expected close first half 2018 subject customary closing conditions certain approvals ceb talent assessment business acquired gartner part ceb acquisition 2017 significant portion talent assessment segment period ceb acquisition date december 31 2017 ceb talent assessment business contributed approximately 1261 million revenue incurred pretax loss approximately 193 million effective designation heldforsale october 4 2017 discontinued recording depreciation amortization property equipment leasehold improvements finitelived intangible assets business required accounting rules company also separately classified related assets liabilities business heldforsale december 31 2017 consolidated balance sheet principal components heldforsale assets liabilities december 31 2017 business summarized table thousands sale business structured sale shares affected subsidiaries corresponding deferred taxes transferred buyer upon consummation sale company made accounting policy election classify deferred taxes associated individual assets liabilities part transaction heldforsale 3 assets consist following thousands 4 accounts payable accrued liabilities accounts payable accrued liabilities consist following thousands liabilities consist following thousands 5 debt 2016 credit agreement company entered term loan revolving credit facility june 17 2016 credit agreement discussed 2016 credit agreement amended three times 2017 conjunction acquisition ceb december 31 2017 2016 credit agreement provides 15 billion term loan facility 5000 million term loan b facility 12 billion revolving credit facility 2016 credit agreement contains certain customary restrictive loan covenants including among others financial covenants apply maximum leverage ratio minimum interest expense coverage ratio covenants limiting gartner’s ability incur indebtedness grant liens make acquisitions merge dispose assets pay dividends repurchase stock make investments enter certain transactions affiliates company full compliance covenants december 31 2017 company borrowed total approximately 28 billion ceb acquisition company borrowed 1675 billion 2016 credit agreement consisted 9000 million increased term loan facility 5000 million new term loan b facility 2750 million existing revolving credit facility 1675 billion drawn 2016 credit agreement along funds raised issuance 8000 million senior notes 3000 million 364day bridge credit facility discussed used fund ceb acquisition related costs discussed funds borrowed 364day bridge credit facility completely repaid 2017 january 20 2017 company entered first amendment 2016 credit agreement entered permit acquisition ceb incurrence additional debt finance part acquisition repay certain debt ceb modify certain covenants march 20 2017 company entered second amendment 2016 credit agreement second amendment also entered connection acquisition ceb executed primarily extend maturity date term loan facility revolving credit facility march 20 2022 revise interest rate amortization schedule april 5 2017 conjunction closing ceb acquisition company entered third amendment 2016 credit agreement lenders increased aggregate principal amount existing term loan facility 9000 million added term loan b facility aggregate principal amount 5000 million term loan facility repaid 16 consecutive quarterly installments commenced june 30 2017 plus final payment made march 20 2022 additional amount drawn term loan facility maturity date subject interest repayment terms amortization schedules representations warranties affirmative negative covenants events default amounts outstanding facility prior entry company incremental amendment revolving credit facility may borrowed repaid reborrowed march 20 2022 time amounts must repaid amounts borrowed term loan facility revolving credit facility bear interest rate equal companys option either greatest x administrative agent’s prime rate average rate federal reserve board new york rate plus 12 1 z eurodollar rate adjusted statutory reserves plus 1 case plus margin equal 0125 150 depending gartner’s consolidated leverage ratio end four consecutive fiscal quarters recently ended ii eurodollar rate adjusted statutory reserves plus margin equal 1125 250 depending gartner’s leverage ratio end four consecutive fiscal quarters recently ended term loan b facility contains representations warranties affirmative negative covenants events default term loan facility revolving credit facility except breach financial maintenance covenants result event default term loan b facility unless lenders revolving credit facility term loan facility accelerated revolving loans term loan loans terminated commitments thereunder additionally term loan b facility includes mandatory prepayment requirements related asset sales subject reinvestment debt incurrence permitted debt excess cash flow subject certain limitations described therein term loan b facility mature april 5 2024 amounts outstanding thereunder bear interest rate per annum equal option gartner adjusted libor plus 200 ii alternate base rate plus 100 364day bridge credit facility april 5 2017 conjunction acquisition ceb company entered senior unsecured 364day bridge credit facility aggregate principal amount 3000 million immediately drawn fund portion purchase price associated ceb acquisition company repaid entire 3000 million 364day bridge credit facility 2017 senior notes march 30 2017 conjunction acquisition ceb company issued 8000 million aggregate principal amount 5125 senior notes due 2025 “senior notes” proceeds senior notes also used fund portion purchase price associated ceb acquisition senior notes issued issue price 10000 bear interest fixed rate 5125 per annum interest senior notes payable april 1 october 1 year senior notes mature april 1 2025 company may redeem senior notes time april 1 2020 cash redemption prices set forth note indenture plus accrued unpaid interest including redemption date prior april 1 2020 company may redeem 400 aggregate principal amount senior notes proceeds certain equity offerings redemption price 105125 plus accrued unpaid interest including redemption date addition company may redeem senior notes prior april 1 2020 redemption price 100 principal amount senior notes plus accrued unpaid interest including redemption date plus “makewhole” premium company experiences specific kinds change control required offer purchase senior notes price equal 101 principal amount thereof plus accrued unpaid interest senior notes company’s general unsecured senior obligations effectively subordinated company’s existing future secured indebtedness extent value collateral securing indebtedness structurally subordinated existing future indebtedness liabilities company’s nonguarantor subsidiaries equal right payment company’s company’s guarantor subsidiaries’ existing future senior indebtedness senior right payment company’s future subordinated indebtedness outstanding borrowings december 31 2017 following table summarizes company’s total outstanding borrowings thousands 1 contractual annualized interest rate december 31 2017 term loan b facilities 357 consisted floating eurodollar base rate 157 plus margin 200 contractual annualized interest rate revolving credit facility 407 consisted floating eurodollar base rate 157 plus margin 250 however company interest rate swap contracts effectively convert floating eurodollar base rates portion amounts outstanding fixed base rate 2 company 5580 million available borrowing capacity revolver including expansion feature december 31 2017 3 consists 8000 million principal amount senior notes outstanding senior notes pay fixed rate 5125 eight year maturity 4 consists 25 million state connecticut economic development loan 30 fixed rate interest loan originated 2012 10 year maturity principal payments deferred first five years loan may repaid point company without penalty 5 average annual interest rate companys outstanding debt december 31 2017 391 including effect interest rate swaps discussed 6 contractual due dates year debt outstanding december 31 2017 follows 800 million 2018 1076 million 2019 1447 million 2020 426 million 2021 168 billion 2022 approximately 127 billion thereafter january 2018 company repaid 2550 million outstandings revolver contractually due 2022 7 deferred financing fees amortized interest expense net term respective debt obligation 2017 company paid 512 million additional deferred financing fees recorded charge approximately 61 million writeoff deferred financing fees related prior financing arrangement interest rate swaps december 31 2017 company fixedforfloating interest rate swap contracts swaps total notional value 14 billion mature 2022 company designates swaps accounting hedges forecasted interest payments 14 billion company’s variable rate borrowings company pays base fixed rates swaps ranging 154 213 return receives floating eurodollar base rate 14 billion 30day notional borrowings company accounts interest rate swaps cash flow hedges accordance fasb asc topic 815 since swaps hedge forecasted interest payments changes fair value swaps recorded accumulated comprehensive income loss component equity long swaps continue highly effective hedges designated interest rate risk ineffective portion change fair value hedges recorded earnings swaps highly effective hedges forecasted interest payments december 31 2017 interest rate swaps positive fair value 34 million december 31 2017 negative fair value 23 million december 31 2016 amounts deferred classified accumulated comprehensive income loss net tax effect 6 commitments contingencies contractual lease commitments company leases various facilities computer office equipment furniture assets noncancelable operating lease agreements expiring 2018 2032 future minimum annual cash payments operating lease agreements december 31 2017 follows thousands 1 excludes approximately 2840 million sublease income legal matters company involved legal proceedings litigation arising ordinary course business believe potential liability excess amounts already accrued proceedings claims litigation material effect financial position cash flows results operations resolved future period indemnifications company various agreements may obligate us indemnify party respect certain matters generally indemnification clauses included contracts arising normal course business customarily agree hold party harmless losses arising breach representations related matters title assets sold licensed certain intellectual property rights possible predict maximum potential amount future payments indemnification agreements due conditional nature company’s obligations unique facts particular agreement historically payments made us agreements material december 31 2017 company material payment obligations indemnification agreements 7 stockholders’ equity common stock holders gartner’s common stock par value 0005 per share “common stock” entitled one vote per share matters voted stockholders company currently pay cash dividends common stock also 2016 credit agreement contains negative covenant may limit ability pay dividends following table summarizes transactions relating common stock three years ended december 31 2017 1 company used total 413 million 590 million 5090 million cash share repurchases 2017 2016 2015 respectively share issuance related acquisition ceb april 5 2017 company issued 74 million common shares fair value 10965 per common share part consideration ceb acquisition note 2 acquisitions divestiture provides additional information regarding ceb acquisition fair value companys common stock determined based average high low prices common stock reported new york stock exchange april 5 2017 date acquisition share repurchase authorization company 12 billion board approved authorization repurchase companys common stock 11 billion remained available december 31 2017 company may repurchase common stock time amounts prices company deems appropriate subject availability stock prevailing market conditions trading price stock company’s financial performance conditions repurchases may made open market purchases private transactions funded cash hand borrowings company’s credit arrangement accumulated comprehensive income loss net following tables disclose information changes accumulated comprehensive income loss aocli component equity component related amounts reclassified aocli income years indicated net tax thousands 1 amounts parentheses represent debits deferred losses 2 reclassifications related interest rate swaps cash flow hedges recorded interest expense net tax effect see note 11 derivatives hedging information regarding hedges 3 reclassifications related defined benefit pension plans recorded selling general administrative expense net tax effect see note 13 employee benefits information regarding company’s defined benefit pension plans 8 stockbased compensation company grants stockbased compensation awards incentive employees directors contribute company’s longterm success company currently awards stocksettled stock appreciation rights servicebased performancebased restricted stock units common stock equivalents december 31 2017 company 57 million shares common stock par value 0005 per share common stock available stockbased compensation awards 2014 longterm incentive plan company accounts stockbased compensation awards accordance fasb asc topics 505 718 sec staff accounting bulletins 107 110 stockbased compensation expense based fair value award date grant company recognizes stockbased compensation expense period related service performed generally vesting period underlying award currently company issues treasury shares upon exercise release settlement stockbased compensation awards determining appropriate fair value model calculating fair value stockbased compensation awards requires use certain complex subjective assumptions including expected life stockbased compensation award common stock price volatility addition determining appropriate periodic stockbased compensation expense requires management estimate likelihood achievement certain performance targets assumptions used calculating fair values stockbased compensation awards related periodic expense represent management’s best estimates involve inherent uncertainties application judgment result circumstances change company deems necessary future modify assumptions made use different assumptions quantity nature company’s stockbased compensation awards changes amount expense may need adjusted future stockbased compensation expense could materially different recorded current period stockbased compensation expense company recognized following stockbased compensation expense award type expense category line item years ended december 31 millions 1 includes charges 229 million 194 million 201 million 2017 2016 2015 respectively awards retirementeligible employees awards vest accelerated basis 2 charges primarily result acceleration vesting certain restricted stock units related ceb acquisition december 31 2017 company 799 million total unrecognized stockbased compensation cost expected expensed remaining weighted average service period approximately 24 years stockbased compensation awards disclosures presented provide information regarding company’s stockbased compensation awards classified equity awards accordance fasb asc topic 505 stock appreciation rights stocksettled stock appreciation rights sars permit holder participate appreciation value common stock applicable vesting criteria satisfied sars settled shares common stock upon exercise employee sars vest ratably fouryear service period expire seven years date grant fair value sars award recognized compensation expense straightline basis four years sars awarded company’s executive officers sars exercised number shares common stock issued calculated follows 1 total proceeds exercise sars award calculated closing price common stock reported new york stock exchange date exercise less exercise price sars award multiplied number sars exercised divided 2 closing price common stock date exercise company withholds portion shares common stock issued upon exercise satisfy statutory tax withholding requirements sars recipients stockholder rights shares common stock issued respect award subject prior satisfaction vesting criteria relating grants following table summarizes changes sars outstanding year ended december 31 2017 na applicable 1 december 31 2017 07 million total sars outstanding unvested company expects substantially unvested awards vest future periods 2 december 31 2017 total sars outstanding intrinsic value 550 million date sars vested exercisable intrinsic value 302 million fair value sars award determined date grant using blackscholesmerton valuation model following weighted average assumptions years ended december 31 1 expected dividend yield assumption based companys historical anticipated dividend payouts historically company paid cash dividends common stock 2 determination expected stock price volatility based historical common stock prices implied volatility publicly traded options common stock 3 riskfree interest rate based yield us treasury security maturity similar expected life award 4 expected life represents company’s estimate weighted average period time sars expected outstanding period service inception date expected exercise date restricted stock units restricted stock units rsus give awardee right receive shares common stock vesting conditions met certain restrictions lapse rsu vests entitles awardee one share common stock rsu awardees rights gartner stockholder including voting rights right receive dividends distributions shares released fair value rsu award determined date grant based closing price common stock reported new york stock exchange date servicebased rsus vest ratably four years expensed straightline basis vesting period performancebased rsus subject satisfaction performance service conditions vest ratably four years expensed accelerated basis vesting period following table summarizes changes rsus outstanding year ended december 31 2017 1 11 million rsus granted 2017 consisted 02 million performancebased rsus awarded executives 09 million servicebased rsus awarded executives nonexecutive employees nonmanagement board members 02 million performancebased rsus represents target amount grant year tied increase heritage gartner’s total contract value 2017 total contract value determination represents value attributable heritage gartner’s subscriptionrelated revenue contracts final number performancebased rsus awarded could range 0 200 target amount actual increase heritage gartner’s contract value 2017 measured december 31 2017 yielded approximately 186 target amount incremental awards based actual achievement 2017 grant issued 2018 2 includes 06 million rsus awarded employees joined gartner result ceb acquisition 3 company expects substantially rsus outstanding vest future periods 4 december 31 2017 weighted average remaining contractual term rsus outstanding approximately 12 years common stock equivalents common stock equivalents cses convertible common stock cse entitles holder one share common stock members board directors receive directors’ fees cses unless opt receive 50 fees cash generally cses defined term converted shares common stock service director terminates unless director elected accelerated release fair value cse award determined date grant based closing price common stock reported new york stock exchange date cses vest immediately result recorded expense date grant following table summarizes changes cses outstanding year ended december 31 2017 employee stock purchase plan company employee stock purchase plan “esp plan” eligible employees permitted purchase shares common stock payroll deductions may exceed 10 employee’s compensation 23750 calendar year price equal 95 closing price common stock reported new york stock exchange end offering period december 31 2017 company 08 million shares available purchase esp plan esp plan considered noncompensatory fasb asc topic 718 result company record stockbased compensation expense employee share purchases company received 117 million 93 million 75 million cash employee share purchases esp plan 2017 2016 2015 respectively 9 computation earnings per share basic earnings per share “eps” computed dividing net income weighted average number shares common stock outstanding period diluted eps reflects potential dilution securities could share earnings impact common share equivalents antidilutive excluded calculation following table sets forth reconciliation basic diluted earnings per share computations years ended december 31 thousands except per share amounts 1 company repurchased 04 million 06 million 62 million shares common stock 2017 2016 2015 respectively 2 basic diluted earnings per share 2017 include onetime benefit approximately 066 per share related tax cuts jobs act 2017 note 10 income taxes provides information related tax cuts jobs act 2017 following table presents number common share equivalents included computation diluted eps table effect would antidilutive periods net income common share equivalents antidilutive exercise price greater average market value share common stock period 10 income taxes following summary components companys loss income taxes years ended december 31 thousands expense income taxes income consists following components thousands longterm deferred tax assets liabilities comprised following thousands net deferred tax assets net deferred tax liabilities 305 million 2537 million december 31 2017 respectively 273 million 225 million december 31 2016 respectively amounts primarily reported assets liabilities consolidated balance sheets management concluded likely reversal deferred tax liabilities results future operations generate sufficient taxable income realize deferred tax assets net valuation allowance december 31 2017 valuation allowances 32 million december 31 2017 14 million 2016 primarily relate net operating losses likely realized december 31 2017 company state local tax net operating loss carryforwards 915 million 09 million expire within one five years 199 million expire within six fifteen years 707 million expire within sixteen twenty years company also state tax credits 20 million majority expire five six years december 31 2017 company nonus net operating loss carryforwards 160 million 05 million expire next 20 years 155 million carried forward indefinitely addition company also foreign tax credit carryforwards 590 million expire end 2027 amounts reduced associated unrecognized tax benefits consistent fasb asu 201311 december 31 2017 company recorded deferred tax assets federal state unrealized capital losses 629 million resulting heldforsale accounting ceb talent assessment business differences us federal statutory income tax rate company’s effective tax rate income taxes years ended december 31 follow tax cuts jobs act “the act” enacted december 22 2017 among things act reduces us federal corporation tax rate 35 21 requires companies pay onetime transition tax accumulated deferred foreign income “adfi” foreign subsidiaries previously tax deferred creates new tax global intangible lowtaxed income “gilti” attributable foreign subsidiaries december 31 2017 completed accounting tax effects enactment act necessary information currently available prepared analyzed amount recorded provisional estimates permitted sec per staff accounting bulletin 118 continue assess enactment act may record additional provisional amount adjustments provisional amounts fiscal year 2018 expect complete accounting impacts tax reform fourth quarter 2018 complete analysis receive additional guidance internal revenue service pertaining act remeasured us deferred tax assets liabilities based rates expected reverse future generally 21 recorded provisional amount reduced income tax expense 1232 million however still finalizing purchase accounting acquisition ceb analyzing certain aspects act refining deferred tax calculations could affect measurement balances give rise new deferred tax amounts tax adfi based total post1986 earnings profits ep foreign subsidiaries previously deferred us income taxes recorded 636 million provisional amount onetime transition tax liability resulting increase income tax expense 636 million yet completed calculation tax adfi given pending regulatory guidance need obtain prepare analyze various information relevant calculation including limited post1986 ep foreign taxes amounts held cash specified assets various measurement dates disclosed note 1 business significant accounting policies company adopted fasb asu 201609 2016 effect adoption reduced provision income taxes 129 million 100 million years ended december 31 2017 2016 respectively july 2015 united states tax court “court” issued opinion relating treatment stockbased compensation expense intercompany costsharing arrangement opinion court held affiliated companies may exclude stockbased compensation expense costsharing arrangement internal revenue service appealing decision uncertainty related final resolution litigation recognition potential benefits company recorded financial statement benefit associated decision company monitor developments related case potential impact developments company’s consolidated financial statements december 31 2017 december 31 2016 company unrecognized tax benefits 603 million 371 million respectively increase primarily attributable preacquisition unrecognized tax benefits ceb positions taken respect intercompany transactions state income tax positions unrecognized tax benefits december 31 2017 related primarily exclusion stockbased compensation expense company’s cost sharing agreement utilization certain tax attributes state income tax positions ability realize certain refund claims intercompany transactions reasonably possible unrecognized tax benefits decreased 63 million within next 12 months due anticipated closure audits expiration certain statutes limitation included balance unrecognized tax benefits december 31 2017 potential benefits 571 million recognized would reduce effective tax rate income continuing operations also included balance unrecognized tax benefits december 31 2017 potential benefits 32 million recognized would result adjustments tax accounts primarily deferred taxes following reconciliation beginning ending amount unrecognized tax benefits excluding interest penalties years ended december 31 thousands company accrues interest penalties related unrecognized tax benefits income tax provision december 31 2017 2016 company 64 million 43 million respectively accrued interest penalties related unrecognized tax benefits amounts addition unrecognized tax benefits disclosed total amount interest penalties recognized income tax provision years ended december 31 2017 december 31 2016 09 million number years open statutes limitation varies depending tax jurisdiction company’s statutes open respect us federal jurisdiction 2014 forward india 2003 forward major taxing jurisdictions including us states united kingdom canada japan france ireland companys statutes vary open far back 2012 us gaap rules provision income taxes may result remittance earnings held overseas required company ability intent indefinitely reinvest funds overseas current plans demonstrate need repatriate accumulated undistributed foreign earnings fund us operations otherwise satisfy liquidity needs us operations company asserted intention indefinitely reinvest certain accumulated undistributed foreign earnings ceb result tax planning approximately 120 million deferred tax liability previously recorded purchase accounting estimated tax could result remittance earnings reversed current quarter related goodwill reduced company continues assert intention reinvest accumulated undistributed foreign earnings nonus operations except instances repatriation earnings would result minimal additional tax consequently company recognized income tax expense would result remittance earnings accumulated undistributed earnings nonus subsidiaries approximately 1940 million december 31 2017 result act income tax would payable earnings indefinitely invested estimated time minimal 11 derivatives hedging company enters limited number derivative contracts mitigate cash flow risk associated changes interest rates variable rate debt changes foreign exchange rates forecasted foreign currency transactions company accounts outstanding derivative contracts accordance fasb asc topic 815 requires derivatives including derivatives designated accounting hedges recorded balance sheet fair value following tables provide information regarding company’s outstanding derivatives contracts dates indicated thousands except number outstanding contracts december 31 2017 december 31 2016 1 swaps designated accounted cash flow hedges forecasted interest payments borrowings result changes fair value swaps deferred recorded aocli net tax effect see note 5 debt additional information 2 company foreign exchange transaction risk since typically enters transactions normal course business denominated foreign currencies differ local functional currency company enters shortterm foreign currency forward exchange contracts mitigate cash flow risk associated changes foreign currency rates forecasted foreign currency transactions contracts accounted fair value realized unrealized gains losses recognized income net since company designate contracts hedges accounting purposes outstanding contracts december 31 2017 matured end january 2018 3 see note 12 fair value disclosures determination fair value instruments december 31 2017 company’s derivative counterparties investment grade financial institutions company collateral arrangements derivative counterparties none derivative contracts contained creditrisk related contingent features following table provides information regarding amounts recognized consolidated statements operations derivative contracts years ended december 31 millions 1 consists interest expense interest rate swap contracts 2 consists net realized unrealized gains losses foreign currency forward contracts 12 fair value disclosures company’s financial instruments include cash equivalents fees receivable customers accounts payable accruals normally shortterm nature company believes carrying amounts financial instruments reasonably approximate fair value due shortterm nature company’s financial instruments also include outstanding variablerate borrowings 2016 credit agreement company believes carrying amount variablerate borrowings reasonably approximates fair value rate interest borrowings reflects current market rates interest similar instruments comparable maturities company enters limited number derivatives transactions enter repurchase agreements securities lending transactions master netting arrangements receivables payables result derivatives transactions recorded gross company’s consolidated balance sheets fasb asc topic 820 provides framework measurement fair value valuation hierarchy based upon transparency inputs used valuation assets liabilities classification within hierarchy based upon lowest level input significant resulting fair value measurement valuation hierarchy contains three levels level 1 measurements consist quoted prices active markets identical assets liabilities level 2 measurements include significant observable inputs quoted prices similar assets liabilities active markets identical assets liabilities inactive markets observable inputs interest rates yield curves marketcorroborated inputs level 3 measurements include significant unobservable inputs internallycreated valuation models company currently utilize level 3 valuation inputs remeasure assets liabilities however level 3 inputs may used company required annual impairment review recorded goodwill information regarding periodic assessment company’s goodwill included note 1 business significant accounting policies company typically transfer assets liabilities different levels fair value hierarchy following table presents fair value certain financial assets liabilities thousands 1 company deferred compensation plan benefit certain highly compensated officers managers key employees see note 13 employee benefits assets consist investments money market mutual funds companyowned life insurance contracts money market funds consist cash equivalents mutual fund investments consist publiclytraded quoted equity shares company considers fair value assets based level 1 inputs assets fair value 291 million 103 million december 31 2017 2016 respectively carrying amount life insurance contracts equals cash surrender value cash surrender value represents estimated amount company would receive upon termination contract approximates fair value company considers life insurance contracts valued based level 2 input assets fair value 590 million 278 million december 31 2017 2016 respectively related deferred compensation plan liabilities recorded fair value estimated amount needed settle liability company considers level 2 input 2 company enters foreign currency forward exchange contracts hedge effects adverse fluctuations foreign currency exchange rates see note 11 derivatives hedging valuation foreign currency forward contracts based observable foreign currency exchange rates active markets company considers level 2 input 3 company interest rate swap contracts hedge risk variability interest payments borrowings see note 5 debt fair value swaps based marktomarket valuations prepared thirdparty broker valuations based observable interest rates recently executed market transactions observable market data company considers level 2 inputs company independently corroborates reasonableness valuations prepared thirdparty broker use electronic quotation service 4 discussed note 5 debt company issued 8000 million principal amount fixedrate senior notes due 2025 march 30 2017 estimated fair value notes derived quoted market prices provided independent dealer company considers level 2 input 13 employee benefits defined contribution plan company savings investment plans “401k plans” covering substantially us employees company contributions based upon level employee contributions maximum 4 employee’s eligible salary subject annual maximum 2017 maximum match 7200 amounts expensed connection 401k plans totaled 298 million 229 million 200 million 2017 2016 2015 respectively deferred compensation plan company supplemental deferred compensation plans benefit certain highly compensated officers managers key employees plans investment assets recorded assets consolidated balance sheets fair value assets 881 million 381 million december 31 2017 2016 respectively see note 12 fair value disclosures fair value information corresponding deferred compensation liability 899 million 431 million december 31 2017 2016 respectively carried fair value adjusted corresponding charge credit compensation expense reflect fair value amount owed employees classified liabilities consolidated balance sheets compensation expense recognized plans 04 million 01 million 05 million 2017 2016 2015 respectively defined benefit pension plans company defined benefit pension plans several international locations benefits paid plans based years service level employee compensation companys defined benefit pension plans accounted accordance fasb asc topics 715 960 following components defined benefit pension expense years ended december 31 thousands 1 pension expense classified sga consolidated statements operations following key assumptions used computation pension expense years ended december 31 1 discount rates typically determined utilizing yields longterm corporate government bonds relevant country duration consistent expected term underlying pension obligations following table provides information related changes projected benefit obligation years ended december 31 thousands 1 company projects following benefit payments made future years plan participants 13 million 2018 22 million 2019 15 million 2020 15 million 2021 16 million 2022 105 million total five years thereafter 2 measured december 31 following table provides information regarding funded status plans related amounts recorded company’s consolidated balance sheets december 31 thousands 1 pension plan assets held thirdparty trustees invested diversified portfolio equities high quality government corporate bonds investments assets primarily valued based level 1 level 2 inputs fair value hierarchy fasb asc topic 820 majority invested assets considered lowtomedium investment risk company projects future longterm rate return plan assets 222 believes reasonable based composition assets current projected market conditions year ended december 31 2017 company contributed 24 million plans benefits paid participants 18 million 2 funded status shortfall represents amount projected benefit obligation company funded thirdparty trustee amount liability company recorded liabilities company’s consolidated balance sheets 3 deferred actuarial loss december 31 2017 recorded aocli reclassified aocli recognized pension expense approximately 13 years subject certain limitations set forth fasb asc topic 715 impact amortization pension expense 2018 projected result approximately 03 million additional expense amortization deferred actuarial losses aocli pension expense three years ended december 31 2017 immaterial company also maintains reinsurance asset arrangement large international insurance company whose purpose provide funding benefit payments one plans reinsurance asset pension plan asset company december 31 2017 2016 reinsurance asset recorded cash surrender value 91 million 78 million respectively classified assets companys consolidated balance sheets company believes cash surrender value approximates fair value equivalent level 2 input fasb’s fair value framework asc topic 820 14 segment information result ceb acquisition april 5 2017 company began reporting results across four business segments reflecting enlarged scale breadth advisory services aligned missioncritical priorities virtually functional business leaders across every industry size enterprise worldwide products services delivered four segments research consulting events talent assessment follows • research provides trusted objective insights advice missioncritical priorities leaders across functional areas enterprise research reports briefings proprietary tools access analysts peer networking services membership programs enable clients make better decisions gartners traditional strengths marketing supply chain research enhanced 2017 gartners acquisition ceb inc added cebs best practice talent management research insights across range business functions include human resources sales legal finance • consulting provides customized solutions unique client needs onsite daytoday support well proprietary tools measuring improving performance focus cost performance efficiency quality • events provides business professionals across organization opportunity learn share network flagship cio event gartner symposiumitxpo industryleading conferences focused specific business roles topics memberdriven sessions events enable attendees experience best gartner insight advice live • talent assessment helps organizations assess engage manage improve talent accomplished knowledge skills assessments training programs workshops survey questionnaire services company evaluates segment performance allocates resources based gross contribution margin gross contribution presented table defined operating income excluding certain cost services product development expenses selling general administrative expenses depreciation amortization intangibles acquisition integration charges certain bonus fringe benefit costs included consolidated cost services product development allocated segment expense accounting policies used reportable segments used company intersegment revenues company identify allocate assets including capital expenditures reportable segment accordingly assets reported segment information available segment reviewed evaluation segment performance making decisions allocation resources company earns revenue clients many countries united states individual country revenues external clients represent 10 company’s consolidated revenues additionally single client accounted 10 total revenue loss single client management’s opinion would material adverse effect revenues following tables present operating information company’s reportable segments periods indicated thousands 1 2017 company began reporting results strategic advisory services sas business research whereas previously sas business reported consulting although impact reclassification significant operating results sas business 2016 2015 reclassified consulting research comparable current year presentation following table provides reconciliation total segment gross contribution net income years ended december 31 thousands 1 unallocated amounts consist certain bonus related fringe costs recorded consolidated cost services product development expense allocated segment expense companys policy allocate bonus related fringe charges segments 100 segment employees target bonus amounts 100 absorbed corporate company’s revenues generated primarily direct sales clients domestic international sales forces network independent international sales agents company’s products services provided integrated worldwide basis integrated delivery practical precisely separate revenues geographic location accordingly separation set forth table based upon internal allocations involve certain management estimates judgments revenues table reported based sale fulfilled “other international” revenues attributable areas located outside united states canada well europe middle east africa summarized information geographic location years ended december 31 follows thousands 1 excludes goodwill intangible heldforsale assets 15 valuation qualifying accounts company maintains allowance losses composed bad debt allowance revenue reserve provisions charged earnings either increase expense reduction revenues following table summarizes activity company’s allowance years ended december 31 thousands 16 subsequent events february 6 2018 company announced reached definitive agreement sell ceb talent assessment business exponent private equity ukbased private equity firm 4000 million ceb talent assessment business significant portion companys talent assessment segment agreement comes end previously announced process evaluate strategic alternatives ceb talent assessment formerly shl acquired gartner part ceb acquisition 2017 transaction expected close first half 2018 subject customary closing conditions note 2 acquisitions divestiture provides additional information item 16 form 10k summary none signatures pursuant requirements securities exchange act 1934 registrant caused report form 10k signed behalf undersigned duly authorized stamford connecticut february 22 2018 power attorney person whose signature appears appoints eugene hall craig w safian acting individually attorneyinfact full power substitution capacities sign amendments report form 10k file appropriate exhibits related documents securities exchange commission undersigned ratifies confirms signatures may signed attorneyinfact amendments report pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicateditem 15 exhibits financial statement schedules 1 2 consolidated financial statements schedules reports independent registered public accounting firm consolidated financial statements listed index consolidated financial statements herein filed part report financial statement schedules listed index omitted information required applicable shown consolidated financial statements notes thereto 3 exhibits index consolidated financial statements gartner inc subsidiaries consolidated financial statements financial statement schedules omitted information required applicable shown consolidated financial statements notes thereto report independent registered public accounting firm stockholders board directors gartner inc opinion consolidated financial statements audited accompanying consolidated balance sheets gartner inc subsidiaries company december 31 2018 2017 related consolidated statements operations comprehensive income stockholders’ equity deficit cash flows years threeyear period ended december 31 2018 related notes collectively consolidated financial statements opinion consolidated financial statements present fairly material respects financial position company december 31 2018 2017 results operations cash flows years threeyear period ended december 31 2018 conformity us generally accepted accounting principles also audited accordance standards public company accounting oversight board united states pcaob company’s internal control financial reporting december 31 2018 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission report dated february 22 2019 expressed unqualified opinion effectiveness company’s internal control financial reporting basis opinion consolidated financial statements responsibility company’s management responsibility express opinion consolidated financial statements based audits public accounting firm registered pcaob required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audits accordance standards pcaob standards require plan perform audit obtain reasonable assurance whether consolidated financial statements free material misstatement whether due error fraud audits included performing procedures assess risks material misstatement consolidated financial statements whether due error fraud performing procedures respond risks procedures included examining test basis evidence regarding amounts disclosures consolidated financial statements audits also included evaluating accounting principles used significant estimates made management well evaluating overall presentation consolidated financial statements believe audits provide reasonable basis opinion kpmg llp served company’s auditor since 1996 new york new york february 22 2019 report independent registered public accounting firm stockholders board directors gartner inc opinion internal control financial reporting audited gartner inc subsidiaries’ company internal control financial reporting december 31 2018 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission opinion company maintained material respects effective internal control financial reporting december 31 2018 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission also audited accordance standards public company accounting oversight board united states pcaob consolidated balance sheets company december 31 2018 2017 related consolidated statements operations comprehensive income stockholders’ equity deficit cash flows years threeyear period ended december 31 2018 related notes collectively consolidated financial statements report dated february 22 2019 expressed unqualified opinion consolidated financial statements basis opinion company’s management responsible maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included accompanying management’s annual report internal control financial reporting responsibility express opinion company’s internal control financial reporting based audit public accounting firm registered pcaob required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audit accordance standards pcaob standards require plan perform audit obtain reasonable assurance whether effective internal control financial reporting maintained material respects audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audit also included performing procedures considered necessary circumstances believe audit provides reasonable basis opinion definition limitations internal control financial reporting company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate kpmg llp new york new york february 22 2019 gartner inc subsidiaries consolidated balance sheets thousands except share data see notes consolidated financial statements gartner inc subsidiaries consolidated statements operations thousands except per share data see notes consolidated financial statements gartner inc subsidiaries consolidated statements comprehensive income thousands see notes consolidated financial statements gartner inc subsidiaries consolidated statements stockholders’ equity deficit thousands see notes consolidated financial statements gartner inc subsidiaries consolidated statements cash flows thousands see notes consolidated financial statements gartner inc subsidiaries notes consolidated financial statements 1 business significant accounting policies business gartner inc nyse world’s leading research advisory company member sp 500 equip business leaders indispensable insights advice tools achieve goals build successful organizations tomorrow believe unmatched combination expertled practitionersourced datadriven research steers clients toward right decisions issues matter we’re trusted advisor objective resource 15000 organizations 100 countries across major functions every industry enterprise size segments gartner currently delivers products services globally three business segments research conferences formerly called events consulting revenues business segment discussed heading adoption new accounting standards used notes terms “gartner” “company” “we” “us” “our” refer gartner inc consolidated subsidiaries 2018 company divested three noncore businesses comprised segment acquired part acquisition ceb inc april 2017 result divestitures movement small residual product segment research business company longer recording additional operating activity segment effective september 1 2018 additional information regarding divestitures included note 2 acquisitions divestitures basis presentation accompanying consolidated financial statements prepared accordance generally accepted accounting principles united states america “us gaap” defined financial accounting standards board “fasb” accounting standards codification “asc” topic 270 financial information applicable instructions us securities exchange commission “sec” regulation sx fiscal year gartner twelvemonth period january 1 december 31 references 2018 2017 2016 herein refer fiscal year unless otherwise indicated principles consolidation accompanying consolidated financial statements include accounts company whollyowned subsidiaries significant intercompany transactions balances eliminated use estimates preparation accompanying consolidated financial statements requires management make estimates assumptions future events estimates underlying assumptions affect amounts assets liabilities reported disclosures contingent assets liabilities reported amounts revenues expenses estimates include valuation fees receivable goodwill intangible assets longlived assets well tax accruals liabilities addition estimates used revenue recognition income tax expense benefit performancebased compensation charges depreciation amortization management believes use estimates accompanying consolidated financial statements reasonable management continually evaluates revises estimates using historical experience factors including general economic environment actions may take future management adjusts estimates facts circumstances dictate however estimates may involve significant uncertainties judgments cannot determined precision addition estimates based management’s best judgment point time result differences estimates actual results could material would reflected company’s consolidated financial statements future periods business acquisitions company business acquisitions 2017 2016 information related acquisitions included note 2 acquisitions divestitures company accounts business acquisitions accordance acquisition method accounting prescribed fasb asc topic 805 business combinations acquisition method accounting requires company record net assets liabilities acquired based estimated fair values acquisition date excess consideration transferred estimated fair value net assets acquired including identifiable intangible assets recorded goodwill acquisition method operating results acquired companies included companys consolidated financial statements beginning date acquisition determination fair values intangible assets acquired acquisitions requires management judgment consideration number factors significant among historical financial performance acquired businesses projected performance estimates surrounding customer turnover well assumptions regarding level competition cost reproduce certain assets establishing useful lives intangible assets also requires management judgment evaluation number factors among expected use asset historical client retention rates consumer awareness trade name history well contractual provisions could limit extend assets useful life company classifies charges directlyrelated acquisitions line acquisition integration charges consolidated statements operations company recorded 1072 million 1585 million 426 million charges 2018 2017 2016 respectively information related charges included note 2 acquisitions divestitures revenue recognition january 1 2018 company adopted accounting standards update asu 201409 revenue contracts customers asu 201409 asu 201409 related amendments required changes revenue recognition policies well enhanced disclosures company adopted asu 201409 using modified retrospective method adoption method adoption cumulative effect applying new standard recorded date initial application restatement comparative prior periods presented adoption asu 201409 material impact company’s consolidated financial statements prior january 1 2018 company recognized revenue accordance thenexisting us gaap sec staff accounting bulletin 104 revenue recognition “prior gaap” asu 201409 prior gaap revenue recognized required criteria met information regarding adoption asu 201409 impact companys consolidated financial statements related disclosures provided heading adoption new accounting standards allowance losses company maintains allowance losses comprised bad debt allowance december 31 2017 revenue reserve adoption asu 201409 january 1 2018 discussed affected allowance losses information regarding allowance provided heading adoption new accounting standards cost services product development “cos” cos expense includes direct costs incurred creation delivery products services costs primarily relate personnel selling general administrative “sga” sga expense includes direct indirect selling costs general administrative costs charges earnings related uncollectible accounts commission expense company records deferred commissions upon signing customer contracts amortizes deferred amount commission expense period considers various relevant factors commission expense included sga expense consolidated statements operations additional information regarding deferred commissions amortization costs provided heading adoption new accounting standards stockbased compensation expense company accounts stockbased compensation awards accordance fasb asc topics 505 718 sec staff accounting bulletins 107 110 stockbased compensation expense equity awards based fair value award date grant company recognizes stockbased compensation expense period related service performed generally vesting period underlying award 2018 2017 2016 company recognized 662 million 789 million 467 million respectively stockbased compensation expense effective january 1 2016 company adopted asu 201609 improvements employee sharebased payment accounting asu 201609 mandated certain changes accounting stockbased compensation among things asu 201609 permits companies make entitywide accounting policy election recognize forfeitures sharebased compensation awards occur make estimate applying forfeiture rate quarter company previously estimated forfeitures elected change accounting policy account forfeitures occur asu 201609 requires change accounting policy applied using cumulative effect adjustment accumulated earnings beginning period rule adopted accordingly company recorded 03 million decrease opening accumulated earnings effective january 1 2016 income taxes company uses asset liability method accounting income taxes estimate income taxes jurisdictions operate process involves estimating current tax expense benefit together assessing temporary differences resulting differing treatment items tax accounting purposes differences result deferred tax assets liabilities included consolidated balance sheets assessing realizability deferred tax assets consider likely deferred tax assets realized making assessment consider availability loss carryforwards projected reversals deferred tax liabilities projected future taxable income ongoing prudent feasible tax planning strategies company recognizes tax benefit uncertain tax position likely tax position sustained based technical merits position company adopted asu 201616 intraentity transfers assets inventory january 1 2018 information regarding adoption new accounting standard impact companys consolidated financial statements provided heading adoption new accounting standards cash equivalents includes cash highly liquid investments original maturities three months less considered cash equivalents carrying value cash equivalents approximates fair value due shortterm maturity investments maturities three months classified marketable securities interest earned classified interest income consolidated statements operations january 1 2018 company adopted asu 201618 restricted cash asu 201618 asu 201618 requires amounts generally described restricted cash restricted cash equivalents presented cash equivalents reconciling beginningofperiod endofperiod total amounts presented entitys statement cash flows table presenting beginningofperiod endofperiod cash amounts companys consolidated balance sheets total cash amounts presented accompanying consolidated cash flow statements provided heading adoption new accounting standards property equipment leasehold improvements company leases facilities certain equipment leases classified operating leases accordance fasb asc topic 840 leases cost operating leases including contractual rent increases rent concessions landlord incentives recognized ratably life related lease agreement lease expense 935 million 879 million 380 million 2018 2017 2016 respectively equipment leasehold improvements fixed assets owned company recorded cost less accumulated depreciation except leasehold improvements fixed assets depreciated using straightline method estimated useful life underlying asset leasehold improvements amortized using straightline method shorter estimated useful life improvement remaining term related lease companys total depreciation expense 686 million 639 million 372 million 2018 2017 2016 respectively companys total fixed assets less accumulated depreciation amortization consisted following thousands company incurs costs develop internaluse software used operations certain costs meeting criteria outlined fasb asc topic 350 intangibles goodwill capitalized amortized future periods net capitalized development costs internaluse software 374 million 269 million december 31 2018 2017 respectively included computer equipment software category amortization expense capitalized internaluse software development costs classified depreciation consolidated statements operations totaled 132 million 99 million 88 million 2018 2017 2016 respectively finitelived intangible assets company finitelived intangible assets amortized earnings using straightline method expected useful life underlying asset changes intangible assets subject amortization twoyear period ended december 31 2018 follows thousands 1 excludes certain amounts related heldforsale operations 2 represents amounts related divested businesses see note 2 acquisitions divestitures additional information 3 includes foreign currency translation impact certain adjustments 4 finitelived intangible assets amortized using straightline method following periods customer relationships4 13 years software3 7 years content15 5 years 2 5 years 5 additions primarily due companys acquisitions ceb inc l2 inc april 2017 march 2017 respectively see note 2 acquisitions divestitures additional information 6 represents amounts reclassified net heldforsale assets related ceb talent assessment business see note 2 acquisitions divestitures additional information amortization expense related finitelived intangible assets 1870 million 1763 million 248 million 2018 2017 2016 respectively estimated future amortization expense year finitelived intangible assets follows thousands goodwill represents excess purchase price acquired businesses estimated fair values tangible identifiable intangible net assets acquired evaluations recoverability goodwill performed accordance fasb asc topic 350 requires annual assessment potential goodwill impairment reporting unit level whenever events changes circumstances indicate carrying value goodwill may recoverable annual assessment recoverability recorded goodwill based either qualitative quantitative assessment combination two approaches methods utilize estimates turn require judgments assumptions regarding future trends events result precision reliability resulting estimates subject uncertainty annual goodwill impairment evaluation determines fair value reporting unit less related carrying amount may recognize impairment charge connection recent annual impairment test goodwill quarter ended september 30 2018 indicated impairment recorded goodwill company utilized quantitative approach assessing fair values reporting units relative respective carrying values following table presents changes carrying amount goodwill segment including companys segment twoyear period ended december 31 2018 thousands 1 company accumulated goodwill impairment losses 2 2017 goodwill additions due acquisitions ceb inc l2 inc april 2017 march 2017 respectively see note 2 acquisitions divestitures additional information 3 represents amounts reclassified heldforsale assets related ceb talent assessment business see note 2 acquisitions divestitures additional information 4 represents amounts related divested businesses see note 2 acquisitions divestitures additional information 5 includes foreign currency translation impact certain measurement period adjustments related acquisition ceb inc impairment longlived assets companys longlived assets primarily consist intangible assets goodwill property equipment leasehold improvements company reviews longlived asset groups impairment whenever events changes circumstances indicate carrying amount respective asset may recoverable evaluation may based number factors including current projected operating results cash flows changes management’s strategic direction well external economic market factors company evaluates recoverability assets determining whether carrying values recovered undiscounted future operating cash flows events circumstances indicate carrying values might recoverable based undiscounted future operating cash flows impairment loss would recognized amount impairment measured based difference projected discounted future operating cash flows using discount rate reflecting company’s average cost funds carrying value asset company record impairment charges longlived asset groups threeyear period ended december 31 2018 pension obligations company defined benefit pension plans several international locations see note 13 employee benefits earned plans generally based years service level employee compensation company accounts defined benefit plans accordance requirements fasb asc topic 715 company determines periodic pension expense related liabilities plans actuarial assumptions valuations company recognized 39 million 36 million 35 million pension expense 2018 2017 2016 respectively debt company presents amounts borrowed consolidated balance sheets amortized cost net deferred financing fees interest accrued amounts borrowed classified interest expense consolidated statements operations company 23 billion principal amount debt outstanding december 31 2018 compared 33 billion december 31 2017 reflects companys significant principal repayments debt subsequent completion ceb inc acquisition note 5 debt provides information regarding companys debt foreign currency exposure functional currency foreign subsidiaries typically local currency assets liabilities foreign subsidiaries translated us dollars exchange rates effect balance sheet date income expense items translated average exchange rates year resulting translation adjustments recorded foreign currency translation adjustments component accumulated comprehensive loss income net within stockholders’ equity section consolidated balance sheets currency transaction gains losses arising transactions denominated currencies functional currency subsidiary recognized results operations income net within consolidated statements operations company net currency transaction gains losses 92 million 55 million 04 million 2018 2017 2016 respectively company enters foreign currency forward exchange contracts mitigate effects adverse fluctuations foreign currency exchange rates certain transactions contracts generally short durations recorded fair value realized unrealized gains losses recorded income net gain loss foreign currency forward exchange contracts 104 million 08 million 03 million 2018 2017 2016 respectively comprehensive income company reports comprehensive income separate statement called consolidated statements comprehensive income included herein companys comprehensive income disclosures included note 7 stockholders equity fair value disclosures company limited number assets liabilities adjusted fair value balance sheet date company’s fair value disclosures included note 12 fair value disclosures concentrations credit risk assets may subject company concentration credit risk consist primarily shortterm highly liquid investments classified cash equivalents fees receivable contract assets interest rate swaps pension reinsurance asset majority company’s cash equivalent investments interest rate swap contracts investment grade commercial banks fees receivable contract asset balances deemed collectible customers limited concentration credit risk due diverse customer base geographic dispersion company’s pension reinsurance asset see note 13 employee benefits maintained large international insurance company rated investment grade december 31 2018 2017 stock repurchase programs company records cost repurchase common shares treasury stock 2018 2017 2016 company used 2608 million 413 million 590 million respectively cash stock repurchases see note 7 stockholders’ equity additional information shares repurchased company added treasury shares retired adoption new accounting standards company adopted accounting standards described 2018 certain tax effects stranded accumulated comprehensive income april 1 2018 company early adopted asu 201802 reclassification certain tax effects accumulated comprehensive income asu 201802 asu 201802 provides entity option reclassify retained earnings tax effects items stranded accumulated comprehensive income result us tax cuts jobs act 2017 “act” entities adopt asu 201802 using one two transition methods retrospective period wherein income tax effects act related items remaining accumulated comprehensive income recognized ii beginning period adoption gartner elected early adopt asu 201802 beginning second quarter 2018 resulted reclassification 06 million stranded tax amounts related act accumulated comprehensive loss income net accumulated earnings asu 201802 impact companys operating results 2018 stock compensation award modifications january 1 2018 company adopted asu 201709 compensationstock compensation scope modification accounting asu 201709 asu 201709 provides guidance changes terms conditions sharebased payment award require entity apply modification accounting adoption asu 201709 impact companys consolidated financial statements retirement benefits cost presentation january 1 2018 company adopted asu 201707 compensationretirement benefits asu 201707 asu 201707 improves reporting net benefit cost financial statements provides additional guidance presentation net benefit cost income statement clarifies components eligible capitalization adoption asu 201707 immaterial impact classification benefit expense companys consolidated statements operations partial sales nonfinancial assets january 1 2018 company adopted asu 201705 clarifying scope asset derecognition guidance accounting partial sales nonfinancial assets asu 201705 asu 201705 clarifies scope fasb’s guidance nonfinancial asset derecognition well accounting partial sales nonfinancial assets conforms derecognition guidance nonfinancial assets model revenue transactions adoption asu 201705 impact companys consolidated financial statements definition business january 1 2018 company adopted asu 201701 clarifying definition business asu 201701 asu 201701 changes us gaap definition business change impact accounting asset purchases acquisitions goodwill impairment assessments adoption asu 201701 impact companys consolidated financial statements presentation restricted cash january 1 2018 company adopted asu 201618 restricted cash asu 201618 asu 201618 requires amounts generally described restricted cash restricted cash equivalents presented cash equivalents reconciling beginningofperiod endofperiod total amounts presented entitys statement cash flows asu 201618 must applied using retrospective transition method comparative period presented entitys financial statements result adoption asu 201618 companys restricted cash balances included beginningofperiod endofperiod total amounts presented accompanying consolidated statements cash flows compared companys previously issued statement cash flows 2017 adoption asu 201618 resulted increase 70 million cash used investing activities ii increase 182 million endofperiod total cash amount iii increase 251 million beginningofperiod total cash amount corresponding effects statement cash flows 2016 increase 140 million cash used investing activities ii increase 251 million endofperiod total cash amount iii increase 391 million beginningofperiod total cash amount table presenting beginningofperiod endofperiod cash amounts companys consolidated balance sheets total cash amounts presented accompanying consolidated cash flow statements thousands 1 restricted cash consists escrow accounts established connection certain companys business acquisitions generally cash restricted use due provisions contained underlying asset purchase agreement company disburse restricted cash sellers businesses upon satisfaction contingencies described agreements eg potential indemnification claims etc 2 restricted cash recorded prepaid expenses current assets companys consolidated balance sheets shortterm longterm classification dependent projected timing disbursements sellers 3 represents cash classified heldforsale asset ceb talent assessment business acquired part ceb inc acquisition see note 2 acquisitions divestitures additional information income taxes january 1 2018 company adopted asu 201616 intraentity transfers assets inventory asu 201616 asu 201616 accelerates recognition taxes certain intraentity transactions us gaap previously required deferral income tax implications intercompany sale assets sold third party recovered use asu 201616 seller’s tax effects buyer’s deferred taxes asset transfers immediately recognized upon sale pursuant transition rules asu 201616 taxes attributable pre2018 intraentity transfers previously deferred accelerated recorded accumulated earnings date adoption result transition rule certain companys balance sheet income tax accounts pertaining pre2018 intraentity transfers aggregated 137 million reversed accumulated earnings january 1 2018 pursuant provisions asu 201616 company recorded income tax benefit 68 million 2018 related intraentity transfers upon merger certain foreign subsidiaries asu 201616 could material impact companys consolidated financial statements future depending nature size tax consequences intraentity transfers statement cash flows january 1 2018 company adopted asu 201615 classification certain cash receipts cash payments asu 201615 asu 201615 sets forth classification requirements certain cash flow transactions adoption asu 201615 impact companys consolidated financial statements financial instruments recognition measurement january 1 2018 company adopted asu 201601 financial instruments overall recognition measurement financial assets liabilities asu 201601 address certain aspects recognition measurement presentation disclosure financial instruments among significant changes required asu 201601 equity investments measured fair value changes fair value recognized net income adoption asu 201601 impact companys consolidated financial statements revenue recognition january 1 2018 company adopted asu 201409 revenue contracts customers amended asu 201409 adoption standard material impact companys consolidated financial statements however required asu 201409 companys disclosures around revenue recognition significantly expanded additionally companys accounting policies updated reflect adoption asu 201409 following sections provide overview companys revenues segment along required disclosures new revenue recognition standard business revenues gartner currently delivers products services globally three business segments research conferences consulting revenues business segments discussed research provides trusted objective insights advice missioncritical priorities leaders across functional areas enterprise research reports briefings proprietary tools access analysts advisors peer networking services membership programs enable clients make better decisions gartners traditional strengths information technology “it” marketing supply chain research enhanced 2017 gartners acquisition ceb inc added cebs best practice talent management research insights across range business functions include human resources finance sales legal research revenues mainly derived subscription contracts research products representing approximately 90 segment’s revenue related revenues deferred recognized ratably applicable contract term ie provide services contract period fees derived assisting organizations selecting right business software needs recognized point time ie lead provided vendor company enters subscription contracts research products generally twelvemonth periods longer approximately 75 80 annual multiyear research subscription contracts provide billing first full service period upon signing subsequent years multiyear subscription contracts normally billed prior contract’s anniversary date research subscription contracts usually invoiced advance commencing contract signing quarterly monthly recurring basis ii accordance customized invoicing schedule research contracts generally noncancelable nonrefundable except government contracts may cancellation fiscal funding clauses historically produced material cancellations policy record amount subscription contract billable fee receivable time contract signed corresponding amount deferred revenue contract represents legally enforceable claim conferences formerly called events provides business professionals across organization opportunity learn share network flagship cio conference gartner symposium industryleading conferences focused specific business roles topics memberdriven sessions offerings enable attendees experience best gartner insight advice live earn revenues attendees exhibitors conferences meetings attendees generally invoiced full attendance fee upon completion online registration form signing contract exhibitors typically make several individual payments commencing signing contract collect almost invoiced amounts advance related activity resulting recording deferred revenue recognize attendee exhibitor revenue satisfy related performance obligations ie related activity held company defers certain costs directly related specific conferences meetings expenses costs period related activity occurs companys policy defer costs incremental directly attributable specific activity primarily prepaid site production services costs organizing producing activities primarily company personnel nonconference specific expenses expensed period incurred end fiscal quarter company assesses whether expected direct costs producing scheduled activity exceed projected revenues costs expected exceed revenues company records expected loss period determined consulting provides customized solutions unique client needs onsite daytoday support well proprietary tools measuring improving performance focus cost performance efficiency quality contract optimization services consulting revenues primarily derived custom consulting measurement services principally generated fixed fee time materials engagements revenues fixed fee engagements recognized work satisfy performance obligations revenues time materials engagements recognized work delivered andor services provided circumstances satisfy performance obligations control services passed customers time ie duration contract consulting engagement contractbycontract basis typically use actual labor hours incurred compared total expected labor hours measure company’s performance respect fixed fee engagements labor costs individual contract expected exceed total contract value contract’s funded ceiling amount company reflects adjustment contract’s overall profitability period determined revenues related contract optimization engagements contingent nature recognized point time conditions related payment satisfied consulting customers invoiced based specific terms conditions underlying contracts typically invoice consulting customers satisfied related performance obligations related revenue recognized record fees receivable amounts billed billable also record contract assets represent amounts recognized revenue lack unconditional right payment balance sheet date due required continued performance relevant contract progress billing milestones billingrelated restrictions company’s contract assets discussed overview asu 201409 asu 201409 requires fivestep evaluative process consists 1 identifying contract customer 2 identifying performance obligations contract 3 determining transaction price contract 4 allocating transaction price performance obligations contract 5 recognizing revenue performance obligations satisfied asu 201409 intended clarify principles recognizing revenue removing inconsistencies weaknesses previously existing revenue recognition rules provide robust framework addressing revenue recognition issues improve comparability revenue recognition practices across entities industries jurisdictions capital markets provide useful information users financial statements improved disclosures company adopted asu 201409 using modified retrospective method adoption method adoption cumulative effect applying new standard recorded date initial application restatement comparative prior periods presented adoption asu 201409 result cumulative effect adjustment companys accumulated earnings consolidated financial statements however adoption new standard required reclassifications certain amounts presented company’s consolidated balance sheet january 1 2018 items reclassification certain fees receivable met definition contract asset aggregating 267 million fees receivable net prepaid expenses current assets ii reclassification refund liability aggregating 62 million allowance fees receivable accounts payable accrued liabilities related adoption asu 201409 elected apply provisions new accounting guidance contracts completed date initial application ii utilize practical expedient whereby reflected aggregate effect contract modifications occurred prior january 1 2018 rather retrospectively restating affected contracts identifying satisfied unsatisfied performance obligations determining transaction prices customers allocating transaction prices satisfied unsatisfied performance obligations two elections financial impact prior january 1 2018 company recognized revenue accordance thenexisting us gaap sec staff accounting bulletin 104 revenue recognition “prior gaap” asu 201409 prior gaap revenue recognized required criteria met although certain changes company’s revenue recognition policies procedures effective january 1 2018 adoption asu 201409 material differences pattern timing revenue recognition asu 201409 prior gaap accompanying consolidated statements operations present revenues net sales valueadded taxes collect customers remit government authorities asu 201409 requires assess inception promises customer contract determine promise separate performance obligation identify performance obligations consider services promised customer contract regardless whether explicitly stated implied customary business practices conclude service separately identifiable distinct offerings contract account promise separate performance obligation customer contract one performance obligation total contract consideration allocated among separate deliverables based standalone selling prices determined based prices company discretely sells standalone services contract includes discount pricing concession transaction price allocated among performance obligations proportionate basis using relative standalone selling prices individual deliverables transferred customer unless discount pricing concession ascribed specifically identifiable performance obligations contracts customers delineate final terms conditions underlying arrangements including product descriptions subscription periods deliverables quantities price service purchased since transaction price almost customer contracts typically agreed upon upfront generally fluctuate duration contract variable consideration insignificant company may engage certain financing transactions customers arrangements limited number material required disclosures asu 201409 asu 201409 requires significantly expanded disclosures around nature amount timing uncertainty revenue cash flows arising contracts customers additional disclosures provided disaggregated revenues believe disaggregating company’s revenues primary geographic location timing revenue recognized achieves disclosure objectives asu 201409 disaggregated revenue information reportable segment including segment presented years indicated tables thousands year ended december 31 2018 year ended december 31 2017 year ended december 31 2016 1 decline segment revenues 2018 compared 2017 due divestitures information regarding divestitures included note 2 acquisitions divestitures 2 revenues reported based sale fulfilled company’s revenues generated primarily direct sales clients domestic international sales forces network independent international sales agents company’s products services provided integrated worldwide basis integrated delivery approach practical precisely separate revenues geographic location accordingly revenue information presented tables based internal allocations involve certain management estimates judgments year ended december 31 2018 year ended december 31 2017 year ended december 31 2016 1 research revenues recognized connection performance obligations satisfied time using timeelapsed output method measure progress corresponding consulting revenues recognized time using labor hours input measurement basis revenues category recognized using either timeelapsed output method performancebased milestone approach labor hours depending nature underlying customer contract 2 revenues category recognized connection performance obligations satisfied point time contractual deliverables provided customer determining measure progress performance obligations satisfied time control transfers performance obligations satisfied point time requires us make judgments affect timing revenue recognized key factor determination customer able direct use obtain substantially benefits deliverable performance obligations recognized accordance timeelapsed output method company’s efforts expended consistently throughout contractual period company transfers control evenly providing standready services performance obligations satisfied consulting fixed fee time materials engagements believe labor hours best measure depicting company’s progress labor output corresponds directly value company’s performance date control transferred segment selected method assess completion performance obligations best aligned specific characteristics individual customer contract believe methods measure progress provide reasonable supportable determination transfer services customers customer contracts greater one year duration aggregate amount transaction price allocated performance obligations unsatisfied partially unsatisfied december 31 2018 approximately 27 billion company expects recognize 16204 million 8745 million 1865 million revenue pertains research year ending december 31 2019 year ending december 31 2020 thereafter respectively company applies practical expedient allowed asu 201409 accordingly disclose performance obligation information customer contracts original durations one year less performance obligations contracts meeting asu 201409 disclosure exclusion primarily include standready services research subscription contracts ii holding conferences attendees exhibitors participate iii providing customized consulting solutions clients fixed fee time materials engagements remaining duration performance obligations generally less one year aligns period parties enforceable rights obligations affected contracts customer contract assets liabilities timing recognition revenues amount timing billings cash collections well upfront customer payments result recording assets liabilities consolidated balance sheets payment terms conditions customer contracts vary cases customers prepay cases conduct credit evaluation payment may due arrears timing delivery services typically differs timing customer payments company recognizes either contract asset perform either fully partially contract contingency remains contract liability upfront customer payments precede performance resulting deferred revenue amounts recorded contract assets reclassified fees receivable outstanding conditions resolved right payment becomes unconditional contracts payments due arrears also recognized fees receivable contractual performance obligations satisfied time point time company correspondingly relieves contract liabilities records associated revenue table provides information regarding certain company’s balance sheet accounts pertain contracts customers excluding heldforsale businesses thousands 1 fees receivable represent unconditional right payment customers include billed unbilled amounts 2 contract assets represent recognized revenue unconditional right payment balance sheet date project may subject progress billing milestone billing restriction accompanying consolidated balance sheets contract assets recorded prepaid expenses current assets december 31 2018 fees receivable net december 31 2017 3 deferred revenues represent amounts company received upfront customer payment ii pertain recognized fees receivable situations occur completion performance obligations 2018 company recognized 12878 million revenue attributable deferred revenues recorded december 31 2017 amount primarily consisted research revenues recognized ratably control goods services passed customer ii conferences revenue pertaining conferences occurred reporting period 2018 company recorded material impairments related contract assets normal course business company recognize revenues performance obligations satisfied prior periods allowance losses revenue reserve december 31 2017 company maintained allowance losses included bad debt allowance revenue reserve provisions company’s allowance losses charged earnings either reduction revenues increase expense effective adoption asu 201409 january 1 2018 allowance losses classified offset gross amount fees receivable related charge earnings ie bad debt expense comprised solely estimated uncollectible fees receivable due credit associated risks revenue reserve previously reported part allowance losses reclassified reported liability accordance asu 201409 revenue reserve maintained amounts deemed uncollectible reasons bad debt determining amount revenue reserve company uses expectedvalue method based current estimates portfolio data historical experience due common characteristics similar attributes customers contracts provide relevant predictive evidence projected future liability expectedvalue method reasonable appropriate however determination revenue reserve inherently judgmental requires use certain estimates changes estimates recorded period identified december 31 2018 revenue reserve balance 74 million adjustments account 2018 significant allowance losses bad debts based historical loss experience assessment current economic conditions aging outstanding receivables financial health specific clients probable losses evaluation inherently judgmental requires use estimates allowance losses bad debts periodically reevaluated adjusted information ultimate collectability fees receivable becomes available circumstances could cause allowance losses increase include changes clients’ liquidity credit quality factors negatively impacting clients’ ability pay obligations come due effectiveness collection efforts costs obtaining fulfilling customer contract upon signing customer contract company capitalizes related commission recoverable direct incremental cost obtaining underlying contract records corresponding commission payable amounts capitalized cost obtaining fulfilling customer contract expenditures identified meet requisite capitalization criteria research consulting generally use straightline method amortization deferred commissions period based projected recoverability costs using factors underlying contract period timing corresponding revenues earned anticipated term engagement conferences deferred commissions expensed period related conference occurs circumstances deferred commissions amortized period exceed one year 2018 2017 2016 amortization expense 3048 million 2305 million 1802 million respectively included sga expense accompanying consolidated statements operations company recorded material impairments deferred commissions threeyear period ended december 31 2018 accounting standards issued yet adopted fasb issued accounting standards yet become effective december 31 2018 may impact company’s consolidated financial statements related disclosures future periods standards potential impact discussed accounting standards effective 2019 targeted improvements accounting hedging activities august 2017 fasb issued asu 201712 derivatives hedging asu 201712 asu 201712 intended improve financial reporting hedging relationships better portray economic results entity’s risk management activities financial statements addition main objective standard makes certain targeted improvements simplify application hedge accounting guidance current us gaap january 1 2019 company adopted asu 201712 adoption asu 201712 impact companys consolidated financial statements leases february 2016 fasb issued asu 201602 leases amended asu 201602 substantively modifies accounting disclosure requirements lease arrangements us gaap prior issuance asu 201602 provided lease arrangements meeting certain criteria recorded entitys balance sheet asu 201602 significantly changed accounting leases rightofuse rou model used whereby lessee must record rou asset lease liability balance sheet leases asu 201602 leases classified either operating financing arrangements classification affecting pattern expense recognition entitys income statement asu 201602 also requires significantly expanded disclosures meet objective enabling users financial statements assess amount timing uncertainty cash flows related leases company adopted asu 201602 january 1 2019 using modified retrospective approach elected use available practical expedient permitted asu 201602 record required cumulative effect adjustments opening balance sheet period adoption rather earliest comparative period presented companys historical consolidated financial statements restated certain permitted practical expedients used company upon adoption standard including combining lease nonlease components single lease component purposes recognition measurement requirements asu 201602 ii reassessing lease arrangement determine classification changed asu 201602 iii reassessing initial direct costs leases existence january 1 2019 adoption effective january 1 2019 asu 201602 materially impact consolidated balance sheets future application rou model yields significant increase assets liabilities lease arrangements operating leases previously recorded company’s consolidated balance sheets currently expect adoption standard result recognition operating lease liabilities ranging 8350 million 8550 million based present value company’s remaining minimum lease payments corresponding rou assets range 6370 million 6570 million company’s consolidated statements operations stockholders equity cash flows materially impacted adoption standard company provide required disclosures standard form 10q filing quarterly period ending march 31 2019 accounting standards effective 2020 implementation costs cloud computing arrangement august 2018 fasb issued asu 201815 customer’s accounting implementation costs incurred cloud computing arrangement service contract asu 201815 asu 201815 aligns requirements capitalizing implementation costs incurred cloud computing arrangement service contract requirements capitalizing implementation costs incurred develop obtain internaluse software costs capitalized asu 201815 expensed term cloud computing arrangement asu 201815 effective gartner january 1 2020 early adoption permitted asu 201815 may adopted using either retroactive prospective method adoption asu 201815 currently expected material impact companys consolidated financial statements defined benefit plan disclosures august 2018 fasb issued asu 201814 disclosure frameworkchanges disclosure requirements defined benefit plans asu 201814 asu 201814 part fasbs broader disclosure framework project modifies supplements current us gaap annual disclosure requirements employers sponsor defined benefit pension plans asu 201814 effective gartner year ending december 31 2020 early adoption permitted asu 201814 must adopted retroactive basis applied comparative period presented entitys financial statements evaluating potential impact adopting asu 201814 however currently expect material impact companys consolidated financial statements fair value measurement disclosures august 2018 fasb issued asu 201813 disclosure frameworkchanges disclosure requirements fair value measurement asu 201813 asu 201813 part fasbs broader disclosure framework project modifies supplements current us gaap disclosure requirements pertaining fair value measurements emphasis level 3 disclosures valuation hierarchy asu 201813 effective gartner january 1 2020 early adoption permitted adoption asu 201813 currently expected material impact companys consolidated financial statements goodwill impairment january 2017 fasb issued asu 201704 intangiblesgoodwill simplifying test goodwill impairment asu 201704 asu 201704 simplifies determination amount goodwill potentially charged eliminating step 2 goodwill impairment test current us gaap asu 201704 effective gartner january 1 2020 adoption asu 201704 currently expected material impact companys consolidated financial statements financial instrument credit losses june 2016 fasb issued asu 201613 financial instrumentscredit losses asu 201613 asu 201613 amends current financial instrument impairment model requiring entities use forwardlooking approach based expected losses estimate credit losses certain types financial instruments including trade receivables asu 201613 effective gartner january 1 2020 early adoption permitted currently evaluating potential impact asu 201613 consolidated financial statements fasb continues work number significant accounting standards issued could materially impact companys accounting policies disclosures future periods standards yet issued effective dates potential impact unknown 2 acquisitions divestitures company accounts business acquisitions accordance acquisition method accounting prescribed fasb asc topic 805 business combinations acquisition method accounting requires company record net assets liabilities acquired based estimated fair values acquisition date excess consideration transferred estimated fair value net assets acquired including identifiable intangible assets recorded goodwill acquisition method operating results acquired companies included companys consolidated financial statements beginning date acquisition company recognized 1072 million 1585 million 426 million acquisition integration charges 2018 2017 2016 respectively acquisition integration charges reflect additional costs expenses resulting acquisitions include among items professional fees severance stockbased compensation charges accruals exit costs certain acquisitionrelated office space arlington virginia company intend occupy 2018 exit costs represented single largest component acquisition integration charges table presents summary activity related accrual exit costs facilities years ended december 31 2018 2017 thousands activity 2016 1 2018 company recognized 75 million expense changes original estimates exit cost obligations corresponding amount 2017 benefit 101 million 2 total estimate company make net cash payments approximately 906 million exit costs connection activities described herein december 31 2018 aggregate expensed 829 million net cash outlays 262 million related activities acquisitions company business acquisitions 2018 ceb april 5 2017 company acquired 100 outstanding capital stock ceb aggregate purchase price 35 billion consideration transferred gartner included approximately 27 billion cash 8187 million fair value gartner common shares ceb publiclyheld company headquartered arlington virginia approximately 4900 employees cebs primary business serve leading provider subscriptionbased best practice research analysis focusing human resources sales finance legal ceb served executives professionals corporate middle market institutions 70 countries l2 march 9 2017 company acquired 100 outstanding capital stock l2 privatelyheld firm based new york city 150 employees aggregate purchase price 1342 million l2 subscriptionbased research business benchmarks digital performance brands total consideration transferred following table summarizes aggregate consideration paid acquisitions 2017 thousands 1 includes total consideration transferred 100 outstanding capital stock acquired businesses 2 cash paid close represents gross contractual amount paid company paid additional 125 million cash third quarter 2017 net cash acquired cash flow reporting purposes company paid total approximately 264 billion cash acquisitions 2017 3 company borrowed total approximately 28 billion conjunction ceb acquisition see note 5 debt additional information 4 consists fair value gartner common stock issued see note 7 stockholders equity additional information ii stockbased compensation replacement awards allocation purchase price following table summarizes allocation purchase price fair value assets acquired liabilities assumed acquisitions l2 ceb thousands 1 company believes goodwill resulting acquisitions supportable based anticipated synergies ceb among factors contributing anticipated synergies broader market presence expanded product offerings market opportunities acceleration cebs growth leveraging gartners global infrastructure best practices sales productivity areas none recorded goodwill expected deductible tax purposes 2 acquired intangible assets finitelived determination fair value finitelived intangible assets required management judgment consideration number factors determining fair values management primarily relied income valuation methodologies particular discounted cash flow models use discounted cash flow models required use estimates significant among projected cash flows related particular asset useful lives particular assets selection royalty discount rates used models certain published industry benchmark data establishing estimated useful lives finitelived intangible assets company relied internallygenerated data similar assets well certain published industry benchmark data believe values assigned finitelived intangible assets reasonable supportable 3 companys financial statements include operating results ceb beginning april 5 2017 date acquisition cebs operating results related goodwill reported part companys research conferences segments company acquired ceb prior periods impact companys operating results would material result following pro forma consolidated financial information presented ceb acquired company january 1 2016 thousands except per share amounts pro forma results prepared accordance us gaap include following pro forma adjustments increase interest expense amortization debt issuance costs related financing ceb acquisition note 5 debt provides information regarding companys borrowings related ceb acquisition b change revenue result required fair value adjustment deferred revenue c adjustment additional depreciation amortization expense result purchase price allocation finitelived intangible assets property equipment leasehold improvements 4 companys financial statements include operating results l2 beginning march 9 2017 acquisition date l2s operating results material companys consolidated operating segment results 2017 company acquired l2 prior periods impact companys operating results would material result pro forma financial information l2 prior periods presented l2s operating results related goodwill reported part companys research segment november 9 2016 company acquired 100 outstanding capital stock machina research limited machina privatelyheld firm based london 16 employees company paid approximately 45 million cash close machina provides clients subscriptionbased research provides strategic insight market intelligence areas iot internet things june 28 2016 company acquired 100 outstanding capital stock newco 5cl limited operates trade name scm world privatelyheld firm based london 60 employees 342 million cash paid close scm world leading crossindustry peer network learning community providing subscriptionbased research conferences supply chain executives net cash acquired business cash flow reporting purposes company paid approximately 279 million cash scm world acquisition scm world also included earnout provision fair value earnout recorded acquisition date part cost acquisition subsequently adjusted charge earnings company recorded 324 million goodwill 59 million amortizable intangible assets two acquisitions immaterial amount assets net basis operating results related goodwill reported part companys research conferences segments company also recorded additional 19 million additional goodwill 2016 related prior year acquisition divestitures 2018 company completed divestiture three noncore businesses comprising segment acquired ceb acquisition april 2017 three businesses contributed approximately 973 million revenue 605 million gross contribution 2018 company used cash proceeds divestitures pay outstanding debt additional information regarding segment divestitures provided ceb challenger training business august 31 2018 company sold ceb challenger training business 1191 million realized approximately 1160 million cash net working capital adjustments certain closing costs company recorded pretax gain sale approximately 83 million ceb workforce survey analytics business may 1 2018 company sold ceb workforce survey analytics business 280 million realized approximately 264 million cash net certain closing expenses company recorded pretax gain sale approximately 88 million ceb talent assessment business april 3 2018 company sold ceb talent assessment business 4030 million realized approximately 3758 million cash sale net cash transferred business certain closing expenses company recorded pretax gain approximately 155 million sale asset sales 2018 company also received 86 million cash proceeds well consideration recorded net pretax gain approximately 128 million sale certain noncore assets acquired ceb transaction includes october 31 2018 sale small research segment product called metrics matter 3 assets consist following thousands 4 accounts payable accrued liabilities accounts payable accrued liabilities consist following thousands liabilities consist following thousands 5 debt 2016 credit agreement company entered term loan revolving credit facility june 17 2016 credit agreement discussed 2016 credit agreement amended three times 2017 conjunction acquisition ceb 2016 credit agreement amended provided 15 billion term loan facility 5000 million term loan b facility 12 billion revolving credit facility 2016 credit agreement contains certain customary restrictive loan covenants including among others financial covenants apply maximum leverage ratio minimum interest expense coverage ratio covenants limiting gartner’s ability incur indebtedness grant liens make acquisitions merge dispose assets pay dividends repurchase stock make investments enter certain transactions affiliates company full compliance covenants december 31 2018 2017 company borrowed total approximately 28 billion ceb acquisition company borrowed 1675 billion 2016 credit agreement consisted 9000 million increased term loan facility 5000 million new term loan b facility 2750 million existing revolving credit facility 1675 billion drawn 2016 credit agreement along funds raised issuance 8000 million senior notes 3000 million 364day bridge credit facility used fund ceb acquisition related costs funds borrowed 364day bridge credit facility completely repaid 2017 borrowings term loan b facility completely repaid 2018 january 20 2017 company entered first amendment 2016 credit agreement entered permit acquisition ceb incurrence additional debt finance part acquisition repay certain debt ceb modify certain covenants march 20 2017 company entered second amendment 2016 credit agreement second amendment also entered connection acquisition ceb executed primarily extend maturity date term loan facility revolving credit facility march 20 2022 revise interest rate amortization schedule april 5 2017 conjunction closing ceb acquisition company entered third amendment 2016 credit agreement increased aggregate principal amount existing term loan facility 9000 million added term loan b facility aggregate principal amount 5000 million term loan facility repaid 16 consecutive quarterly installments commenced june 30 2017 plus final payment made march 20 2022 additional amount drawn term loan facility 2017 maturity date subject interest repayment terms amortization schedules representations warranties affirmative negative covenants events default amounts outstanding facility prior entry company third amendment revolving credit facility may borrowed repaid reborrowed march 20 2022 time amounts must repaid amounts borrowed term loan facility revolving credit facility bear interest rate equal companys option either greatest x administrative agent’s prime rate calculated new york federal reserve bank federal funds transactions plus 12 1 z eurodollar rate adjusted statutory reserves plus 1 case plus margin equal 0125 150 depending gartner’s consolidated leverage ratio end four consecutive fiscal quarters recently ended ii eurodollar rate adjusted statutory reserves plus margin equal 1125 250 depending gartner’s leverage ratio end four consecutive fiscal quarters recently ended 2018 company repaid entire 4963 million outstanding term loan b facility term loan b facility scheduled mature april 5 2024 amounts outstanding thereunder bore interest rate per annum equal option gartner adjusted libor plus 200 ii alternate base rate plus 100 364day bridge credit facility april 5 2017 company entered senior unsecured 364day bridge credit facility aggregate principal amount 3000 million immediately drawn fund portion purchase price associated ceb acquisition company repaid entire 3000 million 364day bridge credit facility 2017 senior notes march 30 2017 company issued 8000 million aggregate principal amount 5125 senior notes due 2025 “senior notes” proceeds senior notes used fund portion purchase price associated ceb acquisition senior notes issued issue price 1000 bear interest fixed rate 5125 per annum interest senior notes payable april 1 october 1 year senior notes mature april 1 2025 company may redeem senior notes time april 1 2020 cash redemption prices set forth note indenture plus accrued unpaid interest including redemption date prior april 1 2020 company may redeem 40 aggregate principal amount senior notes proceeds certain equity offerings redemption price 105125 plus accrued unpaid interest including redemption date addition company may redeem senior notes prior april 1 2020 redemption price 100 principal amount senior notes plus accrued unpaid interest including redemption date plus “makewhole” premium company experiences certain kinds changes control required offer purchase senior notes price equal 101 principal amount thereof plus accrued unpaid interest senior notes company’s general unsecured senior obligations effectively subordinated company’s existing future secured indebtedness extent value collateral securing indebtedness structurally subordinated existing future indebtedness liabilities company’s nonguarantor subsidiaries equal right payment company’s company’s guarantor subsidiaries’ existing future senior indebtedness senior right payment company’s future subordinated indebtedness outstanding borrowings following table summarizes company’s total outstanding borrowings thousands 1 contractual annualized interest rate december 31 2018 term loan facility revolving credit facility 402 consisted floating eurodollar base rate 252 plus margin 150 however company interest rate swap contracts effectively convert floating eurodollar base rates amounts outstanding fixed base rate 2 term loan b facility completely repaid 2018 3 company 10 billion available borrowing capacity revolver including expansion feature december 31 2018 4 consists 8000 million principal amount senior notes outstanding senior notes pay fixed rate 5125 mature april 1 2025 5 consists state connecticut economic development loan 300 fixed rate interest loan originated 2012 10 year maturity loan may repaid time company without penalty 6 weighted average annual effective rate companys total debt outstanding 2018 including effects interest rate swaps discussed 417 7 contractual due dates principal amounts year debt outstanding december 31 2018 follows 1026 million 2019 1397 million 2020 376 million 2021 123 billion 2022 8000 million 2025 8 deferred financing fees amortized interest expense term related debt obligation company wrote approximately 69 million deferred financing fees 2018 related repayment term loan b facility 2017 company paid 512 million additional deferred financing fees recorded charge approximately 61 million writeoff deferred financing fees related prior financing arrangement interest rate swaps company five active fixedforfloating interest rate swap contracts total notional value 14 billion mature 2022 company designates swaps accounting hedges forecasted interest payments 14 billion company’s variablerate borrowings company pays base fixed rates swaps ranging 153 213 return receives floating eurodollar base rate 30day notional borrowings company also entered two additional forwardstarting fixedforfloating interest rate swap contracts combined notional value 7000 million hedge portion companys variablerate borrowings upon maturity three currently active swap contracts late 2019 company accounts interest rate swap contracts cash flow hedges accordance fasb asc topic 815 since swaps hedge forecasted interest payments changes fair value swaps recorded accumulated comprehensive income loss component equity long swaps continue highly effective hedges designated interest rate risk ineffective portion change fair value hedges recorded earnings companys swaps considered highly effective hedges forecasted interest payments december 31 2018 2017 interest rate swaps net negative fair value liability 107 million december 31 2018 net positive fair value asset 34 million december 31 2017 amounts deferred recorded accumulated comprehensive loss income net tax effect 6 commitments contingencies contractual lease commitments company leases various facilities computer office equipment furniture assets noncancelable operating lease agreements expiring 2019 2038 future minimum annual cash payments operating lease agreements december 31 2018 follows thousands 1 excludes approximately 3720 million sublease income legal matters company involved legal proceedings litigation arising ordinary course business believe potential liability excess amounts already accrued proceedings claims litigation material effect financial position cash flows results operations resolved future period indemnifications company various agreements may obligate us indemnify party respect certain matters generally indemnification clauses included contracts arising normal course business customarily agree hold party harmless losses arising breach representations related matters title assets sold licensed certain intellectual property rights possible predict maximum potential amount future payments indemnification agreements due conditional nature company’s obligations unique facts particular agreement historically payments made us agreements material december 31 2018 company material payment obligations indemnification agreements 7 stockholders’ equity common stock holders gartner’s common stock par value 0005 per share “common stock” entitled one vote per share matters voted stockholders company currently pay cash dividends common stock also 2016 credit agreement contains negative covenant may limit ability pay dividends following table summarizes transactions relating common stock three years ended december 31 2018 1 company used total 2608 million 413 million 590 million cash share repurchases 2018 2017 2016 respectively 2 number shares repurchased 2018 includes shares repurchased december 2018 settled january 2019 share issuance related acquisition ceb april 5 2017 company issued 74 million common shares fair value 10965 per common share part consideration ceb acquisition note 2 acquisitions divestitures provides additional information regarding ceb acquisition fair value companys common stock determined based average high low prices common stock reported new york stock exchange april 5 2017 date acquisition share repurchase authorization company 12 billion board authorization adopted may 2015 repurchase companys common stock 09 billion remained available december 31 2018 company may repurchase common stock timetotime amounts prices manner company deems appropriate subject availability stock prevailing market conditions trading price stock company’s financial performance conditions repurchases may made open market purchases may include repurchase plans designed comply rule 10b51 securities exchange act 1934 amended accelerated share repurchases private transactions funded cash hand borrowings 2016 credit agreement accumulated comprehensive income loss net following tables disclose information changes accumulated comprehensive income loss aocil component related amounts reclassified aocil income years indicated net tax thousands 1 amounts parentheses represent debits deferred losses 2 see note 1 business significant accounting policies additional information regarding companys adoption asu 201802 3 reclassifications related interest rate swaps cash flow hedges recorded interest expense net tax effect see note 11 derivatives hedging information regarding hedges 4 reclassifications related defined benefit pension plans primarily recorded selling general administrative expense net tax effect see note 13 employee benefits information regarding company’s defined benefit pension plans 5 reclassification related foreign currency translation adjustments 2018 recorded gain divested operations see note 2 acquisitions divestitures information regarding divestitures 2018 8 stockbased compensation company grants stockbased compensation awards incentive employees directors contribute company’s longterm success company currently awards stocksettled stock appreciation rights servicebased performancebased restricted stock units common stock equivalents december 31 2018 company 49 million shares common stock par value 0005 per share common stock available stockbased compensation awards 2014 longterm incentive plan company accounts stockbased compensation awards accordance fasb asc topics 505 718 sec staff accounting bulletins 107 110 stockbased compensation expense equity awards based fair value award date grant company recognizes stockbased compensation expense period related service performed generally vesting period underlying award currently company issues treasury shares upon exercise release settlement stockbased compensation awards determining appropriate fair value model calculating fair value stockbased compensation awards requires use certain subjective assumptions including expected life stockbased compensation award common stock price volatility addition determining appropriate periodic stockbased compensation expense requires management estimate likelihood achievement certain performance targets assumptions used calculating fair values stockbased compensation awards related periodic expense represent management’s best estimates involve inherent uncertainties application judgment result circumstances change company deems necessary future modify assumptions made use different assumptions quantity nature company’s stockbased compensation awards changes amount expense may need adjusted future stockbased compensation expense could materially different recorded current period stockbased compensation expense company recognized following stockbased compensation expense award type expense category line item years ended december 31 millions 1 includes charges 194 million 229 million 194 million 2018 2017 2016 respectively awards retirementeligible employees awards vest accelerated basis 2 charges result acceleration vesting certain restricted stock units related ceb acquisition ii restricted stock units granted connection ceb integration process december 31 2018 company 791 million total unrecognized stockbased compensation cost expected expensed remaining weighted average service period approximately 23 years stockbased compensation awards disclosures presented provide information regarding company’s stockbased compensation awards classified equity awards accordance fasb asc topic 505 stock appreciation rights stocksettled stock appreciation rights sars permit holder participate appreciation value common stock applicable vesting criteria satisfied sars settled shares common stock upon exercise employee sars vest ratably fouryear service period expire seven years date grant fair value sars award recognized compensation expense straightline basis four years sars awarded company’s executive officers sars exercised number shares common stock issued calculated follows 1 total proceeds exercise sars award calculated closing price common stock reported new york stock exchange date exercise less exercise price sars award multiplied number sars exercised divided 2 closing price common stock date exercise company withholds portion shares common stock issued upon exercise satisfy statutory tax withholding requirements sars recipients stockholder rights shares common stock issued respect award subject prior satisfaction vesting criteria relating grants following table summarizes changes sars outstanding year ended december 31 2018 na applicable 1 december 31 2018 07 million total sars outstanding unvested company expects substantially unvested awards vest future periods 2 december 31 2018 total sars outstanding intrinsic value 460 million date sars vested exercisable intrinsic value 269 million fair value sars award determined date grant using blackscholesmerton valuation model following weighted average assumptions years ended december 31 1 expected dividend yield assumption based companys historical anticipated dividend payouts historically company paid cash dividends common stock 2 determination expected stock price volatility based historical common stock prices implied volatility publicly traded options common stock 3 riskfree interest rate based yield us treasury security maturity similar expected life award 4 expected life represents company’s estimate weighted average period time sars expected outstanding period service inception date expected exercise date restricted stock units restricted stock units rsus give awardee right receive shares common stock vesting conditions met certain restrictions lapse rsu vests entitles awardee one share common stock rsu awardees rights gartner stockholder including voting rights right receive dividends distributions shares released fair value rsu award determined date grant based closing price common stock reported new york stock exchange date servicebased rsus vest ratably four years expensed straightline basis vesting period performancebased rsus subject satisfaction performance service conditions vest ratably four years expensed accelerated basis vesting period following table summarizes changes rsus outstanding year ended december 31 2018 1 07 million rsus granted 2018 consisted 03 million performancebased rsus awarded executives 04 million servicebased rsus awarded nonexecutive employees nonmanagement board members performancebased awards include rsus final settlement 2017 grants approximately 02 million rsus representing target amount grant 2018 tied increase gartner’s total contract value year number performancebased rsus 2018 could earned ranged 0 200 target amount actual increase gartner’s total contract value 2018 measured december 31 2018 yielded approximately 144 target amount incremental awards based actual achievement 2018 grant issued 2019 2 company expects substantially rsus outstanding vest future periods 3 december 31 2018 weighted average remaining contractual term rsus outstanding approximately 11 years common stock equivalents common stock equivalents cses convertible common stock cse entitles holder one share common stock members board directors receive directors’ fees cses unless opt receive 50 fees cash generally cses defined term converted shares common stock service director terminates unless director elected accelerated release fair value cse award determined date grant based closing price common stock reported new york stock exchange date cses vest immediately result recorded expense date grant following table summarizes changes cses outstanding year ended december 31 2018 employee stock purchase plan company employee stock purchase plan “esp plan” wherein eligible employees permitted purchase shares common stock payroll deductions may exceed 10 employee’s compensation 23750 calendar year price equal 95 closing price common stock reported new york stock exchange end offering period december 31 2018 company 07 million shares available purchase esp plan esp plan considered noncompensatory fasb asc topic 718 result company record stockbased compensation expense employee share purchases company received 147 million 117 million 93 million cash employee share purchases esp plan 2018 2017 2016 respectively 9 computation earnings per share basic earnings per share “eps” computed dividing net income weighted average number shares common stock outstanding period diluted eps reflects potential dilution securities could share earnings impact common share equivalents antidilutive excluded calculation following table sets forth calculation basic diluted earnings per share three years ended december 31 thousands except per share data 1 company repurchased 21 million 04 million 06 million shares common stock 2018 2017 2016 respectively 2 basic diluted earnings per share 2017 include tax benefit approximately 066 per share related us tax cuts jobs act 2017 note 10 income taxes provides information companys income taxes following table presents number common share equivalents included computation diluted earnings per share table effect would antidilutive periods net income common share equivalents antidilutive exercise price greater average market value share common stock period antidilutive common shares 2018 minimal 10 income taxes following summary components companys income loss income taxes years ended december 31 thousands expense benefit income taxes income consists following components thousands longterm deferred tax assets liabilities comprised following thousands net deferred tax assets net deferred tax liabilities 345 million 2147 million december 31 2018 respectively 305 million 2537 million december 31 2017 respectively amounts reported assets liabilities consolidated balance sheets management concluded likely reversal deferred tax liabilities results future operations generate sufficient taxable income realize deferred tax assets net valuation allowance december 31 2018 valuation allowances 41 million december 31 2018 32 million december 31 2017 primarily relate net operating losses likely realized december 31 2018 company state local tax net operating loss carryforwards 352 million 01 million expires within one five years 35 million expires within six fifteen years 316 million expires within sixteen twenty years company also state tax credits 22 million majority expire five six years december 31 2018 company nonus net operating loss carryforwards 50 million 01 million expires next 20 years 49 million carried forward indefinitely amounts reduced associated unrecognized tax benefits consistent asu 201311 income taxespresentation unrecognized tax benefit net operating loss carryforward similar tax loss tax credit carryforward exists differences us federal statutory income tax rate company’s effective tax rate income taxes years ended december 31 follow us tax cuts jobs act” enacted december 22 2017 among things act reduces us federal corporation tax rate 35 21 requires companies pay onetime transition tax accumulated deferred foreign income “adfi” foreign subsidiaries previously tax deferred creates new tax global intangible lowtaxed income “gilti” attributable foreign subsidiaries december 31 2018 completed accounting tax effects enactment act remeasured us deferred tax assets liabilities based rates expected reverse future generally 21 reduced income tax expense 138 1232 million 2018 2017 respectively item tax adfi based total post1986 earnings profits ep foreign subsidiaries previously deferred us income taxes increased income tax expense 84 million 636 million 2018 2017 respectively onetime transition tax liability significant foreign tax credit net operating loss carryovers utilized reduce transition tax liability company elected pay remaining cash tax liability approximately 100 million 8 years permitted act also created new tax gilti attributable foreign subsidiaries companies option account gilti tax period cost period incurred recognize deferred taxes temporary differences including outside basis differences expected reverse result gilti provisions company elected account gilti tax period cost period incurred various provisions act highly complex remains unclear certain respects additional guidance form notices proposed regulations issued guidance expected issued changes could made proposed regulations future legislation could enacted regulations notices could issued continue monitor reflect impacts future financial statements appropriate addition many state local tax jurisdictions still determining interpret act final state local governments’ legislation guidance relating act may impact financial results july 2015 united states tax court “court” issued opinion relating treatment stockbased compensation expense intercompany costsharing arrangement opinion court held affiliated companies may exclude stockbased compensation expense costsharing arrangement internal revenue service appealing decision uncertainty related final resolution litigation recognition potential benefits company recorded financial statement benefit related open statute years associated matter company monitor developments related case potential impact developments company’s consolidated financial statements december 31 2018 2017 company unrecognized tax benefits 903 million 603 million respectively increase primarily attributable positions taken respect intercompany transactions taxable ep state income tax positions unrecognized tax benefits december 31 2018 related primarily exclusion stockbased compensation expense company’s cost sharing agreement calculation taxable ep related foreign tax credits ability realize certain refund claims intercompany transactions reasonably possible unrecognized tax benefits decreased 200 million within next 12 months due anticipated closure audits expiration certain statutes limitation closure tax controversies included balance unrecognized tax benefits december 31 2018 potential benefits 862 million recognized would reduce effective tax rate income continuing operations also included balance unrecognized tax benefits december 31 2018 potential benefits 41 million recognized would result adjustments tax accounts primarily deferred taxes following reconciliation beginning ending amount unrecognized tax benefits excluding interest penalties years ended december 31 thousands company accrues interest penalties related unrecognized tax benefits income tax provision december 31 2018 2017 company 67 million 64 million respectively accrued interest penalties related unrecognized tax benefits amounts addition unrecognized tax benefits disclosed total amount interest penalties recognized income tax provision years ended december 31 2018 2017 07 million 09 million respectively number years open statutes limitation varies depending tax jurisdiction company’s statutes open respect us federal jurisdiction 2014 forward india 2003 forward major taxing jurisdictions including us states united kingdom canada japan france ireland companys statutes vary open far back 2011 us gaap provision income taxes may result remittance earnings held overseas required company ability intent indefinitely reinvest funds overseas company continues assert intention reinvest accumulated undistributed foreign earnings nonus operations except instances repatriation earnings would result minimal additional tax consequently company recognized income tax expense would result remittance earnings accumulated undistributed earnings nonus subsidiaries approximately 1710 million december 31 2018 result act income tax would payable earnings indefinitely invested estimated time minimal 11 derivatives hedging company enters limited number derivative contracts mitigate cash flow risk associated changes interest rates variablerate debt changes foreign exchange rates forecasted foreign currency transactions company accounts outstanding derivative contracts accordance fasb asc topic 815 requires derivatives including derivatives designated accounting hedges recorded balance sheet fair value following tables provide information regarding company’s outstanding derivatives contracts dates indicated thousands except number contracts december 31 2018 december 31 2017 1 swaps designated accounted cash flow hedges forecasted interest payments borrowings result changes fair value swaps deferred recorded aocil net tax effect note 5 debt provides additional information 2 company foreign exchange transaction risk typically enters transactions normal course business denominated foreign currencies differ local functional currency company enters shortterm foreign currency forward exchange contracts mitigate cash flow risk associated changes foreign currency rates forecasted foreign currency transactions contracts accounted fair value realized unrealized gains losses recognized income net company designate contracts hedges accounting purposes outstanding foreign currency forward exchange contracts december 31 2018 matured end january 2019 3 see note 12 fair value disclosures determination fair value instruments december 31 2018 company’s derivative counterparties investment grade financial institutions company collateral arrangements derivative counterparties none derivative contracts contained creditrisk related contingent features following table provides information regarding amounts recognized consolidated statements operations derivative contracts years ended december 31 millions 1 consists interest income expense interest rate swap contracts 2 consists net realized unrealized gains losses foreign currency forward contracts 12 fair value disclosures company’s financial instruments include cash equivalents fees receivable customers accounts payable accruals normally shortterm nature company believes carrying amounts financial instruments reasonably approximate fair values due shortterm nature company’s financial instruments also include outstanding variablerate borrowings 2016 credit agreement company believes carrying amounts variablerate borrowings reasonably approximate fair values rates interest borrowings reflect current market rates interest similar instruments comparable maturities company enters limited number derivatives transactions enter repurchase agreements securities lending transactions master netting arrangements receivables payables result derivatives transactions recorded gross company’s consolidated balance sheets fasb asc topic 820 provides framework measurement fair value valuation hierarchy based transparency inputs used valuation assets liabilities classification within valuation hierarchy based lowest level input significant resulting fair value measurement valuation hierarchy contains three levels level 1 measurements consist quoted prices active markets identical assets liabilities level 2 measurements include significant observable inputs quoted prices similar assets liabilities active markets identical assets liabilities inactive markets observable inputs interest rates yield curves marketcorroborated inputs level 3 measurements include significant unobservable inputs internallycreated valuation models company currently utilize level 3 valuation inputs remeasure assets liabilities however level 3 inputs may used company required annual impairment review recorded goodwill information regarding periodic assessment company’s goodwill included note 1 business significant accounting policies company typically transfer assets liabilities different levels valuation hierarchy following table presents fair value certain financial assets liabilities thousands 1 company deferred compensation plan benefit certain highly compensated officers managers key employees see note 13 employee benefits assets consist investments money market funds mutual funds companyowned life insurance contracts money market funds consist cash equivalents mutual fund investments consist publiclytraded quoted equity shares company considers fair value assets based level 1 inputs assets fair values 90 million 291 million december 31 2018 2017 respectively carrying amounts life insurance contracts equal cash surrender values cash surrender value represents estimated amount company would receive upon termination contract approximates fair value company considers life insurance contracts valued based level 2 inputs assets fair values 577 million 590 million december 31 2018 2017 respectively related deferred compensation plan liabilities recorded fair value estimated amount needed settle liability company considers level 2 input 2 company enters foreign currency forward exchange contracts hedge effects adverse fluctuations foreign currency exchange rates see note 11 derivatives hedging valuation contracts based observable foreign currency exchange rates active markets company considers level 2 input 3 company interest rate swap contracts hedge risk variability interest payments borrowings see note 5 debt fair value interest rate swaps based marktomarket valuations prepared thirdparty broker valuations based observable interest rates recently executed market transactions observable market data company considers level 2 inputs company independently corroborates reasonableness valuations prepared thirdparty broker use electronic quotation service 4 discussed note 5 debt company 8000 million principal amount fixedrate senior notes due 2025 estimated fair value notes derived quoted market prices provided independent dealer company considers level 2 input 13 employee benefits defined contribution plan company savings investment plans “401k plans” covering substantially us employees company contributions based level employee contributions maximum 4 employee’s eligible salary subject annual maximum 2018 maximum match 7200 amounts expensed connection 401k plans totaled 367 million 298 million 229 million 2018 2017 2016 respectively deferred compensation plan company supplemental deferred compensation plans benefit certain highly compensated officers managers key employees plans investment assets recorded assets consolidated balance sheets fair value assets 666 million 881 million december 31 2018 2017 respectively see note 12 fair value disclosures fair value information corresponding deferred compensation plan liability 686 million 899 million december 31 2018 2017 respectively carried fair value adjusted corresponding charge credit compensation expense reflect fair value amount owed employees classified liabilities consolidated balance sheets compensation expense recognized deferred compensation plans 17 million 04 million 01 million 2018 2017 2016 respectively defined benefit pension plans company defined benefit pension plans several international locations benefits paid plans based years service level employee compensation companys defined benefit pension plans accounted accordance fasb asc topics 715 960 following components defined benefit pension plan expense years ended december 31 thousands following key assumptions used computation pension expense years ended december 31 1 discount rates typically determined utilizing yields longterm corporate government bonds relevant country duration consistent expected term underlying pension obligations following table provides information related changes projected benefit obligation years ended december 31 thousands 1 company projects following benefit payments made future years directly plan participants 12 million 2019 15 million 2020 16 million 2021 17 million 2022 21 million 2023 121 million total five years thereafter 2 measured december 31 following table provides information regarding funded status plans related amounts recorded company’s consolidated balance sheets december 31 thousands 1 pension plan assets held thirdparty trustees invested diversified portfolio equities high quality government corporate bonds investments assets primarily valued based level 1 level 2 inputs fair value hierarchy fasb asc topic 820 majority invested assets considered lowtomedium investment risk company projects future longterm rate return plan assets 245 believes reasonable based composition assets current projected market conditions year ended december 31 2018 company contributed 30 million plans benefits paid directly company participants 14 million 2 funded status shortfall represents amount projected benefit obligation company funded thirdparty trustee amount liability company recorded liabilities company’s consolidated balance sheets 3 deferred actuarial loss december 31 2018 recorded aocil reclassified aocil recognized pension expense approximately 13 years subject certain limitations set forth fasb asc topic 715 impact amortization pension expense 2019 projected result approximately 02 million additional expense amortization deferred actuarial losses aocil pension expense three years ended december 31 2018 immaterial company also maintains reinsurance asset arrangement large international insurance company whose purpose provide funding benefit payments one plans reinsurance asset pension plan asset company december 31 2018 2017 reinsurance asset recorded cash surrender value 90 million 91 million respectively classified assets companys consolidated balance sheets company believes cash surrender value approximates fair value equivalent level 2 input fasb’s fair value hierarchy fasb asc topic 820 14 segment information 2018 company divested three noncore businesses comprised segment acquired part acquisition ceb inc april 2017 result divestitures movement small residual product segment research business company longer recording additional operating activity segment effective september 1 2018 additional information regarding divestitures included note 2 acquisitions divestitures products services currently delivered three segments research conferences consulting follows • research provides trusted objective insights advice missioncritical priorities leaders across functional areas enterprise research reports briefings proprietary tools access analysts advisors peer networking services membership programs enable clients make better decisions gartners traditional strengths marketing supply chain research enhanced 2017 gartners acquisition ceb inc added cebs best practice talent management research insights across range business functions include human resources sales legal finance • conferences formerly called events provides business professionals across organization opportunity learn share network flagship chief information officer conference gartner symposium industryleading conferences focused specific business roles topics memberdriven sessions offerings enable attendees experience best gartner insight advice live • consulting provides customized solutions unique client needs onsite daytoday support well proprietary tools measuring improving performance focus cost performance efficiency quality company evaluates segment performance allocates resources based gross contribution margin gross contribution presented table defined operating income loss excluding certain cost services product development expenses selling general administrative expenses depreciation amortization intangibles acquisition integration charges certain bonus fringe benefit costs included consolidated cost services product development allocated segment expense accounting policies used reportable segments used company intersegment revenues company identify allocate assets including capital expenditures reportable segment accordingly assets reported segment information available segment reviewed evaluation segment performance making decisions allocation resources company earns revenue clients many countries united states individual country revenues external clients represent 10 company’s consolidated revenues additionally single client accounted 10 total revenue loss single client management’s opinion would material adverse effect revenues following tables present information company’s reportable segments periods indicated thousands following table provides reconciliation total segment gross contribution net income years ended december 31 thousands 1 unallocated amounts consist certain bonus related fringe costs recorded consolidated cost services product development expense allocated segment expense companys policy allocate bonus related fringe charges segments 100 segment employees target bonus amounts 100 absorbed corporate disaggregated revenue information reportable segment three years ended december 31 2018 including segment presented note 1 business significant accounting policies longlived asset information geographic location december 31 summarized table thousands 1 excludes goodwill intangible assets heldforsale assets 15 valuation qualifying accounts company maintains allowance losses comprised bad debt allowance december 31 2017 revenue reserve provisions charged earnings either increase expense prior 2018 reduction revenues following table summarizes activity company’s allowance losses years ended december 31 thousands 1 allowance losses december 31 2017 included 62 million attributable companys revenue reserve result companys adoption asu 201409 january 1 2018 revenue reserve balance included accounts payable accrued liabilities companys consolidated balance sheet note 1 business significant accounting policies provides additional information regarding companys adoption asu 201409 item 16 form 10k summary none signatures pursuant requirements securities exchange act 1934 registrant caused report form 10k signed behalf undersigned duly authorized stamford connecticut february 22 2019 power attorney person whose signature appears appoints eugene hall craig w safian acting individually attorneyinfact full power substitution capacities sign amendments report form 10k file appropriate exhibits related documents securities exchange commission undersigned ratifies confirms signatures may signed attorneyinfact amendments report pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicateditem 15 exhibits financial statement schedules 1 2 financial statements schedules reports independent registered public accounting firm financial statements listed index consolidated financial statements herein filed part report financial statement schedules listed index omitted information required applicable shown consolidated financial statements notes thereto 3 exhibits index consolidated financial statements gartner inc subsidiaries consolidated financial statements financial statement schedules omitted information required applicable shown consolidated financial statements notes thereto report independent registered public accounting firm stockholders board directors gartner inc opinion consolidated financial statements audited accompanying consolidated balance sheets gartner inc subsidiaries company december 31 2019 2018 related consolidated statements operations comprehensive income stockholders’ equity cash flows years threeyear period ended december 31 2019 related notes collectively consolidated financial statements opinion consolidated financial statements present fairly material respects financial position company december 31 2019 2018 results operations cash flows years threeyear period ended december 31 2019 conformity us generally accepted accounting principles also audited accordance standards public company accounting oversight board united states pcaob company’s internal control financial reporting december 31 2019 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission report dated february 19 2020 expressed unqualified opinion effectiveness company’s internal control financial reporting change accounting principle discussed note 1 consolidated financial statements company changed method accounting leases january 1 2019 due adoption asu 201602 leases basis opinion consolidated financial statements responsibility company’s management responsibility express opinion consolidated financial statements based audits public accounting firm registered pcaob required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audits accordance standards pcaob standards require plan perform audit obtain reasonable assurance whether consolidated financial statements free material misstatement whether due error fraud audits included performing procedures assess risks material misstatement consolidated financial statements whether due error fraud performing procedures respond risks procedures included examining test basis evidence regarding amounts disclosures consolidated financial statements audits also included evaluating accounting principles used significant estimates made management well evaluating overall presentation consolidated financial statements believe audits provide reasonable basis opinion critical audit matter critical audit matter communicated matter arising current period audit consolidated financial statements communicated required communicated audit committee 1 relates accounts disclosures material consolidated financial statements 2 involved especially challenging subjective complex judgment communication critical audit matter alter way opinion consolidated financial statements taken whole communicating critical audit matter providing separate opinion critical audit matter accounts disclosures relates assessment unrecognized tax benefits discussed notes 1 12 consolidated financial statements company recorded gross unrecognized tax benefits 1028 million december 31 2019 company recognizes tax positions believes 50 percent likelihood positions sustained based technical merits position recognized tax positions measured largest amount benefit greater 50 percent likely realized company uses estimates assumptions determining amount unrecognized tax benefits associated uncertain tax positions identified assessment unrecognized tax benefits relating transfer pricing certain intercompany transactions critical audit matter complex auditor judgment required evaluating company’s interpretation tax law determination recognition measurement tax benefits recognized included judgments remeasuring liabilities positions taken prior years’ tax returns light new information primary procedures performed address critical audit matter included following tested certain internal controls company’s unrecognized tax benefits process including controls assessing tax implications transfer pricing certain intercompany transactions involved tax transfer pricing professionals specialized skills knowledge assisted • evaluating company’s interpretation tax laws income tax consequences intercompany transactions including internal restructurings intraentity transfers assets • assessing intercompany agreements related transfer pricing studies compliance relevant tax laws regulations • performing independent assessment company’s tax positions determination unrecognized tax benefits comparing results company’s assessment • inspecting settlement documents applicable taxing authorities addition assessed company’s ability estimate unrecognized tax benefits comparing historical unrecognized tax benefits actual results upon conclusion tax audits applicable taxing authorities kpmg llp served company’s auditor since 1996 new york new york february 19 2020 report independent registered public accounting firm stockholders board directors gartner inc opinion internal control financial reporting audited gartner inc subsidiaries’ company internal control financial reporting december 31 2019 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission opinion company maintained material respects effective internal control financial reporting december 31 2019 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission also audited accordance standards public company accounting oversight board united states pcaob consolidated balance sheets company december 31 2019 2018 related consolidated statements operations comprehensive income stockholders’ equity cash flows years threeyear period ended december 31 2019 related notes collectively consolidated financial statements report dated february 19 2020 expressed unqualified opinion consolidated financial statements basis opinion company’s management responsible maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included accompanying management’s annual report internal control financial reporting responsibility express opinion company’s internal control financial reporting based audit public accounting firm registered pcaob required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audit accordance standards pcaob standards require plan perform audit obtain reasonable assurance whether effective internal control financial reporting maintained material respects audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audit also included performing procedures considered necessary circumstances believe audit provides reasonable basis opinion definition limitations internal control financial reporting company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate kpmg llp new york new york february 19 2020 gartner inc subsidiaries consolidated balance sheets thousands except share data see notes consolidated financial statements gartner inc subsidiaries consolidated statements operations thousands except per share data see notes consolidated financial statements gartner inc subsidiaries consolidated statements comprehensive income thousands see notes consolidated financial statements gartner inc subsidiaries consolidated statements stockholders’ equity thousands see notes consolidated financial statements gartner inc subsidiaries consolidated statements cash flows thousands see notes consolidated financial statements gartner inc subsidiaries notes consolidated financial statements 1 business significant accounting policies business gartner inc nyse world’s leading research advisory company member sp 500 equip business leaders indispensable insights advice tools achieve missioncritical priorities today build successful organizations tomorrow believe unmatched combination expertled practitionersourced datadriven research steers clients toward right decisions issues matter trusted advisor objective resource 15000 enterprises 100 countries across major functions every industry enterprise size segments gartner delivers products services globally three business segments research conferences consulting note 9 revenue related matters note 16 segment information describe products services offered segments provide additional financial information segments 2018 company divested noncore businesses comprised segment moved small residual product segment research business result operating activity recorded segment 2019 note 2 acquisitions divestitures provides additional information regarding companys 2018 divestitures basis presentation accompanying consolidated financial statements prepared accordance generally accepted accounting principles united states america “us gaap” defined financial accounting standards board “fasb” accounting standards codification “asc” financial information applicable instructions us securities exchange commission “sec” regulation sx fiscal year gartner twelvemonth period january 1 december 31 references 2019 2018 2017 herein refer fiscal year unless otherwise indicated used notes terms “gartner” “company” “we” “us” “our” refer gartner inc consolidated subsidiaries principles consolidation accompanying consolidated financial statements include accounts company whollyowned subsidiaries significant intercompany transactions balances eliminated use estimates preparation accompanying consolidated financial statements requires management make estimates assumptions future events estimates underlying assumptions affect amounts assets liabilities reported disclosures contingent assets liabilities reported amounts revenues expenses estimates include valuation fees receivable goodwill intangible assets longlived assets well tax accruals liabilities addition estimates used revenue recognition income tax expense benefit performancebased compensation charges depreciation amortization management believes use estimates accompanying consolidated financial statements reasonable management continually evaluates revises estimates using historical experience factors including general economic environment actions may take future management adjusts estimates facts circumstances dictate however estimates may involve significant uncertainties judgments cannot determined precision addition estimates based management’s best judgment point time result differences estimates actual results could material would reflected company’s consolidated financial statements future periods business acquisitions company accounts business acquisitions accordance acquisition method accounting prescribed fasb asc topic 805 business combinations acquisition method accounting requires company record assets acquired liabilities assumed based estimated fair values acquisition date certain exceptions excess consideration transferred estimated fair value net assets acquired including identifiable intangible assets recorded goodwill acquisition method operating results acquired companies included companys consolidated financial statements beginning date acquisition company completed business acquisitions 2019 2017 note 2 acquisitions divestitures provides additional information regarding business acquisitions determination fair values intangible assets acquired acquisition requires management judgment consideration number factors including historical financial performance acquired businesses projected future performance estimates surrounding customer turnover well assumptions regarding level competition costs necessary reproduce certain assets establishing useful lives intangible assets also requires management judgment evaluation number factors including expected use asset historical client retention rates consumer awareness trade name history well contractual provisions could limit extend assets useful life charges directly related companys acquisitions expensed incurred classified acquisition integration charges consolidated statements operations note 2 acquisitions divestitures provides additional information regarding companys acquisition integration charges revenue recognition january 1 2018 company adopted accounting standards update asu 201409 revenue contracts customers amended asu 201409 using modified retrospective method adoption approach cumulative effect applying new accounting standard recorded date initial application restatement comparative prior periods presented although adoption asu 201409 material impact company’s consolidated financial statements implementation new accounting standard resulted changes revenue recognition policies enhanced footnote disclosures note 9 revenue related matters provides information regarding adoption asu 201409 impact companys consolidated financial statements ii includes new enhanced disclosures required asu 201409 prior january 1 2018 company recognized revenue accordance thenexisting us gaap sec staff accounting bulletin 104 revenue recognition allowance losses company maintains allowance losses provides estimated uncollectible fees receivable due credit associated risks allowance losses classified offset gross amount fees receivable provisions allowance losses due credit associated risks recorded bad debt expense allowance losses bad debts based historical loss experience assessment current economic conditions aging outstanding receivables financial health specific clients probable losses evaluation inherently judgmental requires use estimates allowance losses bad debts periodically reevaluated adjusted information ultimate collectability fees receivable becomes available circumstances could cause allowance losses increase include changes clients’ liquidity credit quality factors negatively impacting clients’ ability pay obligations come due effectiveness collection efforts cost services product development “cos” cos expense includes direct costs incurred creation delivery products services costs primarily relate personnel selling general administrative “sga” sga expense includes direct indirect selling costs general administrative costs facility costs bad debt expense commission expense company records deferred commissions upon signing customer contract amortizes deferred amount period aligns transfer customer services commissions relate note 9 revenue related matters provides additional information regarding deferred commissions amortization costs stockbased compensation expense company accounts stockbased compensation awards accordance fasb asc topics 505 718 sec staff accounting bulletins 107 110 stockbased compensation expense equity awards based fair value award date grant company recognizes stockbased compensation expense period related service performed generally vesting period underlying award forfeitures recognized occur note 10 stockbased compensation provides additional information regarding companys stockbased compensation activity income net 2019 company sold minority equity investment 141 million cash recognized pretax gain 91 million recorded income net consolidated statements operations income taxes company uses asset liability method accounting income taxes estimate income taxes jurisdictions operate process involves estimating current tax expense benefit together assessing temporary differences resulting differing treatment items tax accounting purposes differences result deferred tax assets liabilities included consolidated balance sheets assessing realizability deferred tax assets consider likely deferred tax assets realized making assessment consider availability loss carryforwards projected reversals deferred tax liabilities projected future taxable income ongoing prudent feasible tax planning strategies company recognizes tax benefit uncertain tax position likely tax position sustained based technical merits position recognized tax positions measured largest amount benefit greater 50 likelihood realized company uses estimates determining amount unrecognized tax benefits associated uncertain tax positions significant judgment required evaluating tax law measuring benefits likely realized uncertain tax positions periodically reevaluated adjusted information ultimate realization becomes available note 12 income taxes provides additional information regarding companys income taxes april 1 2018 company early adopted asu 201802 reclassification certain tax effects accumulated comprehensive income asu 201802 asu 201802 provides entity option reclassify retained earnings tax effects items stranded accumulated comprehensive income result us tax cuts jobs act 2017 “act” gartner elected early adopt asu 201802 beginning second quarter 2018 resulted reclassification 06 million stranded tax amounts related act accumulated comprehensive loss income net accumulated earnings asu 201802 impact companys operating results 2019 2018 january 1 2018 company adopted asu 201616 intraentity transfers assets inventory asu 201616 asu 201616 accelerates recognition taxes certain intraentity transactions us gaap previously required deferral income tax implications intercompany sale assets sold third party recovered use asu 201616 seller’s tax effects buyer’s deferred taxes asset transfers immediately recognized upon sale pursuant transition rules asu 201616 taxes attributable pre2018 intraentity transfers previously deferred accelerated recorded accumulated earnings date adoption result certain companys balance sheet income tax accounts pertaining pre2018 intraentity transfers aggregated 137 million reversed accumulated earnings january 1 2018 additionally accordance new requirements asu 201616 company recorded income tax benefits approximately 381 million 2019 intercompany sale certain intellectual property ii 68 million 2018 related intraentity transfers upon merger certain foreign subsidiaries future could material impact asu 201616 depending nature size tax consequences intraentity transfers cash equivalents restricted cash equivalents includes cash highly liquid investments original maturities three months less considered cash equivalents carrying value cash equivalents approximates fair value due shortterm maturity instruments investments maturities three months classified marketable securities interest earned recorded interest income consolidated statements operations us gaap requires amounts generally described restricted cash restricted cash equivalents presented cash equivalents reconciling beginningofperiod endofperiod total amounts presented entitys statement cash flows table presenting beginningofperiod endofperiod cash amounts companys consolidated balance sheets total cash amounts presented consolidated statements cash flows thousands 1 restricted cash consists escrow accounts established connection certain companys business acquisitions generally cash restricted use due provisions contained underlying stock asset purchase agreement company disburse restricted cash sellers businesses upon satisfaction contingencies described agreements eg potential indemnification claims etc 2 restricted cash recorded prepaid expenses current assets companys consolidated balance sheets shortterm longterm classification dependent projected timing disbursements sellers 3 represents cash classified heldforsale asset ceb talent assessment business divested 2018 note 2 acquisitions divestitures provides additional information regarding companys 2018 divestitures leases january 1 2019 company adopted asu 201602 leases prior january 1 2019 company recognized lease expense accordance thenexisting us gaap fasb asc topic 840 leases information regarding companys lease accounting including adoption new accounting standard provided heading adoption new accounting standards note 7 leases property equipment leasehold improvements equipment leasehold improvements fixed assets owned company recorded cost less accumulated depreciation amortization fixed assets leasehold improvements depreciated using straightline method estimated useful life underlying asset leasehold improvements amortized using straightline method shorter estimated useful life improvement remaining term related lease depreciation amortization expense fixed assets 821 million 686 million 639 million 2019 2018 2017 respectively property equipment leasehold improvements net presented table thousands company incurs costs develop internaluse software used operations certain costs meet criteria fasb asc topic 350 intangibles goodwill capitalized amortized future periods net capitalized internaluse software development costs 557 million 374 million december 31 2019 2018 respectively included computer equipment software table amortization expense capitalized internaluse software development costs included depreciation consolidated statements operations totaled 200 million 132 million 99 million 2019 2018 2017 respectively goodwill represents excess purchase price acquired businesses estimated fair values tangible identifiable intangible net assets acquired evaluations recoverability goodwill performed accordance fasb asc topic 350 requires annual assessment potential goodwill impairment reporting unit level whenever events changes circumstances indicate carrying value goodwill may recoverable performing annual assessment recoverability goodwill initially perform qualitative analysis evaluating whether events circumstances occurred exist provide evidence likely fair value reporting units less related carrying amount believe likely fair value reporting units less related carrying amount quantitative impairment test performed however results qualitative assessment indicate likely fair value reporting unit less respective carrying amount perform twostep quantitative impairment test evaluating recoverability goodwill requires judgments assumptions regarding future trends events result precision reliability estimates subject uncertainty recent annual impairment test goodwill qualitative analysis conducted quarter ended september 30 2019 indicated impairment subsequent completing 2019 annual impairment test events changes circumstances noted required interim goodwill impairment test note 3 goodwill intangible assets provides additional information regarding companys goodwill finitelived intangible assets company finitelived intangible assets amortized using straightline method expected useful life underlying asset note 3 goodwill intangible assets provides additional information regarding companys finitelived intangible assets impairment longlived assets companys longlived assets primarily consist intangible assets goodwill property equipment leasehold improvements company reviews longlived asset groups impairment whenever events changes circumstances indicate carrying amount asset group may recoverable evaluation may based number factors including current projected operating results cash flows changes management’s strategic direction well external economic market factors company evaluates recoverability assets asset groups determining whether carrying values recovered undiscounted future operating cash flows events circumstances indicate carrying values might recoverable based undiscounted future operating cash flows impairment loss may recognized amount impairment measured based difference projected discounted future operating cash flows using discount rate reflecting company’s average cost funds carrying value asset group company record impairment charges longlived assets asset groups threeyear period ended december 31 2019 pension obligations company defined benefit pension plans several international locations benefits earned paid plans generally based years service level employee compensation companys defined benefit pension plans accounted accordance fasb asc topics 715 960 company determines periodic pension expense related liabilities defined benefit pension plans actuarial assumptions valuations service cost component pension expense recorded sga expense components pension expense recorded income net consolidated statements operations note 15 employee benefits provides additional information regarding companys defined benefit pension plans debt company presents amounts borrowed consolidated balance sheets net deferred financing fees interest accrued amounts borrowed recorded interest expense consolidated statements operations note 6 debt provides additional information regarding companys debt arrangements foreign currency exposure functional currency foreign subsidiaries typically local currency assets liabilities foreign subsidiaries translated us dollars exchange rates effect balance sheet date income expense items translated average exchange rates year resulting translation adjustments recorded foreign currency translation adjustments component accumulated comprehensive loss income net within stockholders’ equity consolidated balance sheets currency transaction gains losses arising transactions denominated currencies functional currency subsidiary recognized results operations part income net consolidated statements operations company net currency transaction gains losses 11 million 92 million 55 million 2019 2018 2017 respectively company enters foreign currency forward exchange contracts mitigate effects adverse fluctuations foreign currency exchange rates certain transactions contracts generally short durations recorded fair value realized unrealized gains losses recorded income net gain loss foreign currency forward exchange contracts 25 million 104 million 08 million 2019 2018 2017 respectively note 13 derivatives hedging provides additional information regarding companys foreign currency forward exchange contracts fair value disclosures company limited number assets liabilities adjusted fair value balance sheet date companys required fair value disclosures provided note 14 fair value disclosures concentrations credit risk assets may subject company concentration credit risk consist primarily shortterm highly liquid investments classified cash equivalents fees receivable contract assets interest rate swaps pension reinsurance asset majority company’s cash equivalent investments interest rate swap contracts investment grade commercial banks fees receivable contract asset balances deemed collectible customers limited concentration credit risk due diverse customer base geographic dispersion company’s pension reinsurance asset see note 15 employee benefits maintained large international insurance company rated investment grade december 31 2019 2018 stock repurchase programs company records cost repurchase shares common stock treasury stock shares repurchased company added treasury shares retired note 8 stockholders equity provides additional information regarding companys common stock repurchase activity adoption new accounting standards company adopted accounting standards described 2019 targeted improvements accounting hedging activities january 1 2019 company adopted asu 201712 derivatives hedging asu 201712 asu 201712 intended improve financial reporting hedging relationships better portray economic results entity’s risk management activities financial statements addition main objective standard makes certain targeted improvements simplify application hedge accounting guidance current us gaap adoption standard impact companys consolidated financial statements leases january 1 2019 company adopted asu 201602 leases amended asu 201602 “new lease standard” using modified retrospective approach asu 201602 significantly changes accounting leases rightofuse model used whereby lessee must record rightofuse asset related lease liability balance sheet leases asu 201602 leases classified either operating finance arrangements classification affecting pattern expense recognition entitys income statement operating leases asu 201602 requires recognition entity’s income statement single lease cost calculated cost lease allocated lease term generally straightline basis adoption new lease standard material impact companys consolidated balance sheet december 31 2019 consolidated statement operations cash provided operating activities consolidated statement cash flows 2019 materially impacted prior january 1 2019 company recognized lease expense accordance thenexisting us gaap fasb asc topic 840 leases “asc topic 840” although significant changes company’s leasing policies procedures effective january 1 2019 adoption asu 201602 lease expense recognition patterns asu 201602 2019 asc topic 840 2018 2017 substantively required new lease standard companys disclosures regarding leasing activities significantly expanded enable users consolidated financial statements assess amount timing uncertainty cash flows related leases information regarding adoption asu 201602 impact companys consolidated financial statements related disclosures provided note 7 leases accounting standards issued yet adopted fasb issued accounting standards yet become effective december 31 2019 may impact company’s consolidated financial statements related disclosures future periods standards potential impact discussed accounting standards effective 2020 implementation costs cloud computing arrangement august 2018 fasb issued asu 201815 customer’s accounting implementation costs incurred cloud computing arrangement service contract asu 201815 asu 201815 aligns requirements capitalizing implementation costs incurred cloud computing arrangement service contract requirements capitalizing implementation costs incurred develop obtain internaluse software costs capitalized asu 201815 expensed term cloud computing arrangement gartner adopted asu 201815 january 1 2020 prospective basis concluded adoption asu 201815 material impact companys consolidated financial statements however new standard change classification certain items companys consolidated balance sheets statements operations statements cash flows future periods defined benefit plan disclosures august 2018 fasb issued asu 201814 disclosure frameworkchanges disclosure requirements defined benefit plans asu 201814 asu 201814 part fasbs broader disclosure framework project modifies supplements current us gaap annual disclosure requirements employers sponsor defined benefit pension plans asu 201814 effective gartner 2020 asu 201814 must adopted retroactive basis applied comparative period presented entitys financial statements adoption asu 201814 currently expected material impact companys financial statement disclosures fair value measurement disclosures august 2018 fasb issued asu 201813 disclosure frameworkchanges disclosure requirements fair value measurement asu 201813 asu 201813 part fasbs broader disclosure framework project modifies supplements current us gaap disclosure requirements pertaining fair value measurements emphasis level 3 disclosures valuation hierarchy gartner adopted asu 201813 january 1 2020 concluded adoption asu 201813 material impact companys consolidated financial statements goodwill impairment january 2017 fasb issued asu 201704 intangiblesgoodwill simplifying test goodwill impairment asu 201704 asu 201704 simplifies determination amount goodwill potentially charged eliminating step 2 goodwill impairment test current us gaap gartner adopted asu 201704 january 1 2020 concluded adoption asu 201704 material impact companys consolidated financial statements financial instrument credit losses june 2016 fasb issued asu 201613 financial instrumentscredit losses asu 201613 asu 201613 amends current financial instrument impairment model requiring entities use forwardlooking approach based expected losses estimate credit losses certain types financial instruments including trade receivables gartner adopted asu 201613 january 1 2020 concluded adoption asu 201613 material impact companys consolidated financial statements however certain enhanced disclosures required standard provided companys form 10q filing quarterly period ending march 31 2020 accounting standard effective 2021 simplifying accounting income taxes december 2019 fasb issued asu 201912 income taxessimplifying accounting income taxes asu 201912 asu 201912 provides new guidance simplify accounting income taxes certain areas changes accounting select income tax transactions makes minor asc improvements asu 201912 effective gartner january 1 2021 including interim periods year adoption early adoption permitted method adoption varies depending component new rule adopted currently evaluating potential impact asu 201912 consolidated financial statements 2 acquisitions divestitures acquisitions year ended december 31 2019 october 1 2019 company acquired 100 outstanding membership interests topo research llc topo privatelyheld company based redwood city california 250 million topo subscriptionbased research advisory business acquisition topo expanded market presence product offerings business opportunities cash flow reporting purposes company paid 237 million cash topo considering cash acquired business certain purchase price adjustments closing addition purchase price company may also required pay 65 million cash future based continuing employment certain key employees amount recognized compensation expense two years reported acquisition integration charges consolidated statements operations december 31 2019 allocation purchase price topo acquisition preliminary respect certain tax matters finalization working capital adjustments table summarizes preliminary purchase price allocation based fair value assets acquired liabilities assumed thousands 1 believe recorded goodwill supported anticipated synergies resulting acquisition recorded goodwill expected deductible tax purposes 2 acquired finitelived intangible assets primarily consisted customer relationships content amortized 6 years 15 years respectively determine fair values acquired intangible assets primarily relied income valuation methodologies particular discounted cash flow models operating results acquired topo business related goodwill reported part companys research conferences segments operating results topo included companys consolidated financial statements since date acquisition however operating results material companys consolidated operating results segment results company acquired topo prior periods impact companys operating results would material result pro forma financial information prior periods presented herein 2019 company also paid 23 million restricted cash deferred consideration 2017 acquisition year ended december 31 2018 although company complete business acquisitions 2018 paid 159 million restricted cash year deferred consideration 2017 acquisition year ended december 31 2017 ceb inc ceb april 5 2017 company acquired 100 outstanding capital stock ceb aggregate purchase price 35 billion consideration transferred gartner included approximately 27 billion cash gartner common shares fair value 8187 million ceb publiclytraded company headquartered arlington virginia approximately 4900 employees cebs primary business serve leading provider subscriptionbased best practice research analysis focusing human resources sales finance legal ceb served executives professionals corporate middle market institutions 70 countries l2 inc l2 march 9 2017 company acquired 100 outstanding capital stock l2 privatelyheld company based new york city 150 employees aggregate purchase price 1342 million l2 subscriptionbased research business benchmarks digital performance brands total consideration transferred table summarizes aggregate consideration transferred companys acquisitions 2017 thousands 1 includes total consideration transferred 100 outstanding capital stock acquired businesses 2 cash paid close represents gross contractual amount paid company paid additional 125 million cash third quarter 2017 net cash acquired cash flow reporting purposes company paid total approximately 264 billion cash acquisitions 2017 3 company borrowed total approximately 28 billion conjunction ceb acquisition see note 6 debt additional information 4 consists fair value gartner common stock issued ii stockbased compensation replacement awards part consideration ceb acquisition company issued approximately 74 million shares common stock fair value 10965 per common share fair value companys common stock determined based average high low prices common stock reported new york stock exchange april 5 2017 date acquisition allocation purchase price table summarizes allocation aggregate purchase price ceb l2 acquisitions fair value assets acquired liabilities assumed thousands 1 company believes goodwill resulting ceb l2 acquisitions supportable based synergies anticipated prior respective closing dates ceb among factors contributing anticipated synergies broader market presence expanded product offerings market opportunities acceleration cebs growth leveraging gartners global infrastructure best practices sales productivity areas none goodwill deductible tax purposes 2 acquired intangible assets finitelived determination fair values intangible assets required judgment consideration number factors determining fair values management primarily relied income valuation methodologies particular discounted cash flow models discounted cash flow models required use certain estimates including projected cash flows related asset evaluated useful lives affected assets selection royalty discount rates used models certain published industry benchmark data establishing estimated useful lives finitelived intangible assets company relied internallygenerated data similar assets well certain published industry benchmark data believe values assigned finitelived intangible assets reasonable supportable 3 companys consolidated financial statements include operating results ceb beginning april 5 2017 date acquisition cebs operating results related goodwill reported part companys research conferences segments company acquired ceb prior periods impact companys operating results would material company acquired ceb january 1 2016 pro forma consolidated financial results 2017 would approximated amounts shown table thousands except per share data pro forma results prepared accordance us gaap include following pro forma adjustments increase interest expense amortization debt issuance costs related financing ceb acquisition note 6 debt provides information regarding companys borrowings related ceb acquisition b change revenue result required fair value adjustment deferred revenue c adjustment additional depreciation amortization expense result purchase price allocation finitelived intangible assets property equipment leasehold improvements 4 companys consolidated financial statements include operating results l2 beginning march 9 2017 date acquisition l2s operating results related goodwill reported part companys research segment 2017 l2s operating results material companys consolidated operating results segment results company acquired l2 prior periods impact companys operating results would material result pro forma prior period financial information l2 presented herein acquisition integration charges company recognized 95 million 1072 million 1585 million acquisition integration charges 2019 2018 2017 respectively acquisition integration charges reflect additional costs expenses resulting acquisitions include among items professional fees severance stockbased compensation charges 2018 2017 charges included 583 million 131 million exit costs certain acquisitionrelated office space arlington virginia company occupy company recorded exit costs facilities 2019 table presents summary activity related accrual exit costs facilities 2018 2017 thousands 1 adoption asu 201602 january 1 2019 accrual exit costs reclassified offset companys rightofuse assets present value remaining lease payments recorded operating lease liability moreover new exit cost activities 2019 note 1 business significant accounting policies note 7 leases provide additional information regarding companys leases adoption asu 201602 2 2018 company recognized 75 million expense changes original estimates exit cost obligations corresponding amount 2017 benefit 101 million 3 december 31 2018 aggregate expensed 829 million net cash outlays 262 million related exit cost activities facilities divestitures 2018 company completed divestitures three noncore businesses comprising segment acquired ceb acquisition revenue divested operations approximately 973 million 1657 million 2018 2017 respectively gross contribution 605 million 865 million respectively company used cash proceeds divestitures pay debt additional information regarding segment divestitures provided ceb challenger training business august 31 2018 company sold ceb challenger training business 1191 million realized approximately 1160 million cash net working capital adjustments certain closing costs company recorded pretax gain sale approximately 83 million ceb workforce survey analytics business may 1 2018 company sold ceb workforce survey analytics business 280 million realized approximately 264 million cash net certain closing costs company recorded pretax gain sale approximately 88 million ceb talent assessment business april 3 2018 company sold ceb talent assessment business 4030 million realized approximately 3758 million cash sale net cash transferred business certain closing costs company recorded pretax gain approximately 155 million sale asset sales 2018 company also received 86 million cash proceeds well consideration recorded net pretax gain approximately 128 million sale certain noncore assets originally acquired ceb transaction amounts include sale small research segment product called metrics matter october 31 2018 3 goodwill intangible assets goodwill table presents changes carrying amount goodwill segment twoyear period ended december 31 2019 thousands 1 company accumulated goodwill impairment losses goodwill balance december 31 2017 excludes certain amounts related heldforsale operations 2 represents amounts related divested businesses see note 2 acquisitions divestitures additional information 3 includes foreign currency translation impact certain measurement period adjustments related acquisition ceb see note 2 acquisitions divestitures additional information 4 2019 additions due acquisition topo see note 2 acquisitions divestitures additional information finitelived intangible assets changes finitelived intangible assets twoyear period ended december 31 2019 presented tables thousands 1 2019 additions due acquisition topo see note 2 acquisitions divestitures additional information 2 finitelived intangible assets amortized using straightline method following periods customer relationships4 13 years software3 7 years content15 4 years 2 11 years 3 excludes certain amounts related heldforsale operations 4 represents amounts related divested businesses see note 2 acquisitions divestitures additional information 5 includes foreign currency translation impact certain adjustments amortization expense related finitelived intangible assets 1297 million 1870 million 1763 million 2019 2018 2017 respectively estimated future amortization expense year finitelived intangible assets presented table thousands 4 assets companys assets summarized table thousands 5 accounts payable accrued liabilities companys accounts payable accrued liabilities summarized table thousands 1 note 1 business significant accounting policies note 7 leases provide additional information regarding companys leases certain changes lease accounting effective january 1 2019 companys liabilities summarized table thousands 1 adoption asu 201602 january 1 2019 accrual leaserelated matters reclassified offset companys rightofuse assets present value remaining lease payments recorded operating lease liability note 1 business significant accounting policies note 7 leases provide additional information regarding companys leases adoption asu 201602 6 debt 2016 credit agreement company entered term loan revolving credit facility june 17 2016 credit agreement discussed 2016 credit agreement amended 2017 connection acquisition ceb 2016 credit agreement amended provided 15 billion term loan facility 5000 million term loan b facility 12 billion revolving credit facility 2016 credit agreement contains certain customary restrictive loan covenants including among others financial covenants apply maximum leverage ratio minimum interest expense coverage ratio covenants limiting gartner’s ability incur indebtedness grant liens make acquisitions merge dispose assets pay dividends repurchase stock make investments enter certain transactions affiliates company full compliance covenants december 31 2019 2017 company borrowed approximately 28 billion ceb acquisition company borrowed 1675 billion 2016 credit agreement consisted 9000 million increased term loan facility 5000 million new term loan b facility 2750 million existing revolving credit facility 1675 billion drawn 2016 credit agreement along funds raised issuance 8000 million senior notes due 2025 3000 million 364day bridge credit facility used fund ceb acquisition related costs funds borrowed 364day bridge credit facility completely repaid 2017 borrowings term loan b facility completely repaid 2018 january 20 2017 company entered first amendment 2016 credit agreement entered permit acquisition ceb incurrence additional debt finance part acquisition repay certain debt ceb modify certain covenants march 20 2017 company entered second amendment 2016 credit agreement second amendment also entered connection acquisition ceb executed primarily extend maturity date term loan facility revolving credit facility march 20 2022 revise interest rate amortization schedule april 5 2017 conjunction closing ceb acquisition company entered third amendment 2016 credit agreement increased aggregate principal amount existing term loan facility 9000 million added term loan b facility aggregate principal amount 5000 million term loan facility repaid 16 consecutive quarterly installments commenced june 30 2017 plus final payment made march 20 2022 revolving credit facility may borrowed repaid reborrowed march 20 2022 time thenoutstanding amounts must repaid amounts borrowed term loan facility revolving credit facility bear interest rate equal companys option either greatest x administrative agent’s prime rate calculated new york federal reserve bank federal funds transactions plus 12 1 z eurodollar rate adjusted statutory reserves plus 1 case plus margin equal 0125 150 depending gartner’s consolidated leverage ratio end four consecutive fiscal quarters recently ended ii eurodollar rate adjusted statutory reserves plus margin equal 1125 250 depending gartner’s consolidated leverage ratio end four consecutive fiscal quarters recently ended 2018 company repaid entire 4963 million outstanding term loan b facility term loan b facility scheduled mature april 5 2024 amounts outstanding thereunder bore interest rate per annum equal option gartner adjusted libor plus 200 ii alternate base rate plus 100 364day bridge credit facility april 5 2017 company entered senior unsecured 364day bridge credit facility aggregate principal amount 3000 million immediately drawn fund portion purchase price associated ceb acquisition company repaid entire 3000 million 364day bridge credit facility 2017 senior notes march 30 2017 company issued 8000 million aggregate principal amount 5125 senior notes due 2025 “senior notes” proceeds senior notes used fund portion purchase price associated ceb acquisition senior notes issued issue price 1000 bear interest fixed rate 5125 per annum interest senior notes payable april 1 october 1 year senior notes mature april 1 2025 company may redeem senior notes time april 1 2020 cash redemption prices set forth note indenture plus accrued unpaid interest including redemption date prior april 1 2020 company may redeem 40 aggregate principal amount senior notes proceeds certain equity offerings redemption price 105125 plus accrued unpaid interest including redemption date addition company may redeem senior notes prior april 1 2020 redemption price 100 principal amount senior notes plus accrued unpaid interest including redemption date plus “makewhole” premium company experiences certain kinds changes control required offer purchase senior notes price equal 101 principal amount thereof plus accrued unpaid interest senior notes company’s general unsecured senior obligations effectively subordinated company’s existing future secured indebtedness extent value collateral securing indebtedness structurally subordinated existing future indebtedness liabilities company’s nonguarantor subsidiaries equal right payment company’s company’s guarantor subsidiaries’ existing future senior indebtedness senior right payment company’s future subordinated indebtedness outstanding borrowings table summarizes company’s total outstanding borrowings dates indicated thousands 1 contractual annualized interest rate december 31 2019 term loan facility revolving credit facility 330 consisted floating eurodollar base rate 180 plus margin 150 however company interest rate swap contracts effectively convert floating eurodollar base rates outstanding amounts fixed base rate 2 company approximately 10 billion available borrowing capacity revolver including expansion feature december 31 2019 3 consists 8000 million principal amount senior notes outstanding senior notes bear interest fixed rate 5125 mature april 1 2025 4 consists two state connecticut economic development loans december 31 2019 one loans originated 2012 10year maturity outstanding balance 15 million december 31 2019 bears interest fixed rate 300 connection expansion project stamford connecticut headquarters company borrowed 50 million 2019 financial assistance program offered state connecticut second loan 10year maturity bears interest fixed rate 175 principal interest payments deferred first seven years loan provision whereby 50 million principal may forgiven company meets certain employment targets state connecticut first five years loan loans may repaid time company without penalty 5 weighted average annual effective rate companys outstanding debt 2019 including effects interest rate swaps discussed 411 6 contractual due dates principal amounts year companys outstanding debt december 31 2019 follows 1397 million 2020 376 million 2021 12 billion 2022 8000 million 2025 50 million thereafter 7 deferred financing fees amortized interest expense term related debt obligation company wrote approximately 69 million deferred financing fees 2018 related repayment term loan b facility 2017 company paid 512 million deferred financing fees recorded charge approximately 61 million writeoff deferred financing fees related prior financing arrangement interest rate swaps december 31 2019 company four fixedforfloating interest rate swap contracts total notional value 14 billion mature 2025 company designates swaps accounting hedges forecasted interest payments 14 billion variablerate borrowings company pays base fixed rates swaps ranging 213 304 return receives floating eurodollar base rate 30day notional borrowings company accounts interest rate swap contracts cash flow hedges accordance fasb asc topic 815 swaps hedge forecasted interest payments changes fair values swaps recorded accumulated comprehensive income loss component stockholders equity long swaps continue highly effective hedges designated interest rate risk ineffective portion change fair value hedge recorded earnings companys interest rate swaps considered highly effective hedges forecasted interest payments december 31 2019 2018 interest rate swaps net negative unrealized fair values liabilities 648 million 107 million december 31 2019 2018 respectively amounts deferred recorded accumulated comprehensive loss net tax effect see note 14 fair value disclosures determination fair values companys interest rate swaps 7 leases discussed note 1 business significant accounting policies company adopted asu 201602 january 1 2019 using modified retrospective approach elected use optional transition method available asu 201602 record required cumulative effect adjustments opening balance sheet period adoption rather earliest comparative period presented companys historical consolidated financial statements restated asc topic 840 us gaap lease accounting standard asu 201602 lease arrangements met certain criteria considered operating leases recorded entitys balance sheet prior january 1 2019 december 31 2019 company’s lease arrangements accounted operating leases adoption asu 201602 january 1 2019 material impact company’s consolidated balance sheet due recognition rightofuse assets 6519 million related lease liabilities 8513 million company’s adoption asu 201602 resulted net increase 6387 million total assets total liabilities adoption new lease standard affect stockholders’ equity connection adoption asu 201602 elected use certain practical expedients new lease standard made elections impact companys lease accounting elected use practical expedients connection adoption asu 201602 among things simplified adoption new lease standard streamlined internal processes minimized associated costs critical practical expedients accounting policy elections used company classes leases accounted asu 201602 follows • existing contracts reassessed determine contained leases • existing leases reassessed determine classification changed • initial direct costs existing leases reassessed • lease components nonlease components eg common area maintenance charges etc lease arrangement accounted single lease component purposes recognition measurement requirements asu 201602 • incremental borrowing rate used purpose measuring lease liabilities derived reference related lease’s remaining minimum payments remaining lease term date adopting new lease standard used incremental borrowing rates unable determine implicit interest rates leases leasing activities company’s leasing activities primarily facilities cancelable noncancelable lease agreements expiring 2020 2038 facilities support executive administrative activities research consulting sales systems support operations functions company also leases office equipment assets significant certain companys lease agreements include renewal options extend lease term ten years andor ii options terminate agreement within one year additionally certain company’s lease agreements provide standard recurring escalations lease payments among things increases lessor’s maintenance costs taxes lease agreements company may entitled allowances free rent lessorfinanced tenant improvements incentives company’s lease agreements contain material residual value guarantees material restrictive covenants prior january 1 2019 company recognized lease expense accordance asc topic 840 asu 201602 asc topic 840 generally recognize operating lease expense straightline basis term lease arrangement company operating lease arrangements lease expense recognition patterns two accounting methodologies 2019 2018 2017 substantively except lease arrangements pertaining facilities operating lease activity material operating leases office equipment assets collectively “other leases” recognized measured relevant provisions asu 201602 ii excluded rightofuse assets related lease liabilities consolidated balance sheet december 31 2019 iii excluded quantitative disclosures provided disclosures heading lease disclosures asc topic 840 leases accounted similar guidance operating leases asc topic 840 generally recognizes lease expense straightline basis term lease arrangement result impact excluding leases requirements asu 201602 significant company subleases certain office space intend occupy sublease arrangements expire 2020 2032 primarily relate facilities arlington virginia certain company’s sublease agreements include renewal termination options ii provide customary escalations lease payments normal course business iii grant subtenant certain allowances free rent gartnerfinanced tenant improvements incentives lease accounting asu 201602 asu 201602 lease contract agreement part another arrangement two parties inception creates enforceable rights obligations conveys right control use identified property plant equipment period time exchange consideration rightofuse assets represent right use underlying asset lease term related lease liability represents obligation make lease payments pursuant contractual terms lease agreement rightofuse assets lease liabilities initially recognized lease commencement date based present value lease payments lease term facilities leases account lease components nonlease components eg common area maintenance charges etc single lease component determining present value lease payments variable lease payments dependent index rate excluded determination rightofuse assets lease liabilities payments recognized expense period related obligation incurred company’s lease agreements provide implicit interest rates instead company uses incremental borrowing rate determined lease commencement date calculate present value future lease payments incremental borrowing rate calculated individual lease represents rate interest company would pay borrow collateralized basis currency lease denominated similar term amount equal lease payments similar economic environment rightofuse assets also include initial direct costs incurred company lease payments made lessor related lease commencement date less lease incentives received directly lessor certain company’s facility lease agreements include options extend terminate lease reasonably certain company exercise renewal termination option present value lease payments affected lease adjusted accordingly leases term twelve months less accounted manner longterm lease arrangements including related disclosures lease expense operating leases generally recognized straightline basis lease term unless related rightofuse asset previously impaired existing sublease arrangements classified operating leases sublease income recognized straightline basis term sublease arrangement measure company’s periodic sublease income elected use practical expedient asu 201602 aggregate nonlease components related lease components timing pattern transfer nonlease components related lease components ii lease components accounted separately would classified operating lease practical expedient applies existing sublease arrangements projected lease cost term sublease exceeds anticipated sublease income period treat circumstance indicator carrying amount related rightofuse asset may fully recoverable situations perform impairment analysis indicated record charge earnings reduce rightofuse asset amount deemed recoverable future rightofuse asset impairments 2019 consolidated balance sheet december 31 2019 rightofuse assets classified reported operating lease rightofuse assets related lease liabilities included accounts payable accrued liabilities current operating lease liabilities longterm consolidated statement cash flows 2019 reduction carrying amount rightofuse assets presented separately change operating lease liabilities included accounts payable accrued liabilities reconciliation net income cash provided operating activities lease disclosures asu 201602 company’s leasing subleasing activity 2019 recognized selling general administrative expense consolidated statements operations table presents company’s net lease cost certain information related leasing activities year ended december 31 2019 dollars thousands 1 included operating lease cost 432 million costs subleasing activities 2019 2 amounts primarily variable lease nonlease costs fixed lease commencement date dependent something index rate 3 company capitalize operating lease costs 2019 december 31 2019 maturities operating lease liabilities noncancelable arrangements ii estimated future sublease cash receipts noncancelable arrangements follows thousands 1 approximately 82 operating lease payments pertain properties united states table indicates discounted operating lease payments table classified consolidated balance sheet december 31 2019 thousands december 31 2019 company additional operating leases facilities yet commenced operating leases aggregated 502 million undiscounted lease payments scheduled commence 2020 2021 lease terms ten years lease disclosures asc topic 840 based companys selected method adoption asu 201602 disclosures presented asc topic 840 required herein december 31 2018 future minimum annual cash payments noncancelable operating lease agreements facilities office equipment assets expired 2019 2038 follows thousands 1 excludes approximately 3720 million sublease income companys operating lease expense asc topic 840 facilities office equipment assets 935 million 879 million 2018 2017 respectively cost operating leases including contractual rent increases rent concessions landlord incentives recognized ratably life related lease agreement 8 stockholders’ equity common stock holders gartner’s common stock par value 00005 per share entitled one vote per share matters voted stockholders company currently pay cash dividends common stock also 2016 credit agreement contains negative covenant may limit ability pay dividends table summarizes transactions relating companys common stock three years ended december 31 2019 1 note 2 acquisitions divestitures provides additional information regarding ceb acquisition 2 company used total 1990 million 2608 million 413 million cash share repurchases 2019 2018 2017 respectively 3 number shares repurchased 2018 included shares repurchased december 2018 settled january 2019 additionally shares repurchased 2019 included shares repurchased december 2019 settled january 2020 share repurchase authorization company 12 billion board authorization repurchase common stock 07 billion remained available december 31 2019 company may repurchase common stock timetotime amounts prices manner company deems appropriate subject availability stock prevailing market conditions trading price stock company’s financial performance conditions repurchases may made open market purchases may include repurchase plans designed comply rule 10b51 securities exchange act 1934 amended accelerated share repurchases private transactions funded cash hand borrowings accumulated comprehensive income loss net aocil tables provide information changes aocil component related amounts reclassified aocil income years indicated net tax thousands 1 year ended december 31 2019 year ended december 31 2018 1 amounts parentheses represent debits deferred losses 2 reclassifications related interest rate swaps cash flow hedges recorded interest expense net tax effect see note 6 debt note 13 derivatives hedging information regarding cash flow hedges 3 reclassifications related defined benefit pension plans primarily recorded selling general administrative expense net tax effect see note 15 employee benefits information regarding company’s defined benefit pension plans 4 see note 1 business significant accounting policies additional information regarding companys adoption asu 201802 5 reclassification related foreign currency translation adjustments 2018 recorded loss gain divested operations see note 2 acquisitions divestitures information regarding divestitures 2018 9 revenue related matters discussed note 1 business significant accounting policies company adopted asu 201409 january 1 2018 asu 201409 intended clarify principles recognizing revenue removing inconsistencies weaknesses previously existing revenue recognition rules provide robust framework addressing revenue recognition issues improve comparability revenue recognition practices across entities industries jurisdictions capital markets provide useful information users financial statements improved disclosures adoption asu 201409 material impact companys consolidated financial statements however new accounting standard requires significantly expanded disclosures around nature amount timing uncertainty revenue cash flows arising contracts customers disclosures provided additionally companys accounting policies updated reflect adoption asu 201409 business revenues gartner delivers products services globally three business segments research conferences consulting revenues business segments discussed research provides trusted objective insights advice missioncritical priorities leaders across functional areas enterprise reports briefings proprietary tools access research experts peer networking services membership programs enable clients drive organizational performance research revenues mainly derived subscription contracts research products representing approximately 90 segment’s revenue related revenues deferred recognized ratably applicable contract term ie provide services contract period fees derived assisting organizations selecting right business software needs recognized point time ie lead provided vendor company enters subscription contracts research products generally twelvemonth periods longer approximately 80 85 annual multiyear research subscription contracts provide billing first full service period upon signing subsequent years multiyear subscription contracts normally billed prior contract’s anniversary date research subscription contracts usually invoiced advance commencing contract signing quarterly monthly recurring basis ii accordance customized invoicing schedule research contracts generally noncancelable nonrefundable except government contracts may cancellation fiscal funding clauses historically resulted material cancellations policy record amount subscription contract billable fee receivable time contract signed corresponding amount deferred revenue contract represents legally enforceable claim conferences provides business professionals across organization opportunity learn share network gartner symposiumxpo series industryleading conferences focused specific business roles topics peerdriven sessions offerings enable attendees experience best gartner insight advice live earn revenues attendees exhibitors conferences meetings attendees generally invoiced full attendance fee upon completion online registration form signing contract exhibitors typically make several individual payments commencing signing contract collect almost invoiced amounts advance related activity resulting recording deferred revenue recognize attendee exhibitor revenue satisfy related performance obligations ie related activity held company defers certain costs directly related specific conferences meetings expenses costs period related activity occurs companys policy defer costs incremental directly attributable specific activity primarily prepaid site production services costs organizing producing conference activities primarily company personnel nonconference specific expenses expensed period incurred consulting combines power gartner marketleading research custom analysis ontheground support help chief information officers senior executives driving technologyrelated strategic initiatives move confidently insight action consulting revenues primarily derived custom consulting measurement services principally generated fixed fee time materials engagements revenues fixed fee engagements recognized work satisfy performance obligations revenues time materials engagements recognized work delivered andor services provided circumstances satisfy performance obligations control services passed customers time ie duration contract consulting engagement contractbycontract basis typically use actual labor hours incurred compared total expected labor hours measure company’s performance respect fixed fee engagements labor costs individual contract expected exceed total contract value contract’s funded ceiling amount company reflects adjustment contract’s overall profitability period determined revenues related contract optimization engagements contingent nature recognized point time conditions related payment satisfied consulting customers invoiced based specific terms conditions underlying contracts typically invoice consulting customers satisfied related performance obligations related revenue recognized record fees receivable amounts billed billable also record contract assets represent amounts recognized revenue lack unconditional right payment balance sheet date due required continued performance relevant contract progress billing milestones billingrelated restrictions general overview asu 201409 adoption asu 201409 requires fivestep evaluative process consists following 1 identifying contract customer 2 identifying performance obligations contract 3 determining transaction price contract 4 allocating transaction price performance obligations contract 5 recognizing revenue performance obligations satisfied company adopted asu 201409 using modified retrospective method adoption approach cumulative effect applying new accounting standard recorded date initial application restatement comparative prior periods presented companys adoption asu 201409 result cumulative effect adjustment accumulated earnings however adoption new accounting standard required certain changes presentation company’s consolidated balance sheet including reclassification refund liability aggregated 62 million january 1 2018 allowance fees receivable accounts payable accrued liabilities related adoption asu 201409 elected apply provisions new accounting standard contracts completed date initial application ii utilize practical expedient whereby reflected aggregate effect contract modifications occurred prior january 1 2018 rather retrospectively restating affected contracts identifying satisfied unsatisfied performance obligations determining transaction prices customers allocating transaction prices satisfied unsatisfied performance obligations two elections financial impact prior january 1 2018 company recognized revenue accordance thenexisting us gaap sec staff accounting bulletin 104 revenue recognition collectively “prior gaap” asu 201409 prior gaap revenue recognized required criteria met although certain changes company’s revenue recognition policies procedures effective january 1 2018 adoption asu 201409 material differences pattern timing revenue recognition asu 201409 prior gaap asu 201409 requires assess inception promises customer contract determine promise separate performance obligation identify performance obligations consider services promised customer contract regardless whether explicitly stated implied customary business practices conclude service separately identifiable distinct offerings contract account separate performance obligation customer contract one performance obligation total contract consideration allocated among separate deliverables based standalone selling prices determined based prices company discretely sells standalone services contract includes discount pricing concession transaction price allocated among performance obligations proportionate basis using relative standalone selling prices individual deliverables transferred customer unless discount pricing concession ascribed specifically identifiable performance obligations contracts customers delineate final terms conditions underlying arrangements including product descriptions subscription periods deliverables quantities price service purchased since transaction price almost customer contracts typically agreed upon upfront generally fluctuate duration contract variable consideration insignificant company may engage certain financing transactions customers arrangements limited number material consolidated statements operations present revenue net sales valueadded taxes collect customers remit government authorities disaggregated revenue disaggregated revenue reportable segment presented tables years indicated thousands primary geographic market 1 2 year ended december 31 2019 year ended december 31 2018 year ended december 31 2017 1 revenue reported based sale fulfilled 2 2018 company divested noncore businesses comprised segment moved small residual product segment research business result operating activity recorded segment 2019 note 2 acquisitions divestitures provides additional information regarding companys 2018 divestitures company’s revenue generated primarily direct sales clients domestic international sales forces network independent international sales agents company’s products services provided integrated worldwide basis integrated delivery approach practical precisely separate revenue geographic location accordingly revenue information presented tables based internal allocations involve certain management estimates judgments timing revenue recognition 1 year ended december 31 2019 year ended december 31 2018 year ended december 31 2017 1 2018 company divested noncore businesses comprised segment moved small residual product segment research business result operating activity recorded segment 2019 note 2 acquisitions divestitures provides additional information regarding companys 2018 divestitures 2 research revenues recognized connection performance obligations satisfied time using timeelapsed output method measure progress consulting revenues recognized time using labor hours input measurement basis 2018 2017 revenues recognized using either timeelapsed output method performancebased milestone approach labor hours depending nature underlying customer contract 3 revenues category recognized connection performance obligations satisfied point time contractual deliverables provided customer determining measure progress performance obligations satisfied time control transfers performance obligations satisfied point time requires us make judgments affect timing revenue recognized key factor determination customer direct use obtain substantially benefits deliverable performance obligations recognized accordance timeelapsed output method company’s efforts expended consistently throughout contractual period company transfers control evenly providing standready services performance obligations satisfied consulting fixed fee time materials engagements believe labor hours best measure depicting company’s progress labor output corresponds directly value company’s performance date control transferred segment selected method assess completion performance obligations best aligned specific characteristics individual customer contract believe methods measure progress reasonable supportable ii provide faithful depiction transfer products services customers customer contracts greater one year duration aggregate amount transaction price allocated performance obligations unsatisfied partially unsatisfied december 31 2019 approximately 32 billion company expects recognize 19426 million 10286 million 2200 million revenue pertains research year ending december 31 2020 year ending december 31 2021 thereafter respectively company applies practical expedient allowed asu 201409 accordingly disclose performance obligation information customer contracts original durations one year less performance obligations contracts meeting asu 201409 disclosure exclusion primarily include standready services research subscription contracts ii holding conferences meetings attendees exhibitors participate iii providing customized consulting solutions clients fixed fee time materials engagements remaining duration performance obligations generally less one year aligns period parties enforceable rights obligations affected contracts customer contract assets liabilities payment terms conditions customer contracts vary cases customers prepay cases conduct credit evaluation payment may due arrears timing delivery services typically differs timing customer payments company recognizes either contract asset perform either fully partially contract contingency remains contract liability upfront customer payments precede performance resulting deferred revenue amounts recorded contract assets reclassified fees receivable outstanding conditions resolved right payment becomes unconditional contracts payments due arrears also recognized fees receivable contractual performance obligations satisfied company correspondingly relieves contract liabilities records associated revenue table provides information regarding certain company’s balance sheet accounts pertain contracts customers thousands 1 fees receivable represent unconditional right payment customers include billed unbilled amounts 2 contract assets represent recognized revenue unconditional right payment balance sheet date project may subject progress billing milestone billing restriction 3 deferred revenues represent amounts company received upfront customer payment ii pertain recognized fees receivable situations occur completion performance obligations company recognized revenue 14369 million 12878 million 2019 2018 respectively attributable deferred revenues recorded beginning year amounts primarily consisted research revenues 2018 revenues recognized ratably control goods services passed customer ii conferences revenue pertaining conferences meetings occurred reporting periods 2019 2018 company record material impairments related contract assets company typically recognize revenue performance obligations satisfied prior periods revenue reserve company maintains revenue reserve amounts deemed uncollectible reasons bad debt revenue reserve classified part accounts payable accrued liabilities consolidated balance sheet provisions revenue reserve recorded adjustments revenue determining amount revenue reserve company uses expectedvalue method based current estimates portfolio data historical experience due common characteristics similar attributes customers contracts provide relevant predictive evidence projected future liability expectedvalue method reasonable appropriate however determination revenue reserve inherently judgmental requires use certain estimates changes estimates recorded period identified december 31 2019 2018 revenue reserve balance 78 million 74 million respectively adjustments account 2019 2018 significant costs obtaining fulfilling customer contract company concludes liability recognized costs obtaining customer contract determines liability measured certain commissions capitalized recoverable direct incremental cost obtaining underlying contract amounts capitalized cost obtaining fulfilling customer contract expenditures identified meet requisite capitalization criteria research consulting amortize deferred commissions systematic basis aligns transfer customers services commissions relate conferences deferred commissions expensed period related conference meeting occurs 2019 2018 2017 deferred commission amortization expense 3695 million 3048 million 2305 million respectively included selling general administrative expense consolidated statements operations company classifies deferred commissions current asset consolidated balance sheets december 31 2019 2018 costs amortized twelve months following respective balance sheet dates company record material impairments deferred commissions threeyear period ended december 31 2019 10 stockbased compensation company grants stockbased compensation awards incentive employees directors contribute company’s longterm success company currently awards stocksettled stock appreciation rights servicebased performancebased restricted stock units common stock equivalents december 31 2019 company 45 million shares common stock par value 00005 per share common stock available stockbased compensation awards 2014 longterm incentive plan currently company issues treasury shares upon exercise release settlement stockbased compensation awards determining appropriate fair value model calculating fair value stockbased compensation awards requires use certain subjective assumptions including expected life stockbased compensation award common stock price volatility addition determining appropriate periodic stockbased compensation expense requires management estimate likelihood achievement certain performance targets assumptions used calculating fair values stockbased compensation awards related periodic expense represent management’s best estimates involve inherent uncertainties application judgment result circumstances change company deems necessary future modify assumptions made use different assumptions quantity nature company’s stockbased compensation awards changes amount expense may need adjusted future stockbased compensation expense could materially different recorded current year stockbased compensation expense tables summarize companys stockbased compensation expense award type expense category line item years ended december 31 millions 1 includes charges 215 million 194 million 229 million 2019 2018 2017 respectively awards retirementeligible employees awards vest accelerated basis 2 charges result acceleration vesting certain restricted stock units related ceb acquisition ii restricted stock units granted connection ceb integration process december 31 2019 company 849 million total unrecognized stockbased compensation cost expected expensed remaining weighted average service period approximately 23 years stockbased compensation awards disclosures presented provide information regarding company’s stockbased compensation awards classified equity awards accordance fasb asc topic 505 stock appreciation rights stocksettled stock appreciation rights sars permit holder participate appreciation value common stock applicable vesting criteria satisfied sars settled shares common stock upon exercise employee sars vest ratably fouryear service period expire seven years date grant fair value sars award recognized compensation expense straightline basis four years sars awarded company’s executive officers sars exercised number shares common stock issued calculated follows 1 total proceeds exercise sars award calculated closing price common stock reported new york stock exchange date exercise less exercise price sars award multiplied number sars exercised divided 2 closing price common stock date exercise upon exercise company withholds portion shares common stock satisfy statutory tax withholding requirements sars recipients stockholder rights shares common stock issued respect award subject prior satisfaction vesting criteria relating grants table summarizes changes sars outstanding year ended december 31 2019 na applicable 1 december 31 2019 07 million total sars outstanding unvested company expects substantially unvested awards vest future periods 2 december 31 2019 total sars outstanding intrinsic value 589 million date sars vested exercisable intrinsic value 371 million fair value sars award determined date grant using blackscholesmerton valuation model following weighted average assumptions years ended december 31 1 expected dividend yield assumption based companys historical anticipated dividend payouts historically company paid cash dividends common stock 2 determination expected stock price volatility based historical common stock prices implied volatility publicly traded options common stock 3 riskfree interest rate based yield us treasury security maturity similar expected life award 4 expected life represents company’s estimate weighted average period time sars expected outstanding period service inception date expected exercise date restricted stock units restricted stock units rsus give awardee right receive shares common stock vesting conditions met certain restrictions lapse rsu vests entitles awardee one share common stock rsu awardees rights gartner stockholder including voting rights right receive dividends distributions shares released fair value rsu award determined date grant based closing price common stock reported new york stock exchange date servicebased rsus vest ratably four years expensed straightline basis vesting period performancebased rsus subject satisfaction performance service conditions vest ratably four years expensed accelerated basis vesting period table summarizes changes rsus outstanding year ended december 31 2019 1 05 million rsus granted 2019 consisted 02 million performancebased rsus awarded executives 03 million servicebased rsus awarded nonexecutive employees nonmanagement board members performancebased awards include rsus final settlement 2018 grants approximately 01 million rsus representing target amount grant 2019 tied increase gartner’s total contract value year number performancebased rsus 2019 could earned ranged 0 200 target amount actual increase gartner’s total contract value 2019 measured december 31 2019 yielded approximately 142 target amount incremental awards based actual achievement 2019 grant issued 2020 2 company expects substantially rsus outstanding vest future periods 3 december 31 2019 weighted average remaining contractual term rsus outstanding approximately 11 years common stock equivalents common stock equivalents cses convertible common stock cse entitles holder one share common stock members board directors receive directors’ fees cses unless opt receive 50 fees cash generally cses defined term converted shares common stock service director terminates unless director elected accelerated release fair value cse award determined date grant based closing price common stock reported new york stock exchange date cses vest immediately result recorded expense date grant table summarizes changes cses outstanding year ended december 31 2019 employee stock purchase plan company employee stock purchase plan “esp plan” wherein eligible employees permitted purchase shares common stock payroll deductions may exceed 10 employee’s compensation 23750 calendar year price equal 95 closing price common stock reported new york stock exchange end offering period december 31 2019 company 06 million shares available purchase esp plan esp plan considered noncompensatory fasb asc topic 718 result company record stockbased compensation expense employee share purchases company received 176 million 147 million 117 million cash employee share purchases esp plan 2019 2018 2017 respectively 11 computation earnings per share basic earnings per share “eps” computed dividing net income weighted average number shares common stock outstanding period diluted eps reflects potential dilution securities could share earnings impact common stock equivalents antidilutive excluded calculation table sets forth calculation basic diluted income per share years ended december 31 thousands except per share data 1 basic diluted income per share 2019 included tax benefit approximately 042 per share related intercompany sale certain intellectual property additionally basic diluted income per share 2017 included tax benefit approximately 066 per share related us tax cuts jobs act 2017 note 12 income taxes provides information companys income taxes table presents number common stock equivalents included computations diluted income per share table effect would antidilutive years net income common stock equivalents antidilutive exercise prices greater average market price share common stock year number antidilutive common stock equivalents 2018 minimal 12 income taxes summary components companys income loss income taxes years ended december 31 thousands components expense benefit income taxes income loss summarized table thousands components longterm deferred tax assets liabilities summarized table thousands net deferred tax assets net deferred tax liabilities 796 million 1898 million december 31 2019 respectively 345 million 2147 million december 31 2018 respectively amounts reported assets liabilities consolidated balance sheets management concluded likely reversal deferred tax liabilities results future operations generate sufficient taxable income realize deferred tax assets net valuation allowance december 31 2019 valuation allowances 16 million 41 million december 31 2019 2018 respectively primarily related state credit carryovers net operating losses likely realized december 31 2019 company state local tax net operating loss carryforwards 263 million 01 million expires within one five years 03 million expires within six fifteen years 259 million expires within sixteen twenty years company also state tax credits 53 million majority expire five six years december 31 2019 company nonus net operating loss carryforwards 276 million 04 million expires next 20 years 272 million carried forward indefinitely amounts reduced associated unrecognized tax benefits consistent asu 201311 income taxespresentation unrecognized tax benefit net operating loss carryforward similar tax loss tax credit carryforward exists items comprising differences us federal statutory income tax rate company’s effective tax rate income taxes years ended december 31 summarized table april 2019 completed intercompany sale certain intellectual property result company recorded net tax benefit approximately 381 million 2019 represents benefits future tax deductions amortization assets acquiring jurisdiction tax planning related intellectual property ongoing may result tax rate volatility future connection company’s adoption asu 201602 january 1 2019 operating leases recorded consolidated balance sheet december 31 2019 including recognition operating lease liabilities corresponding rightofuse assets corresponding deferred tax assets deferred tax liabilities also recorded net deferred tax impact zero note 1 business significant accounting policies note 7 leases provide additional information regarding companys leases adoption asu 201602 us tax cuts jobs act 2017 act” enacted december 22 2017 among things act reduced us federal corporation tax rate 35 21 required companies pay onetime transition tax accumulated deferred foreign income “adfi” foreign subsidiaries previously tax deferred created new tax global intangible lowtaxed income “gilti” attributable foreign subsidiaries remeasured us deferred tax assets liabilities based rates expected reverse future generally 21 reduced income tax expense 138 million 1232 million 2018 2017 respectively item tax adfi based total post1986 earnings profits ep foreign subsidiaries previously deferred us income taxes increased income tax expense 55 million 84 million 636 million 2019 2018 2017 respectively onetime transition tax liability company utilized significant foreign tax credits net operating loss carryovers reduce transition tax liability remaining tax balance paid full 2019 act also created new tax gilti attributable foreign subsidiaries companies option account gilti tax period cost period incurred recognize deferred taxes temporary differences including outside basis differences expected reverse result gilti provisions company elected account gilti tax period cost period incurred december 31 2019 2018 company gross unrecognized tax benefits 1028 million 903 million respectively increase primarily due positions taken respect intercompany transactions gross unrecognized tax benefits december 31 2019 related primarily transfer pricing intercompany transactions calculations taxable ep related foreign tax credits exclusion stockbased compensation expense company’s cost sharing agreement ability realize certain refund claims reasonably possible gross unrecognized tax benefits decrease approximately 97 million within next twelve months due anticipated closure audits expiration certain statutes limitation included balance gross unrecognized tax benefits december 31 2019 potential benefits 975 million recognized would reduce effective tax rate income continuing operations also included balance gross unrecognized tax benefits december 31 2019 potential benefits 53 million recognized would result adjustments tax accounts primarily deferred taxes table reconciliation beginning ending amounts gross unrecognized tax benefits excluding interest penalties years ended december 31 thousands company accrues interest penalties related gross unrecognized tax benefits income tax provision december 31 2019 2018 company 83 million 67 million respectively accrued interest penalties related gross unrecognized tax benefits amounts addition gross unrecognized tax benefits disclosed total amount interest penalties recognized income tax provision 2019 2018 17 million 07 million respectively number years open statutes limitation varies depending tax jurisdiction company’s statutes open respect us federal jurisdiction 2016 forward india 2003 forward major taxing jurisdictions including us states united kingdom canada japan france ireland companys statutes vary open far back 2010 us gaap provision income taxes may result remittance earnings held overseas required company ability intent indefinitely reinvest funds overseas company continues assert intention reinvest accumulated undistributed foreign earnings nonus operations except instances repatriation earnings would result minimal additional tax consequently company recognized income tax expense would result remittance earnings accumulated undistributed earnings nonus subsidiaries approximately 1420 million december 31 2019 result act income tax would payable earnings indefinitely invested estimated minimal 13 derivatives hedging company enters limited number derivative contracts mitigate cash flow risk associated changes interest rates variablerate debt changes foreign exchange rates forecasted foreign currency transactions company accounts outstanding derivative contracts accordance fasb asc topic 815 requires derivatives including derivatives designated accounting hedges recorded balance sheet fair value tables provide information regarding company’s outstanding derivative contracts dates indicated thousands except number contracts december 31 2019 december 31 2018 1 interest rate swaps designated accounted cash flow hedges forecasted interest payments borrowings result changes fair values swaps deferred recorded aocil net tax effect note 6 debt provides additional information regarding companys interest rate swap contracts 2 company foreign exchange transaction risk typically enters transactions normal course business denominated foreign currencies differ local functional currency company enters shortterm foreign currency forward exchange contracts mitigate cash flow risk associated changes foreign currency rates forecasted foreign currency transactions contracts accounted fair value realized unrealized gains losses recognized income net company designate contracts hedges accounting purposes outstanding foreign currency forward exchange contracts december 31 2019 matured january 31 2020 3 see note 14 fair value disclosures determination fair values instruments december 31 2019 company’s derivative counterparties investment grade financial institutions company collateral arrangements derivative counterparties none derivative contracts contained creditrisk related contingent features table provides information regarding amounts recognized consolidated statements operations derivative contracts years ended december 31 thousands 1 consists interest income expense interest rate swap contracts 2 consists net realized unrealized gains losses foreign currency forward contracts 14 fair value disclosures company’s financial instruments include cash equivalents fees receivable customers accounts payable accrued liabilities normally shortterm nature company believes carrying amounts financial instruments reasonably approximate fair values due shortterm nature company’s financial instruments also include outstanding variablerate borrowings 2016 credit agreement company believes carrying amounts variablerate borrowings reasonably approximate fair values rates interest borrowings reflect current market rates interest similar instruments comparable maturities company enters limited number derivatives transactions enter repurchase agreements securities lending transactions master netting arrangements receivables payables result derivatives transactions recorded gross consolidated balance sheets fasb asc topic 820 provides framework measurement fair value valuation hierarchy based transparency inputs used valuation assets liabilities classification within valuation hierarchy based lowest level input significant resulting fair value measurement valuation hierarchy contains three levels level 1 measurements consist quoted prices active markets identical assets liabilities level 2 measurements include significant observable inputs quoted prices similar assets liabilities active markets identical assets liabilities inactive markets observable inputs interest rates yield curves marketcorroborated inputs level 3 measurements include significant unobservable inputs internallycreated valuation models company currently utilize level 3 valuation inputs remeasure assets liabilities however level 3 inputs may used company required annual impairment review goodwill information regarding periodic assessment company’s goodwill included note 1 business significant accounting policies company typically transfer assets liabilities different levels valuation hierarchy table presents fair value certain financial assets liabilities thousands 1 company deferred compensation plan benefit certain highly compensated officers managers key employees see note 15 employee benefits assets consist investments money market funds mutual funds companyowned life insurance contracts money market funds consist cash equivalents mutual fund investments consist publiclytraded quoted equity shares company considers fair values assets based level 1 inputs assets fair values 23 million 90 million december 31 2019 2018 respectively carrying amounts life insurance contracts equal cash surrender values cash surrender value represents estimated amount company would receive upon termination contract approximates fair value company considers life insurance contracts valued based level 2 inputs assets fair values 734 million 577 million december 31 2019 2018 respectively related deferred compensation plan liabilities recorded fair value estimated amount needed settle liability company considers level 2 input 2 company enters foreign currency forward exchange contracts hedge effects adverse fluctuations foreign currency exchange rates see note 13 derivatives hedging valuation contracts based observable foreign currency exchange rates active markets company considers level 2 input 3 company interest rate swap contracts hedge risk variability interest payments borrowings see note 6 debt fair values interest rate swaps based marktomarket valuations prepared thirdparty broker valuations based observable interest rates recently executed market transactions observable market data company considers level 2 inputs company independently corroborates reasonableness valuations prepared thirdparty broker using electronic quotation service 4 discussed note 6 debt company 8000 million principal amount fixedrate senior notes due 2025 estimated fair value notes derived quoted market prices provided independent dealer company considers level 2 input carrying amount senior notes 7850 million december 31 2019 15 employee benefits defined contribution plans company savings investment plans “401k plans” covering substantially us employees company contributions based level employee contributions maximum 4 employee’s eligible salary subject annual maximum 2019 maximum company match 7200 amounts expensed connection 401k plans totaled 441 million 367 million 298 million 2019 2018 2017 respectively deferred compensation plans company supplemental deferred compensation plans benefit certain highly compensated officers managers key employees plans investment assets recorded fair value assets consolidated balance sheets value assets 757 million 666 million december 31 2019 2018 respectively see note 14 fair value disclosures fair value information related deferred compensation plan liabilities 796 million 686 million december 31 2019 2018 respectively carried fair value adjusted corresponding charge credit compensation expense reflect fair value amount owed employees deferred compensation plan liabilities recorded liabilities consolidated balance sheets compensation expense recognized companys deferred compensation plans 06 million 17 million 04 million 2019 2018 2017 respectively defined benefit pension plans company defined benefit pension plans several international locations benefits earned paid plans generally based years service level employee compensation companys vested benefit obligation actuarial present value vested benefits employee entitled based employees expected date separation retirement companys defined benefit pension plans accounted accordance fasb asc topics 715 960 table presents components companys defined benefit pension plan expense years ended december 31 thousands table presents key assumptions used computation pension expense years ended december 31 1 discount rates typically determined using yields longterm corporate government bonds relevant country duration consistent expected term underlying pension obligations table provides information regarding changes projected benefit obligation companys defined benefit pension plans years ended december 31 thousands 1 actuarial loss 2019 primarily due reduction weighted average discount rate assumption 2 company projects benefit payments made future years directly plan participants follows 16 million 2020 17 million 2021 17 million 2022 22 million 2023 22 million 2024 136 million total five years thereafter 3 measured december 31 tables provide information regarding funded status companys defined benefit pension plans related amounts recorded consolidated balance sheets december 31in thousands 1 pension plan assets held thirdparty trustees invested diversified portfolio equities highquality government corporate bonds investments assets primarily valued based level 1 level 2 inputs fair value hierarchy fasb asc topic 820 majority invested assets considered lowtomedium investment risk company projects future longterm rate return plan assets 204 believes reasonable based composition assets current projected market conditions additional information regarding pension plan asset activity provided 2 funded status shortfall represents amount projected benefit obligation company funded thirdparty trustee liabilities company recorded liabilities consolidated balance sheets 3 deferred actuarial loss december 31 2019 recorded aocil reclassified aocil recognized pension expense approximately 14 years subject certain limitations set forth fasb asc topic 715 impact thereof pension expense projected approximately 05 million additional expense 2020 amortization deferred actuarial losses aocil pension expense years ended december 31 2019 2018 2017 immaterial table provides rollforward companys defined benefit pension plans assets years ended december 31 thousands company also reinsurance asset arrangement large international insurance company intended fund benefit payments one plans reinsurance asset pension plan asset company december 31 2019 2018 reinsurance asset recorded cash surrender value 89 million 90 million respectively recorded assets consolidated balance sheets company believes cash surrender value approximates fair value equivalent level 2 input fasb’s fair value hierarchy fasb asc topic 820 16 segment information products services delivered three segments research conferences consulting described • research provides trusted objective insights advice missioncritical priorities leaders across functional areas enterprise reports briefings proprietary tools access research experts peer networking services membership programs enable clients drive organizational performance • conferences provides business professionals across organization opportunity learn share network gartner symposiumxpo series industryleading conferences focused specific business roles topics peerdriven sessions offerings enable attendees experience best gartner insight advice live • consulting combines power gartner marketleading research custom analysis ontheground support help chief information officers senior executives driving technologyrelated strategic initiatives move confidently insight action company evaluates segment performance allocates resources based gross contribution margin gross contribution presented table defined operating income loss excluding certain cost services product development expenses selling general administrative expenses depreciation amortization intangibles acquisition integration charges certain bonus fringe benefit costs included consolidated cost services product development allocated segment expense accounting policies used reportable segments used company intersegment revenues company identify allocate assets including capital expenditures reportable segment accordingly assets reported segment information available segment reviewed evaluation segment performance making decisions regarding allocation resources company earns revenue clients many countries united states individual country revenues external clients represent 10 company’s consolidated revenues additionally single client accounted 10 company’s consolidated revenues loss single client management’s opinion would material adverse effect revenues tables present information company’s reportable segments years ended december 31 thousands 1 2018 company divested noncore businesses comprised segment moved small residual product segment research business result operating activity recorded segment 2019 note 2 acquisitions divestitures provides additional information regarding companys 2018 divestitures table provides reconciliation total segment gross contribution net income years ended december 31 thousands 1 unallocated amounts consist certain bonus fringe costs recorded consolidated cost services product development allocated segment expense companys policy allocate bonuses segments 100 segment employees target bonus amounts 100 absorbed corporate disaggregated revenue information reportable segment three years ended december 31 2019 presented note 9 revenue related matters longlived asset information geographic location december 31 summarized table thousands 1 excludes goodwill intangible assets dates december 31 2017 heldforsale assets additionally longlived assets december 31 2019 included 7029 million operating lease rightofuse assets note 1 business significant accounting policies note 7 leases provide additional information regarding companys leases certain changes lease accounting effective january 1 2019 17 contingencies legal matters company involved legal proceedings litigation arising ordinary course business record provision pending litigation consolidated financial statements determine unfavorable outcome probable amount loss reasonably estimated believe potential liability excess amounts already accrued proceedings claims litigation material effect financial position cash flows results operations resolved future period indemnifications company various agreements may obligate us indemnify party respect certain matters generally indemnification clauses included contracts arising normal course business customarily agree hold party harmless losses arising breach representations related matters title assets sold licensed certain intellectual property rights possible predict maximum potential amount future payments indemnification agreements due conditional nature company’s obligations unique facts particular agreement historically payments made us agreements material december 31 2019 company material payment obligations indemnification agreements 18 valuation qualifying accounts company maintains allowance losses comprised bad debt allowance december 31 2017 revenue reserve provisions recorded either increase bad debt expense prior 2018 reduction revenues table summarizes activity company’s allowance losses years ended december 31 thousands 1 allowance losses december 31 2017 included 62 million attributable companys revenue reserve result companys adoption asu 201409 january 1 2018 revenue reserve balance included accounts payable accrued liabilities consolidated balance sheets note 9 revenue related matters provides additional information regarding companys adoption asu 201409 item 16 form 10k summary none signatures pursuant requirements securities exchange act 1934 registrant caused report form 10k signed behalf undersigned duly authorized stamford connecticut february 19 2020 power attorney person whose signature appears appoints eugene hall craig w safian acting individually attorneyinfact full power substitution capacities sign amendments report form 10k file appropriate exhibits related documents securities exchange commission undersigned ratifies confirms signatures may signed attorneyinfact amendments report pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicateditem 15 exhibits financial statement schedules 1 2 financial statements schedules reports independent registered public accounting firm financial statements listed index consolidated financial statements herein filed part report financial statement schedules listed index omitted information required applicable shown consolidated financial statements notes thereto 3 exhibits index consolidated financial statements gartner inc subsidiaries consolidated financial statements financial statement schedules omitted information required applicable shown consolidated financial statements notes thereto report independent registered public accounting firm stockholders board directors gartner inc opinion consolidated financial statements audited accompanying consolidated balance sheets gartner inc subsidiaries company december 31 2020 2019 related consolidated statements operations comprehensive income stockholders’ equity cash flows years threeyear period ended december 31 2020 related notes collectively consolidated financial statements opinion consolidated financial statements present fairly material respects financial position company december 31 2020 2019 results operations cash flows years threeyear period ended december 31 2020 conformity us generally accepted accounting principles also audited accordance standards public company accounting oversight board united states pcaob company’s internal control financial reporting december 31 2020 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission report dated february 24 2021 expressed unqualified opinion effectiveness company’s internal control financial reporting change accounting principle discussed note 1 consolidated financial statements company changed method accounting leases january 1 2019 due adoption accounting standards codification asc topic 842 leases basis opinion consolidated financial statements responsibility company’s management responsibility express opinion consolidated financial statements based audits public accounting firm registered pcaob required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audits accordance standards pcaob standards require plan perform audit obtain reasonable assurance whether consolidated financial statements free material misstatement whether due error fraud audits included performing procedures assess risks material misstatement consolidated financial statements whether due error fraud performing procedures respond risks procedures included examining test basis evidence regarding amounts disclosures consolidated financial statements audits also included evaluating accounting principles used significant estimates made management well evaluating overall presentation consolidated financial statements believe audits provide reasonable basis opinion critical audit matter critical audit matter communicated matter arising current period audit consolidated financial statements communicated required communicated audit committee 1 relates accounts disclosures material consolidated financial statements 2 involved especially challenging subjective complex judgments communication critical audit matter alter way opinion consolidated financial statements taken whole communicating critical audit matter providing separate opinion critical audit matter accounts disclosures relates assessment unrecognized tax benefits discussed notes 1 12 consolidated financial statements company recorded gross unrecognized tax benefits 1271 million december 31 2020 discussed note 1 consolidated financial statements company recognizes tax benefit uncertain tax position believes positions likely sustained challenged recognized tax positions measured largest amount benefit greater 50 percent likelihood realized company uses estimates assumptions determining amount unrecognized tax benefits identified assessment unrecognized tax benefits related transfer pricing certain intercompany transactions critical audit matter complex auditor judgment required evaluating company’s interpretation tax law estimate ultimate resolution tax positions following primary procedures performed address critical audit matter evaluated design tested operating effectiveness certain internal controls company’s unrecognized tax benefits process including transfer pricing certain intercompany transactions involved tax transfer pricing professionals specialized skills knowledge assisted assessing unrecognized tax benefits •evaluating company’s interpretation tax laws income tax consequences intercompany transactions including internal restructurings intraentity transfers assets •assessing transfer pricing practices compliance relevant tax laws regulations •analyzing company’s tax positions determination unrecognized tax benefits including associated effect jurisdictions •inspecting settlements applicable taxing authorities addition evaluated company’s ability estimate unrecognized tax benefits comparing historical unrecognized tax benefits actual results upon conclusion examinations applicable taxing authorities kpmg llp served company’s auditor since 1996 new york new york february 24 2021 report independent registered public accounting firm stockholders board directors gartner inc opinion internal control financial reporting audited gartner inc subsidiaries’ company internal control financial reporting december 31 2020 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission opinion company maintained material respects effective internal control financial reporting december 31 2020 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission also audited accordance standards public company accounting oversight board united states pcaob consolidated balance sheets company december 31 2020 2019 related consolidated statements operations comprehensive income stockholders’ equity cash flows years threeyear period ended december 31 2020 related notes collectively consolidated financial statements report dated february 24 2021 expressed unqualified opinion consolidated financial statements basis opinion company’s management responsible maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included accompanying management’s annual report internal control financial reporting responsibility express opinion company’s internal control financial reporting based audit public accounting firm registered pcaob required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audit accordance standards pcaob standards require plan perform audit obtain reasonable assurance whether effective internal control financial reporting maintained material respects audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audit also included performing procedures considered necessary circumstances believe audit provides reasonable basis opinion definition limitations internal control financial reporting company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate kpmg llp new york new york february 24 2021 gartner inc subsidiaries consolidated balance sheets thousands except share data see notes consolidated financial statements gartner inc subsidiaries consolidated statements operations thousands except per share data see notes consolidated financial statements gartner inc subsidiaries consolidated statements comprehensive income thousands see notes consolidated financial statements gartner inc subsidiaries consolidated statements stockholders’ equity thousands see notes consolidated financial statements gartner inc subsidiaries consolidated statements cash flows thousands see notes consolidated financial statements gartner inc subsidiaries notes consolidated financial statements note 1 business significant accounting policies business gartner inc nyse world’s leading research advisory company member sp 500 equip business leaders indispensable insights advice tools achieve missioncritical priorities today build successful organizations tomorrow believe unmatched combination expertled practitionersourced datadriven research steers clients toward right decisions issues matter trusted advisor objective resource 14000 enterprises 100 countries across major functions every industry enterprise size segments gartner delivers products services globally three business segments research conferences consulting note 9 revenue related matters note 16 segment information describe products services offered segments provide additional financial information segments 2018 company divested noncore businesses comprised segment moved small residual product segment research business result operating activity recorded segment 2019 2020 note 2 acquisitions divestitures provides additional information regarding company’s 2018 divestitures basis presentation accompanying consolidated financial statements prepared accordance generally accepted accounting principles united states america “us gaap” defined financial accounting standards board “fasb” accounting standards codification “asc” financial information applicable instructions us securities exchange commission “sec” regulation sx fiscal year gartner twelvemonth period january 1 december 31 references 2020 2019 2018 herein refer fiscal year unless otherwise indicated used notes terms “gartner” “company” “we” “us” “our” refer gartner inc consolidated subsidiaries principles consolidation accompanying consolidated financial statements include accounts company whollyowned subsidiaries significant intercompany transactions balances eliminated use estimates preparation accompanying consolidated financial statements requires management make estimates assumptions future events estimates underlying assumptions affect amounts assets liabilities reported disclosures contingent assets liabilities reported amounts revenues expenses estimates include valuation fees receivable goodwill intangible assets longlived assets well tax accruals liabilities addition estimates used revenue recognition income tax expense benefit performancebased compensation charges depreciation amortization management believes use estimates accompanying consolidated financial statements reasonable management continually evaluates revises estimates using historical experience factors including general economic environment actions may take future management adjusts estimates facts circumstances dictate however estimates may involve significant uncertainties judgments cannot determined precision addition estimates based management’s best judgment point time result differences estimates actual results could material would reflected company’s consolidated financial statements future periods december 2019 novel coronavirus disease “covid19” reported wuhan china march 11 2020 world health organization characterized covid19 pandemic future asset impairment charges increase allowance doubtful accounts restructuring charges could likely negative effects covid19 pandemic continue dependent severity duration crisis date company observed material impairments assets significant change fair value assets due covid19 pandemic business acquisitions company accounts business acquisitions accordance acquisition method accounting prescribed fasb asc topic 805 business combinations acquisition method accounting requires company record assets acquired liabilities assumed based estimated fair values acquisition date certain exceptions excess consideration transferred estimated fair value net assets acquired including identifiable intangible assets recorded goodwill acquisition method operating results acquired companies included company’s consolidated financial statements beginning date acquisition company completed business acquisitions 2019 note 2 acquisitions divestitures provides additional information regarding business acquisitions determination fair values intangible assets acquired acquisition requires management judgment consideration number factors including historical financial performance acquired businesses projected future performance estimates surrounding customer turnover well assumptions regarding level competition costs necessary reproduce certain assets establishing useful lives intangible assets also requires management judgment evaluation number factors including expected use asset historical client retention rates consumer awareness trade name history well contractual provisions could limit extend asset’s useful life charges directly related company’s acquisitions expensed incurred classified acquisition integration charges consolidated statements operations note 2 acquisitions divestitures provides additional information regarding company’s acquisition integration charges revenue recognition january 1 2018 company adopted asc topic 606 revenue contracts customers company’s revenue significant source accounted follows •research revenues mainly derived subscription contracts research products related revenues deferred recognized ratably applicable contract term fees derived assisting organizations selecting right business software needs recognized leads provided vendors •conferences revenues deferred recognized upon completion related conference meeting •consulting revenues principally generated fixed fee time materials engagements revenues fixed fee contracts recognized company works satisfy performance obligations revenues time materials engagements recognized work delivered andor services provided revenues related contract optimization engagements contingent nature recognized upon satisfaction conditions related payment majority company’s research contracts billable upon signing absent special terms granted limited basis time research contracts generally noncancelable nonrefundable except government contracts may cancellation fiscal funding clauses company’s policy record amount subscription contract billable fee receivable time contract signed corresponding amount deferred revenue contract represents legally enforceable claim note 9 revenue related matters provides additional information regarding company’s business revenues allowance losses january 1 2020 company adopted asu 201613 financial instrumentscredit losses prior january 1 2020 company recognized allowance losses bad debts accordance thenexisting us gaap fasb asc topic 310 receivables information regarding company’s accounting credit losses including adoption new accounting standard provided heading “adoption new accounting standards” cost services product development “cos” cos expense includes direct costs incurred creation delivery products services costs primarily relate personnel selling general administrative “sga” sga expense includes direct indirect selling costs general administrative costs facility costs bad debt expense commission expense company records deferred commissions upon signing customer contract amortizes deferred amount period aligns transfer customer services commissions relate note 9 revenue related matters provides additional information regarding deferred commissions amortization costs stockbased compensation expense company accounts stockbased compensation awards accordance fasb asc topics 505 718 sec staff accounting bulletins 107 110 stockbased compensation expense equity awards based fair value award date grant company recognizes stockbased compensation expense period related service performed generally vesting period underlying award forfeitures recognized occur change terms conditions stockbased compensation awards accounted modification award incremental compensation cost measured excess fair value modified award fair value original award immediately terms modified measured based fair value awards modification date vested awards company recognizes incremental compensation cost period modification occurs unvested awards company recognizes incremental compensation expense modification date ratably requisite remaining service period appropriate fair value modified award lower fair value original award immediately modification minimum compensation cost company recognizes cost original award note 10 stockbased compensation provides additional information regarding company’s stockbased compensation activity expense income net 2019 company sold minority equity investment 141 million cash recognized pretax gain 91 million recorded expense income net consolidated statements operations income taxes company uses asset liability method accounting income taxes estimate income taxes jurisdictions operate process involves estimating current tax expense benefit together assessing temporary differences resulting differing treatment items tax accounting purposes differences result deferred tax assets liabilities included consolidated balance sheets assessing realizability deferred tax assets consider likely deferred tax assets realized making assessment consider availability loss carryforwards projected reversals deferred tax liabilities projected future taxable income ongoing prudent feasible tax planning strategies company recognizes tax benefit uncertain tax position likely tax position sustained based technical merits position recognized tax positions measured largest amount benefit greater 50 likelihood realized company uses estimates determining amount unrecognized tax benefits associated uncertain tax positions significant judgment required evaluating tax law measuring benefits likely realized uncertain tax positions periodically reevaluated adjusted information ultimate realization becomes available note 12 income taxes provides additional information regarding company’s income taxes april 1 2018 company early adopted asu 201802 reclassification certain tax effects accumulated comprehensive income “asu 201802” asu 201802 provides entity option reclassify retained earnings tax effects items stranded accumulated comprehensive income result us tax cuts jobs act 2017 “act” gartner elected early adopt asu 201802 beginning second quarter 2018 resulted reclassification 06 million stranded tax amounts related act accumulated comprehensive loss income net accumulated earnings asu 201802 impact company’s operating results 2020 2019 2018 january 1 2018 company adopted asu 201616 intraentity transfers assets inventory “asu 201616” asu 201616 accelerates recognition taxes certain intraentity transactions us gaap previously required deferral income tax implications intercompany sale assets sold third party recovered use asu 201616 seller’s tax effects buyer’s deferred taxes asset transfers immediately recognized upon sale pursuant transition rules asu 201616 taxes attributable pre2018 intraentity transfers previously deferred accelerated recorded accumulated earnings date adoption result certain company’s balance sheet income tax accounts pertaining pre2018 intraentity transfers aggregated 137 million reversed accumulated earnings january 1 2018 additionally accordance new requirements asu 201616 company recorded income tax benefits approximately 283 million 381 million 2020 2019 respectively intercompany sales certain intellectual property ii 68 million 2018 related intraentity transfers upon merger certain foreign subsidiaries future could material impact asu 201616 depending nature size tax consequences intraentity transfers cash equivalents restricted cash equivalents includes cash highly liquid investments original maturities three months less considered cash equivalents carrying value cash equivalents approximates fair value due shortterm maturity instruments investments maturities three months classified marketable securities interest earned recorded interest income consolidated statements operations us gaap requires amounts generally described restricted cash restricted cash equivalents presented cash equivalents reconciling beginningofperiod endofperiod total amounts presented entity’s statement cash flows table presenting beginningofperiod endofperiod cash amounts company’s consolidated balance sheets total cash amounts presented consolidated statements cash flows thousands 1restricted cash consists escrow accounts established connection certain company’s business acquisitions generally cash restricted use due provisions contained underlying stock asset purchase agreement company disburse restricted cash sellers businesses upon satisfaction contingencies described agreements eg potential indemnification claims etc 2restricted cash recorded prepaid expenses current assets company’s consolidated balance sheets shortterm longterm classification dependent projected timing disbursements sellers 3represents cash classified heldforsale asset ceb talent assessment business divested 2018 note 2 acquisitions divestitures provides additional information regarding company’s 2018 divestitures leases january 1 2019 company adopted asc 842 leases using modified retrospective approach asc 842 significantly changed accounting leases rightofuse model used whereby lessee must record rightofuse asset related lease liability balance sheet leases asc 842 leases classified either operating finance arrangements classification affecting pattern expense recognition entity’s income statement operating leases asc 842 requires recognition entity’s income statement single lease cost calculated cost lease allocated lease term generally straightline basis prior january 1 2019 company recognized lease expense accordance thenexisting us gaap fasb asc topic 840 leases “asc topic 840” although significant changes company’s leasing policies procedures effective january 1 2019 adoption asc 842 lease expense recognition patterns asc topic 842 2020 2019 asc topic 840 2018 substantively required new lease standard company’s disclosures regarding leasing activities significantly expanded enable users consolidated financial statements assess amount timing uncertainty cash flows related leases information regarding adoption asc 842 impact company’s consolidated financial statements related disclosures provided note 7 leases property equipment leasehold improvements equipment leasehold improvements fixed assets owned company recorded cost less accumulated depreciation amortization fixed assets leasehold improvements depreciated using straightline method estimated useful life underlying asset leasehold improvements amortized using straightline method shorter estimated useful life improvement remaining term related lease depreciation amortization expense fixed assets 939 million 821 million 686 million 2020 2019 2018 respectively property equipment leasehold improvements net presented table thousands company incurs costs develop internaluse software used operations certain costs meet criteria fasb asc topic 350 intangibles goodwill capitalized amortized future periods net capitalized internaluse software development costs 582 million 557 million december 31 2020 2019 respectively included computer equipment software table amortization expense capitalized internaluse software development costs included depreciation consolidated statements operations totaled 289 million 200 million 132 million 2020 2019 2018 respectively goodwill represents excess purchase price acquired businesses estimated fair values tangible identifiable intangible net assets acquired evaluations recoverability goodwill performed accordance fasb asc topic 350 requires annual assessment potential goodwill impairment reporting unit level whenever events changes circumstances indicate carrying value goodwill may recoverable performing annual assessment recoverability goodwill initially perform qualitative analysis evaluating whether events circumstances occurred exist provide evidence likely fair value reporting units less related carrying amount believe likely fair value reporting units less related carrying amount quantitative impairment test performed however results qualitative assessment indicate likely fair value reporting unit less respective carrying amount perform twostep quantitative impairment test evaluating recoverability goodwill requires judgments assumptions regarding future trends events result precision reliability estimates subject uncertainty recent annual impairment test goodwill qualitative analysis conducted quarter ended september 30 2020 indicated impairment subsequent completing 2020 annual impairment test events changes circumstances noted required interim goodwill impairment test note 3 goodwill intangible assets provides additional information regarding company’s goodwill finitelived intangible assets company finitelived intangible assets amortized using straightline method expected useful life underlying asset note 3 goodwill intangible assets provides additional information regarding company’s finitelived intangible assets impairment longlived assets company’s longlived assets primarily consist intangible assets goodwill property equipment leasehold improvements company reviews longlived asset groups impairment whenever events changes circumstances indicate carrying amount asset group may recoverable evaluation may based number factors including current projected operating results cash flows changes management’s strategic direction well external economic market factors company evaluates recoverability assets asset groups determining whether carrying values recovered undiscounted future operating cash flows events circumstances indicate carrying values might recoverable based undiscounted future operating cash flows impairment loss may recognized amount impairment measured based difference projected discounted future operating cash flows using discount rate reflecting company’s average cost funds carrying value asset group company record impairment charges longlived assets asset groups threeyear period ended december 31 2020 pension obligations company defined benefit pension plans several international locations benefits earned paid plans generally based years service level employee compensation company’s defined benefit pension plans accounted accordance fasb asc topics 715 960 company determines periodic pension expense related liabilities defined benefit pension plans actuarial assumptions valuations service cost component pension expense recorded sga expense components pension expense recorded expense income net consolidated statements operations note 15 employee benefits provides additional information regarding company’s defined benefit pension plans debt company presents amounts borrowed consolidated balance sheets net deferred financing fees interest accrued amounts borrowed recorded interest expense consolidated statements operations note 6 debt provides additional information regarding company’s debt arrangements foreign currency exposure functional currency foreign subsidiaries typically local currency assets liabilities foreign subsidiaries translated us dollars exchange rates effect balance sheet date income expense items translated average exchange rates year resulting translation adjustments recorded foreign currency translation adjustments component accumulated comprehensive loss income net within stockholders’ equity consolidated balance sheets currency transaction gains losses arising transactions denominated currencies functional currency subsidiary recognized results operations part expense income net consolidated statements operations company net currency transaction gains losses 125 million 11 million 92 million 2020 2019 2018 respectively company enters foreign currency forward exchange contracts mitigate effects adverse fluctuations foreign currency exchange rates certain transactions contracts generally short durations recorded fair value realized unrealized gains losses recorded expense income net loss foreign currency forward exchange contracts 141 million 25 million 104 million 2020 2019 2018 respectively note 13 derivatives hedging provides additional information regarding company’s foreign currency forward exchange contracts fair value disclosures company limited number assets liabilities adjusted fair value balance sheet date company’s required fair value disclosures provided note 14 fair value disclosures concentrations credit risk assets may subject company concentration credit risk consist primarily shortterm highly liquid investments classified cash equivalents fees receivable contract assets interest rate swaps pension reinsurance asset majority company’s cash equivalent investments interest rate swap contracts investment grade commercial banks fees receivable contract asset balances deemed collectible customers limited concentration credit risk due diverse customer base geographic dispersion company’s pension reinsurance asset see note 15 employee benefits maintained large international insurance company rated investment grade december 31 2020 2019 stock repurchase programs company records cost repurchase shares common stock treasury stock shares repurchased company added treasury shares retired note 8 stockholders’ equity provides additional information regarding company’s common stock repurchase activity adoption new accounting standards company adopted accounting standards described 2020 implementation costs cloud computing arrangement august 2018 fasb issued asu 201815 customer’s accounting implementation costs incurred cloud computing arrangement service contract “asu 201815” asu 201815 aligns requirements capitalizing implementation costs incurred cloud computing arrangement service contract requirements capitalizing implementation costs incurred develop obtain internaluse software costs capitalized asu 201815 expensed term cloud computing arrangement gartner adopted asu 201815 january 1 2020 prospective basis adoption asu 201815 material impact company’s consolidated financial statements fair value measurement disclosures august 2018 fasb issued asu 201813 disclosure frameworkchanges disclosure requirements fair value measurement “asu 201813” asu 201813 part fasb’s broader disclosure framework project modified supplemented previous us gaap disclosure requirements pertaining fair value measurements emphasis level 3 disclosures valuation hierarchy gartner adopted asu 201813 january 1 2020 adoption asu 201813 material impact company’s consolidated financial statements goodwill impairment january 2017 fasb issued asu 201704 intangiblesgoodwill simplifying test goodwill impairment “asu 201704” asu 201704 simplified determination amount goodwill potentially charged eliminating step 2 goodwill impairment test previous us gaap gartner adopted asu 201704 january 1 2020 adoption asu 201704 material impact company’s consolidated financial statements financial instrument credit losses june 2016 fasb issued asu 201613 financial instrumentscredit losses “asu 201613” asu 201613 amended previous financial instrument impairment model requiring entities use forwardlooking approach based expected losses estimate credit losses certain types financial instruments including trade receivables gartner adopted asu 201613 january 1 2020 cumulative effect adjustment company’s opening retained earnings company applied expected credit loss model fees receivable balance january 1 2020 using historical loss rate method company’s trade receivables collected fairly quickly credit losses historically low adoption asu 201613 material impact company’s consolidated financial statements defined benefit plan disclosures august 2018 fasb issued asu 201814 disclosure frameworkchanges disclosure requirements defined benefit plans “asu 201814” asu 201814 part fasb’s broader disclosure framework project modified supplemented previous us gaap annual disclosure requirements employers sponsor defined benefit pension plans gartner adopted asu 201814 december 31 2020 retroactive basis applied comparative period presented company’s consolidated financial statements adoption asu 201814 material impact company’s consolidated financial statements accounting standards issued yet adopted fasb issued accounting standards yet become effective december 31 2020 may impact company’s consolidated financial statements related disclosures future periods standards potential impact discussed accounting standard effective immediately upon voluntary election gartner reference rate reform march 2020 fasb issued asu 202004 reference rate reformfacilitation effects reference rate reform financial reporting “asu 202004” asu 202004 provides entity elect apply certain required modification accounting us gaap contracts changes critical terms relate reference rate reform eg expected discontinuance libor transition alternative reference interest rate etc addition rule provides optional expedients exceptions enable entities continue apply hedge accounting hedging relationships one critical terms change due reference rate reform rule became effective entities march 12 2020 generally longer available apply december 31 2022 company currently evaluating potential impact asu 202004 consolidated financial statements including rule’s potential impact debt modifications contractual changes future may result reference rate reform accounting standard effective 2021 simplifying accounting income taxes december 2019 fasb issued asu 201912 income taxessimplifying accounting income taxes “asu 201912” asu 201912 provides new guidance simplify accounting income taxes certain areas changes accounting select income tax transactions makes minor asc improvements gartner adopted asu 201912 january 1 2021 company concluded asu 201912 material impact consolidated financial statements upon adoption note 2 acquisitions divestitures acquisitions year ended december 31 2019 october 1 2019 company acquired 100 outstanding membership interests topo research llc “topo” privatelyheld company based redwood city california 250 million topo subscriptionbased research advisory business acquisition topo expanded market presence product offerings business opportunities cash flow reporting purposes company paid 237 million cash topo considering cash acquired business certain purchase price adjustments closing addition purchase price company may also required pay 65 million cash future based continuing employment certain key employees amount recognized compensation expense two years reported acquisition integration charges consolidated statements operations table summarizes allocation aggregate purchase price topo acquisition based fair value assets acquired liabilities assumed thousands 1we believe recorded goodwill supported anticipated synergies resulting acquisition recorded goodwill expected deductible tax purposes 2the acquired finitelived intangible assets primarily consisted customer relationships content amortized 6 years 15 years respectively determine fair values acquired intangible assets primarily relied income valuation methodologies particular discounted cash flow models operating results acquired topo business related goodwill reported part company’s research conferences segments operating results topo included company’s consolidated financial statements since date acquisition however operating results material company’s consolidated operating results segment results company acquired topo prior periods impact company’s operating results would material result pro forma financial information prior periods presented herein 2019 company also paid 23 million restricted cash deferred consideration 2017 acquisition year ended december 31 2018 although company complete business acquisitions 2018 paid 159 million restricted cash year deferred consideration 2017 acquisition integration charges company recognized 63 million 95 million 1072 million acquisition integration charges 2020 2019 2018 respectively acquisition integration charges reflect additional costs expenses resulting acquisitions include among items professional fees severance stockbased compensation charges 2018 charges included 583 million exit costs certain acquisitionrelated office space arlington virginia company occupy divestitures 2018 company completed divestitures three noncore businesses comprising segment acquired ceb acquisition 2017 revenue divested operations approximately 973 million 2018 gross contribution 605 million company used cash proceeds divestitures pay debt additional information regarding segment divestitures provided ceb challenger training business august 31 2018 company sold ceb challenger training business 1191 million realized approximately 1160 million cash net working capital adjustments certain closing costs company recorded pretax gain sale approximately 83 million ceb workforce survey analytics business may 1 2018 company sold ceb workforce survey analytics business 280 million realized approximately 264 million cash net certain closing costs company recorded pretax gain sale approximately 88 million ceb talent assessment business april 3 2018 company sold ceb talent assessment business 4030 million realized approximately 3758 million cash sale net cash transferred business certain closing costs company recorded pretax gain approximately 155 million sale asset sales 2018 company also received 86 million cash proceeds well consideration recorded net pretax gain approximately 128 million sale certain noncore assets originally acquired ceb transaction amounts include sale small research segment product called metrics matter october 31 2018 note 3 goodwill intangible assets goodwill table presents changes carrying amount goodwill segment twoyear period ended december 31 2020 thousands 1the 2019 additions due acquisition topo see note 2 acquisitions divestitures additional information finitelived intangible assets changes finitelived intangible assets twoyear period ended december 31 2020 presented tables thousands 1the 2019 additions due acquisition topo see note 2 acquisitions divestitures additional information 2finitelived intangible assets amortized using straightline method following periods customer relationships3 13 years software2 7 years content2 3 years 2 11 years amortization expense related finitelived intangible assets 1251 million 1297 million 1870 million 2020 2019 2018 respectively estimated future amortization expense year finitelived intangible assets presented table thousands note 4 assets company’s assets summarized table thousands note 5 accounts payable accrued liabilities company’s accounts payable accrued liabilities summarized table thousands 1see note 14 fair value disclosures determination fair values instruments company’s liabilities summarized table thousands note 6 debt company’s total outstanding borrowings summarized table thousands 1the contractual annualized interest rate december 31 2020 credit agreement term loan facility revolving credit facility 156 consisted floating eurodollar base rate 01875 plus margin 1375 however company interest rate swap contracts effectively convert floating eurodollar base rates outstanding amounts fixed base rate 2the company approximately 10 billion available borrowing capacity 2020 credit agreement revolver including expansion feature december 31 2020 3consists 8000 million principal amount 2028 notes outstanding 2028 notes bear interest fixed rate 450 mature july 1 2028 4consists 8000 million principal amount 2030 notes outstanding 2030 notes bear interest fixed rate 375 mature october 1 2030 5consists two state connecticut economic development loans one loans originated 2012 10year maturity outstanding balance 10 million december 31 2020 bears interest fixed rate 300 second loan originated 2019 10year maturity bears interest fixed rate 175 loans may repaid time company without penalty 6the weighted average annual effective rate company’s outstanding debt 2020 including effects interest rate swaps discussed 475 7deferred financing fees amortized interest expense net term related debt obligation 2030 notes september 28 2020 company issued 800 million aggregate principal amount 375 senior notes due 2030 “2030 notes” 2030 notes issued pursuant indenture dated september 28 2020 “2030 note indenture” among company guarantors party thereto us bank national association trustee 2030 notes offered sold persons reasonably believed qualified institutional buyers defined securities act 1933 amended “securities act” pursuant rule 144a securities act outside united states nonus persons accordance regulation securities act 2030 notes issued issue price 1000 bear interest rate 375 per annum interest 2030 notes payable april 1 october 1 year beginning april 1 2021 2030 notes mature october 1 2030 net proceeds 2030 notes together cash hand used redeem company’s existing 5125 senior notes due 2025 pay related fees expenses company may redeem 2030 notes time october 1 2025 cash redemption prices set forth 2030 note indenture plus accrued unpaid interest excluding redemption date prior october 1 2025 company may redeem 40 aggregate principal amount 2030 notes proceeds certain equity offerings redemption price 10375 plus accrued unpaid interest excluding redemption date addition company may redeem 2030 notes prior october 1 2025 redemption price 1000 principal amount 2030 notes plus accrued unpaid interest excluding redemption date plus “makewhole” premium company experiences specific kinds change control ratings decline required offer repurchase 2030 notes price equal 1010 principal amount thereof plus accrued unpaid interest excluding repurchase date 2030 notes company’s general unsecured senior obligations effectively subordinated company’s existing future secured indebtedness extent value collateral securing indebtedness structurally subordinated existing future indebtedness liabilities company’s nonguarantor subsidiaries equal right payment company’s company’s guarantor subsidiaries’ existing future senior indebtedness senior right payment company’s future subordinated indebtedness 2030 notes jointly severally guaranteed senior unsecured basis certain company’s domestic subsidiaries outstanding indebtedness guarantee specified indebtedness 2030 note indenture contains covenants limit among things company’s ability company’s subsidiaries •create liens •merge consolidate entities covenants subject number exceptions qualifications 2030 note indenture also provides events default occurs would permit require principal premium interest outstanding 2030 notes issued 2030 note indenture due payable 2028 notes june 22 2020 company issued 800 million aggregate principal amount 450 senior notes due 2028 “2028 notes” 2028 notes issued pursuant indenture dated june 22 2020 “2028 note indenture” among company guarantors party thereto us bank national association trustee 2028 notes offered sold persons reasonably believed qualified institutional buyers defined securities act pursuant rule 144a securities act outside united states nonus persons accordance regulation securities act 2028 notes issued issue price 1000 bear interest rate 450 per annum interest 2028 notes payable january 1 july 1 year beginning january 1 2021 notes mature july 1 2028 company may redeem 2028 notes time july 1 2023 cash redemption prices set forth 2028 note indenture plus accrued unpaid interest excluding redemption date prior july 1 2023 company may redeem 40 aggregate principal amount 2028 notes proceeds certain equity offerings redemption price 1045 plus accrued unpaid interest excluding redemption date addition company may redeem 2028 notes prior july 1 2023 redemption price 1000 principal amount 2028 notes plus accrued unpaid interest excluding redemption date plus “makewhole” premium company experiences specific kinds change control ratings decline required offer repurchase 2028 notes price equal 1010 principal amount thereof plus accrued unpaid interest excluding repurchase date 2028 notes company’s general unsecured senior obligations effectively subordinated company’s existing future secured indebtedness extent value collateral securing indebtedness structurally subordinated existing future indebtedness liabilities company’s nonguarantor subsidiaries equal right payment company’s company’s guarantor subsidiaries’ existing future senior indebtedness senior right payment company’s future subordinated indebtedness 2028 notes jointly severally guaranteed senior unsecured basis certain company’s domestic subsidiaries outstanding indebtedness guarantee specified indebtedness 2028 note indenture contains covenants limit among things company’s ability company’s subsidiaries •create liens •merge consolidate entities covenants subject number exceptions qualifications 2028 note indenture also provides events default occurs would permit require principal premium interest outstanding 2028 notes issued 2028 note indenture due payable 2020 credit agreement september 28 2020 company entered agreement among company borrower lenders party thereto jpmorgan chase bank na administrative agent “administrative agent” agreement “2020 credit agreement” amended restated company’s existing credit facility dated june 17 2016 amended supplemented otherwise modified time “2016 credit agreement” 2020 credit agreement provides 400 million senior secured fiveyear term loan facility 10 billion senior secured fiveyear revolving facility term revolving facilities may increased company’s option certain conditions additional 10 billion aggregate plus additional amounts subject satisfaction certain conditions including maximum secured leverage ratio term loan repaid consecutive quarterly installments commencing december 31 2020 plus final payment due september 28 2025 may prepaid time without penalty premium applicable breakage costs option company revolving credit facility may used loans 750 million may used letters credit revolving loans may borrowed repaid reborrowed september 28 2025 time amounts borrowed must repaid september 28 2020 company drew 400 million term loans initial drawdown used refinance outstanding amounts 2016 credit agreement additional amounts drawn 2020 credit agreement used general corporate purposes including funding acquisitions payment capital expenditures repurchase shares company’s obligations 2020 credit agreement guaranteed secured basis certain existing future direct indirect us subsidiaries “subsidiary guarantors” pursuant amended restated guarantee collateral agreement dated september 28 2020 “2020 guarantee collateral agreement” entered company subsidiary guarantors favor administrative agent amended restated guarantee collateral agreement dated june 17 2016 amended supplemented otherwise modified time entirety pursuant 2020 guarantee collateral agreement company’s obligations 2020 credit agreement guarantees subsidiary guarantors secured first priority security interests substantially assets company subsidiary guarantors including pledges stock equity interests direct subsidiaries owned company subsidiary guarantors 66 voting stock direct foreign subsidiary foreign subsidiary holding company owned company subsidiary guarantor security pledges subject certain exceptions loans 2020 credit agreement bear interest rate equal company’s option either greatest x wall street journal prime rate average rate federal reserve board new york rate plus 12 1 z adjusted libo rate adjusted statutory reserves onemonth interest period plus 1 case plus margin equal 0125 125 depending company’s consolidated leverage ratio end four consecutive fiscal quarters recently ended ii adjusted libo rate adjusted statutory reserves plus margin equal 1125 225 depending company’s leverage ratio end four consecutive fiscal quarters recently ended commitment fee payable unused portion revolving credit facility equal 0175 040 based utilization revolving credit facility company also agreed pay customary letter credit fees 2020 credit agreement contains certain customary restrictive loan covenants including among others financial covenant requiring maximum leverage ratio covenants limiting company’s ability incur indebtedness grant liens make acquisitions acquired dispose assets pay dividends repurchase stock make capital expenditures make investments enter certain transactions affiliates 2020 credit agreement contains customary events default include among others nonpayment principal interest fees material inaccuracy representations warranties violation covenants cross defaults certain indebtedness bankruptcy insolvency events erisa defaults material judgments events constituting change control occurrence event default increase applicable rate interest 20 allow lenders terminate obligations lend 2020 credit agreement could result acceleration company’s obligations credit facilities obligation guarantors pay full amount company’s obligations credit facilities 2016 credit agreement prior september 28 2020 company credit facility provided 15 billion term loan facility “term loan facility” 12 billion revolving credit facility june 30 2020 company used proceeds 2028 notes offering prepay 7879 million outstanding term loan facility remaining amounts outstanding 2016 credit agreement repaid company entered 2020 credit agreement september 28 2020 2025 notes prior september 28 2020 company 8000 million aggregate principal amount 5125 senior notes due 2025 “2025 notes” 2025 notes issued issue price 1000 bore interest fixed rate 5125 per annum conjunction issuance 2030 notes company redeemed 2025 notes september 28 2020 cash company recorded 308 million charges early redemption premium 140 million charges writeoff deferred financing costs related 2025 notes 2016 credit agreement recorded loss extinguishment debt consolidated statements operations interest rate swaps december 31 2020 company four fixedforfloating interest rate swap contracts total notional value 14 billion mature 2025 prior june 30 2020 company designated swaps accounting hedges forecasted interest payments variablerate borrowings company pays base fixed rates swaps ranging 213 304 return receives floating eurodollar base rate 30day notional borrowings prior repayment amounts outstanding 2016 credit agreement revolving credit facility prepayment 7879 million term loan facility june 30 2020 company accounted interest rate swap contracts cash flow hedges accordance fasb asc topic 815 swaps hedged forecasted interest payments changes fair values swaps recorded accumulated comprehensive income loss component stockholders’ equity long swaps continued highly effective hedges designated interest rate risk ineffective portion change fair value hedge recorded earnings upon prepayment 7879 million company’s term loan facility repayment amounts outstanding 2016 credit agreement revolving credit facility company determined probable forecasted interest payments 2000 million variable rate debt would occur additionally variable rate debt term loan facility replaced 8000 million fixed rate debt 2028 notes company dedesignated interest rate swaps result company accelerated release 103 million accumulated comprehensive loss net related forecasted interest payments longer probable loss recorded income expense net consolidated statement operations year ended december 31 2020 remaining 1040 million december 31 2020 classified within accumulated comprehensive loss net amortized interest expense net terms hedged forecasted interest payments subsequent changes fair value interest rate swaps recorded income expense net interest rate swaps negative unrealized fair values liabilities 1092 million 648 million december 31 2020 december 31 2019 respectively 781 million 472 million recorded accumulated comprehensive loss net tax effect december 31 2020 december 31 2019 respectively see note 11 fair value disclosures determination fair values company’s interest rate swaps note 7 leases company’s leasing activities primarily facilities cancelable noncancelable lease agreements expiring 2021 2038 facilities support executive administrative activities research consulting sales systems support operations functions company also leases office equipment assets significant certain company’s lease agreements include renewal options extend lease term ten years andor ii options terminate agreement within one year additionally certain company’s lease agreements provide standard recurring escalations lease payments among things increases lessor’s maintenance costs taxes lease agreements company may entitled allowances free rent lessorfinanced tenant improvements incentives company’s lease agreements contain material residual value guarantees material restrictive covenants company subleases certain office space intend occupy sublease arrangements expire 2021 2032 primarily relate facilities arlington virginia certain company’s sublease agreements include renewal termination options ii provide customary escalations lease payments normal course business iii grant subtenant certain allowances free rent gartnerfinanced tenant improvements incentives lease accounting asc 842 asc 842 lease contract agreement part another arrangement two parties inception creates enforceable rights obligations conveys right control use identified property plant equipment period time exchange consideration rightofuse assets represent right use underlying asset lease term related lease liability represents obligation make lease payments pursuant contractual terms lease agreement rightofuse assets lease liabilities initially recognized lease commencement date based present value lease payments lease term facilities leases account lease components nonlease components eg common area maintenance charges etc single lease component determining present value lease payments variable lease payments dependent index rate excluded determination rightofuse assets lease liabilities payments recognized expense period related obligation incurred company’s lease agreements provide implicit interest rates instead company uses incremental borrowing rate determined lease commencement date calculate present value future lease payments incremental borrowing rate calculated individual lease represents rate interest company would pay borrow collateralized basis currency lease denominated similar term amount equal lease payments similar economic environment rightofuse assets also include initial direct costs incurred company lease payments made lessor related lease commencement date less lease incentives received directly lessor certain company’s facility lease agreements include options extend terminate lease reasonably certain company exercise renewal termination option present value lease payments affected lease adjusted accordingly leases term twelve months less accounted manner longterm lease arrangements including related disclosures lease expense operating leases generally recognized straightline basis lease term unless related rightofuse asset previously impaired existing sublease arrangements classified operating leases sublease income recognized straightline basis term sublease arrangement measure company’s periodic sublease income elected use practical expedient asc 842 aggregate nonlease components related lease components timing pattern transfer nonlease components related lease components ii lease components accounted separately would classified operating lease practical expedient applies existing sublease arrangements projected lease cost term sublease exceeds anticipated sublease income period treat circumstance indicator carrying amount related rightofuse asset may fully recoverable situations perform impairment analysis indicated record charge earnings reduce rightofuse asset amount deemed recoverable future consolidated balance sheet december 31 2020 2019 rightofuse assets classified reported operating lease rightofuse assets related lease liabilities included accounts payable accrued liabilities current operating lease liabilities longterm consolidated statement cash flows 2020 2019 reduction carrying amount rightofuse assets presented separately change operating lease liabilities included accounts payable accrued liabilities reconciliation net income cash provided operating activities company’s leasing subleasing activity 2020 2019 recognized selling general administrative expense consolidated statements operations table presents company’s net lease cost certain information related leasing activities years ended december 31 2020 2019 dollars thousands 1included operating lease cost 422 million 432 million costs subleasing activities 2020 2019 respectively 2these amounts primarily variable lease nonlease costs fixed lease commencement date dependent something index rate 3the company capitalize operating lease costs 2020 2019 december 31 2020 maturities operating lease liabilities noncancelable arrangements ii estimated future sublease cash receipts noncancelable arrangements follows thousands 1approximately 80 operating lease payments pertain properties united states table indicates discounted operating lease payments table classified consolidated balance sheet thousands december 31 2020 company additional operating leases facilities yet commenced operating leases aggregated 291 million undiscounted lease payments scheduled commence 2021 lease terms thirteen years lease disclosures asc topic 840 company’s operating lease expense asc topic 840 facilities office equipment assets 935 million 2018 cost operating leases including contractual rent increases rent concessions landlord incentives recognized ratably life related lease agreement note 8 stockholders’ equity common stock holders gartner’s common stock par value 00005 per share entitled one vote per share matters voted stockholders company currently pay cash dividends common stock also 2020 credit agreement contains negative covenant may limit ability pay dividends table summarizes transactions relating company’s common stock three years ended december 31 2020 1the company used total 1763 million 1990 million 2608 million cash share repurchases 2020 2019 2018 respectively 2the number shares repurchased periods presented included settled january following year due timing share repurchase authorization 2015 company’s board directors authorized share repurchase program repurchase 12 billion common stock 06 billion remained available december 31 2020 company may repurchase common stock timetotime amounts prices manner company deems appropriate subject availability stock prevailing market conditions trading price stock company’s financial performance conditions repurchases may made open market purchases may include repurchase plans designed comply rule 10b51 securities exchange act 1934 amended accelerated share repurchases private transactions funded cash hand borrowings see note 19 subsequent events discussion regarding increase company’s share repurchase authorization accumulated comprehensive income loss net “aocil” tables provide information changes aocil component related amounts reclassified aocil income years indicated net tax thousands 1 year ended december 31 2020 year ended december 31 2019 1 amounts parentheses represent debits deferred losses 2 249 million 34 million reclassifications related interest rate swaps cash flow hedges recorded interest expense net year ended december 31 2020 2019 respectively 103 million reclassifications related interest rate swaps cash flow hedges recorded expense income net year ended december 31 2020 see note 6 debt note 13 derivatives hedging information regarding cash flow hedges 3 reclassifications related defined benefit pension plans primarily recorded selling general administrative expense net tax effect see note 15 employee benefits information regarding company’s defined benefit pension plans estimated net amount existing losses company’s interest rate swaps reported accumulated comprehensive loss net december 31 2020 expected reclassified earnings within next 12 months 291 million note 9 revenue related matters business revenues gartner delivers products services globally three business segments research conferences consulting revenues business segments discussed research provides trusted objective insights advice missioncritical priorities leaders across functional areas enterprise reports briefings proprietary tools access research experts peer networking services membership programs enable clients drive organizational performance research revenues mainly derived subscription contracts research products representing approximately 92 segment’s revenue related revenues deferred recognized ratably applicable contract term ie provide services contract period fees derived assisting organizations selecting right business software needs recognized point time ie lead provided vendor company enters subscription contracts research products generally twelvemonth periods longer approximately 80 85 annual multiyear research subscription contracts provide billing first full service period upon signing subsequent years multiyear subscription contracts normally billed prior contract’s anniversary date research subscription contracts usually invoiced advance commencing contract signing quarterly monthly recurring basis ii accordance customized invoicing schedule research contracts generally noncancelable nonrefundable except government contracts may cancellation fiscal funding clauses historically resulted material cancellations policy record amount subscription contract billable fee receivable time contract signed corresponding amount deferred revenue contract represents legally enforceable claim conferences provides business professionals across organization opportunity learn share network gartner symposiumxpo series industryleading conferences focused specific business roles topics peerdriven sessions offerings enable attendees experience best gartner insight advice earn revenues attendees exhibitors conferences meetings attendees generally invoiced full attendance fee upon completion online registration form signing contract exhibitors typically make several individual payments commencing signing contract collect almost invoiced amounts advance related activity resulting recording deferred revenue recognize attendee exhibitor revenue satisfy related performance obligations ie related activity held company defers certain costs directly related specific conferences meetings expenses costs period related activity occurs company’s policy defer costs incremental directly attributable specific activity primarily prepaid site production services costs organizing producing conference activities primarily company personnel nonconference specific expenses expensed period incurred consulting combines power gartner marketleading research custom analysis ontheground support help chief information officers senior executives driving technologyrelated strategic initiatives move confidently insight action consulting revenues primarily derived custom consulting measurement services principally generated fixed fee time materials engagements revenues fixed fee engagements recognized work satisfy performance obligations revenues time materials engagements recognized work delivered andor services provided circumstances satisfy performance obligations control services passed customers time ie duration contract consulting engagement contractbycontract basis typically use actual labor hours incurred compared total expected labor hours measure company’s performance respect fixed fee engagements labor costs individual contract expected exceed total contract value contract’s funded ceiling amount company reflects adjustment contract’s overall profitability period determined revenues related contract optimization engagements contingent nature recognized point time conditions related payment satisfied consulting customers invoiced based specific terms conditions underlying contracts typically invoice consulting customers satisfied related performance obligations related revenue recognized record fees receivable amounts billed billable also record contract assets represent amounts recognized revenue lack unconditional right payment balance sheet date due required continued performance relevant contract progress billing milestones billingrelated restrictions disaggregated revenue disaggregated revenue reportable segment presented tables years indicated thousands primary geographic market 1 2 year ended december 31 2020 year ended december 31 2019 year ended december 31 2018 1revenue reported based sale fulfilled 2during 2018 company divested noncore businesses comprised segment moved small residual product segment research business result operating activity recorded segment 2019 2020 note 2 acquisitions divestitures provides additional information regarding company’s 2018 divestitures company’s revenue generated primarily direct sales clients domestic international sales forces network independent international sales agents company’s products services provided integrated worldwide basis integrated delivery approach practical precisely separate revenue geographic location accordingly revenue information presented tables based internal allocations involve certain management estimates judgments timing revenue recognition 1 year ended december 31 2020 year ended december 31 2019 year ended december 31 2018 1during 2018 company divested noncore businesses comprised segment moved small residual product segment research business result operating activity recorded segment 2019 2020 note 2 acquisitions divestitures provides additional information regarding company’s 2018 divestitures 2research revenues recognized connection performance obligations satisfied time using timeelapsed output method measure progress consulting revenues recognized time using labor hours input measurement basis 2018 revenues recognized using either timeelapsed output method performancebased milestone approach labor hours depending nature underlying customer contract 3the revenues category recognized connection performance obligations satisfied point time contractual deliverables provided customer determining measure progress performance obligations satisfied time control transfers performance obligations satisfied point time requires us make judgments affect timing revenue recognized key factor determination customer direct use obtain substantially benefits deliverable performance obligations recognized accordance timeelapsed output method company’s efforts expended consistently throughout contractual period company transfers control evenly providing standready services performance obligations satisfied consulting fixed fee time materials engagements believe labor hours best measure depicting company’s progress labor output corresponds directly value company’s performance date control transferred segment selected method assess completion performance obligations best aligned specific characteristics individual customer contract believe methods measure progress reasonable supportable ii provide faithful depiction transfer products services customers customer contracts greater one year duration aggregate amount transaction price allocated performance obligations unsatisfied partially unsatisfied december 31 2020 approximately 27 billion company expects recognize 16056 million 8810 million 1795 million revenue pertains research year ending december 31 2021 year ending december 31 2022 thereafter respectively company applies practical expedient allowed asc 606 accordingly disclose performance obligation information customer contracts original durations one year less performance obligations contracts meeting asc 606 disclosure exclusion primarily include standready services research subscription contracts ii holding conferences meetings attendees exhibitors participate iii providing customized consulting solutions clients fixed fee time materials engagements remaining duration performance obligations generally less one year aligns period parties enforceable rights obligations affected contracts customer contract assets liabilities payment terms conditions customer contracts vary cases customers prepay cases conduct credit evaluation payment may due arrears timing delivery services typically differs timing customer payments company recognizes either contract asset perform either fully partially contract contingency remains contract liability upfront customer payments precede performance resulting deferred revenue amounts recorded contract assets reclassified fees receivable outstanding conditions resolved right payment becomes unconditional contracts payments due arrears also recognized fees receivable contractual performance obligations satisfied company correspondingly relieves contract liabilities records associated revenue table provides information regarding certain company’s balance sheet accounts pertain contracts customers thousands 1fees receivable represent unconditional right payment customers include billed unbilled amounts 2contract assets represent recognized revenue unconditional right payment balance sheet date project may subject progress billing milestone billing restriction 3deferred revenues represent amounts company received upfront customer payment ii pertain recognized fees receivable situations occur completion performance obligations company recognized revenue 14940 million 14369 million 12878 million 2020 2019 2018 respectively attributable deferred revenues recorded beginning year amounts primarily consisted research revenues 2018 revenues recognized ratably control goods services passed customer ii conferences revenue pertaining conferences meetings occurred reporting periods 2020 2019 2018 company record material impairments related contract assets company typically recognize revenue performance obligations satisfied prior periods revenue reserve company maintains revenue reserve amounts deemed uncollectible reasons bad debt revenue reserve classified part accounts payable accrued liabilities consolidated balance sheet provisions revenue reserve recorded adjustments revenue determining amount revenue reserve company uses expectedvalue method based current estimates portfolio data historical experience due common characteristics similar attributes customers contracts provide relevant predictive evidence projected future liability expectedvalue method reasonable appropriate however determination revenue reserve inherently judgmental requires use certain estimates changes estimates recorded period identified december 31 2020 2019 revenue reserve balance 100 million 78 million respectively adjustments account 2020 2019 significant costs obtaining fulfilling customer contract company concludes liability recognized costs obtaining customer contract determines liability measured certain commissions capitalized recoverable direct incremental cost obtaining underlying contract amounts capitalized cost obtaining fulfilling customer contract expenditures identified meet requisite capitalization criteria research consulting amortize deferred commissions systematic basis aligns transfer customers services commissions relate conferences deferred commissions expensed period related conference meeting occurs 2020 2019 2018 deferred commission amortization expense 4405 million 3695 million 3048 million respectively included selling general administrative expense consolidated statements operations company classifies deferred commissions current asset consolidated balance sheets december 31 2020 2019 costs amortized twelve months following respective balance sheet dates company record material impairments deferred commissions threeyear period ended december 31 2020 note 10 stockbased compensation company grants stockbased compensation awards incentive employees directors contribute company’s longterm success company currently awards stocksettled stock appreciation rights servicebased performancebased restricted stock units common stock equivalents december 31 2020 company 44 million shares common stock par value 00005 per share “common stock” available stockbased compensation awards 2014 longterm incentive plan “plan” currently company issues treasury shares upon exercise release settlement stockbased compensation awards determining appropriate fair value model calculating fair value stockbased compensation awards requires use certain subjective assumptions including expected life stockbased compensation award common stock price volatility addition determining appropriate periodic stockbased compensation expense requires management estimate likelihood achievement certain performance targets assumptions used calculating fair values stockbased compensation awards related periodic expense represent management’s best estimates involve inherent uncertainties application judgment result circumstances change company deems necessary future modify assumptions made use different assumptions quantity nature company’s stockbased compensation awards changes amount expense may need adjusted future stockbased compensation expense could materially different recorded current year stockbased compensation expense tables summarize company’s stockbased compensation expense award type expense category line item years ended december 31 millions 1includes charges 179 million 215 million 194 million 2020 2019 2018 respectively awards retirementeligible employees awards vest accelerated basis 2these charges result acceleration vesting certain restricted stock units related ceb acquisition 2017 ii restricted stock units granted connection ceb integration process december 31 2020 company 846 million total unrecognized stockbased compensation cost expected expensed remaining weighted average service period approximately 24 years stockbased compensation awards disclosures presented provide information regarding company’s stockbased compensation awards classified equity awards accordance fasb asc topic 505 stock appreciation rights stocksettled stock appreciation rights “sars” permit holder participate appreciation value common stock applicable vesting criteria satisfied sars settled shares common stock upon exercise employee sars vest ratably fouryear service period expire seven years date grant fair value sars award recognized compensation expense straightline basis four years sars awarded company’s executive officers sars exercised number shares common stock issued calculated follows 1 total proceeds exercise sars award calculated closing price common stock reported new york stock exchange date exercise less exercise price sars award multiplied number sars exercised divided 2 closing price common stock date exercise upon exercise company withholds portion shares common stock satisfy statutory tax withholding requirements sars recipients stockholder rights shares common stock issued respect award subject prior satisfaction vesting criteria relating grants table summarizes changes sars outstanding year ended december 31 2020 na applicable 1as december 31 2020 05 million total sars outstanding unvested company expects substantially unvested awards vest future periods 2as december 31 2020 total sars outstanding intrinsic value 384 million date sars vested exercisable intrinsic value 250 million fair value sars award determined date grant using blackscholesmerton valuation model following weighted average assumptions years ended december 31 1the expected dividend yield assumption based company’s historical anticipated dividend payouts historically company paid cash dividends common stock 2the determination expected stock price volatility based historical common stock prices implied volatility publicly traded options common stock 3the riskfree interest rate based yield us treasury security maturity similar expected life award 4the expected life represents company’s estimate weighted average period time sars expected outstanding period service inception date expected exercise date restricted stock units restricted stock units “rsus” give awardee right receive shares common stock vesting conditions met certain restrictions lapse rsu vests entitles awardee one share common stock rsu awardees rights gartner stockholder including voting rights right receive dividends distributions shares released fair value rsu award determined date grant based closing price common stock reported new york stock exchange date servicebased rsus vest ratably four years expensed straightline basis vesting period performancebased rsus subject satisfaction performance service conditions vest ratably four years expensed accelerated basis vesting period table summarizes changes rsus outstanding year ended december 31 2020 1the 05 million rsus granted 2020 consisted 02 million performancebased rsus awarded executives 03 million servicebased rsus awarded nonexecutive employees nonmanagement board members performancebased awards include rsus final adjustments 2019 grants approximately 01 million rsus representing target amount grant 2020 tied increase gartner’s total contract value year number performancebased rsus 2020 holders could receive ranged 0 200 target amount based extent corresponding performance goals achieved subject certain conditions adjustments number performancebased rsus 2020 grant made 2021 see note 19 subsequent events regarding psu discretionary award 2the company expects substantially rsus outstanding vest future periods 3as december 31 2020 weighted average remaining contractual term rsus outstanding approximately 11 years common stock equivalents common stock equivalents “cses” convertible common stock cse entitles holder one share common stock members board directors receive directors’ fees cses unless opt receive 50 fees cash generally cses defined term converted shares common stock service director terminates unless director elected accelerated release fair value cse award determined date grant based closing price common stock reported new york stock exchange date cses vest immediately result recorded expense date grant table summarizes changes cses outstanding year ended december 31 2020 employee stock purchase plan company employee stock purchase plan “esp plan” wherein eligible employees permitted purchase shares common stock payroll deductions may exceed 10 employee’s compensation 23750 calendar year price equal 95 closing price common stock reported new york stock exchange end offering period december 31 2020 company 04 million shares available purchase esp plan esp plan considered noncompensatory fasb asc topic 718 result company record stockbased compensation expense employee share purchases company received 181 million 176 million 147 million cash employee share purchases esp plan 2020 2019 2018 respectively note 11 computation earnings per share basic earnings per share “eps” computed dividing net income weighted average number shares common stock outstanding period diluted eps reflects potential dilution securities could share earnings impact common stock equivalents antidilutive excluded calculation table sets forth calculation basic diluted income per share years ended december 31 thousands except per share data 1both basic diluted income per share 2020 2019 included tax benefit approximately 031 042 per share respectively related intercompany sales certain intellectual property table presents number common stock equivalents included computations diluted income per share table effect would antidilutive years net income common stock equivalents antidilutive exercise prices greater average market price share common stock year number antidilutive common stock equivalents 2018 minimal note 12 income taxes summary components company’s income taxes years ended december 31 thousands components expense benefit income taxes income summarized table thousands components longterm deferred tax assets liabilities summarized table thousands net deferred tax assets net deferred tax liabilities 1036 million 1732 million december 31 2020 respectively 796 million 1898 million december 31 2019 respectively amounts reported assets liabilities consolidated balance sheets management concluded likely reversal deferred tax liabilities results future operations generate sufficient taxable income realize deferred tax assets net valuation allowance december 31 2020 valuation allowances 157 million 16 million december 31 2020 2019 respectively primarily related loss credit carryovers likely realized december 31 2020 company state local tax net operating loss carryforwards 80 million 01 million expires within six fifteen years 79 million expires within sixteen twenty years company also state tax credits 60 million majority expire five six years december 31 2020 company nonus net operating loss carryforwards 149 million 01 million expires next 20 years 148 million carried forward indefinitely addition company also foreign tax credit carryforwards 119 million expire 2028 2030 amounts reduced associated unrecognized tax benefits consistent asu 201311 “income taxespresentation unrecognized tax benefit net operating loss carryforward similar tax loss tax credit carryforward exists” items comprising differences us federal statutory income tax rate company’s effective tax rate income taxes years ended december 31 summarized table company completed intercompany sales certain intellectual property 2020 2019 result company recorded net tax benefits approximately 283 million 381 million 2020 2019 respectively benefits represent value future tax deductions amortization assets acquiring jurisdiction july 2020 company completed intercompany contribution significant amount intellectual property company’s intellectual property footprint continues evolve may result tax rate volatility future december 31 2020 2019 company gross unrecognized tax benefits 1271 million 1028 million respectively increase primarily due positions taken respect intercompany transactions gross unrecognized tax benefits december 31 2020 related primarily transfer pricing intercompany transactions calculations taxable earnings profits related foreign tax credits exclusion stockbased compensation expense company’s cost sharing agreement ability realize certain refund claims reasonably possible gross unrecognized tax benefits decrease approximately 92 million within next twelve months due anticipated closure audits expiration certain statutes limitation included balance gross unrecognized tax benefits december 31 2020 potential benefits 1185 million recognized would reduce effective tax rate income continuing operations also included balance gross unrecognized tax benefits december 31 2020 potential benefits 86 million recognized would result adjustments tax accounts primarily deferred taxes table reconciliation beginning ending amounts gross unrecognized tax benefits excluding interest penalties years ended december 31 thousands company accrues interest penalties related gross unrecognized tax benefits income tax provision december 31 2020 2019 company 102 million 83 million respectively accrued interest penalties related gross unrecognized tax benefits amounts addition gross unrecognized tax benefits disclosed total amount interest penalties recognized income tax provision 2020 2019 20 million 17 million respectively number years open statutes limitation varies depending tax jurisdiction company’s statutes open respect us federal jurisdiction 2017 forward india 2004 forward major taxing jurisdictions including us states united kingdom canada japan france ireland company’s statutes vary open far back 2011 us gaap provision income taxes may result remittance earnings held overseas required company ability intent indefinitely reinvest funds overseas company continues assert intention reinvest accumulated undistributed foreign earnings nonus operations except instances repatriation earnings would result minimal additional tax consequently company recognized income tax expense would result remittance earnings accumulated undistributed earnings nonus subsidiaries approximately 1195 million december 31 2020 result us tax cuts jobs act 2017 income tax would payable earnings indefinitely invested estimated minimal note 13 derivatives hedging company enters limited number derivative contracts mitigate cash flow risk associated changes interest rates variablerate debt changes foreign exchange rates forecasted foreign currency transactions company accounts outstanding derivative contracts accordance fasb asc topic 815 requires derivatives including derivatives designated accounting hedges recorded balance sheet fair value tables provide information regarding company’s outstanding derivative contracts dates indicated thousands except number contracts december 31 2020 december 31 2019 1prior june 30 2020 interest rate swaps designated accounted cash flow hedges forecasted interest payments borrowings result changes fair values swaps deferred recorded aocil net tax effect upon prepayment 7879 million company’s term loan facility repayment amounts outstanding 2016 credit agreement revolving credit facility company determined probable forecasted interest payments 2000 million variable rate debt would occur additionally variable rate debt term loan facility replaced 8000 million fixed rate debt 2028 notes company dedesignated interest rate swaps note 6 debt provides additional information regarding company’s interest rate swap contracts 2the company foreign exchange transaction risk typically enters transactions normal course business denominated foreign currencies differ local functional currency company enters shortterm foreign currency forward exchange contracts mitigate cash flow risk associated changes foreign currency rates forecasted foreign currency transactions contracts accounted fair value realized unrealized gains losses recognized expense income net company designate contracts hedges accounting purposes outstanding foreign currency forward exchange contracts december 31 2020 matured january 31 2021 3see note 14 fair value disclosures determination fair values instruments december 31 2020 company’s derivative counterparties investment grade financial institutions company collateral arrangements derivative counterparties none derivative contracts contained creditrisk related contingent features table provides information regarding amounts recognized consolidated statements operations derivative contracts years ended december 31 thousands 1consists interest income expense interest rate swap contracts 2consists net realized unrealized gains losses foreign currency forward contracts gains losses dedesignated interest rate swaps 103 million expense year ended december 31 2020 interest rate swap contracts due forecasted interest payments longer probable result repayment amounts outstanding 2016 credit agreement revolving credit facility prepayment 7879 million term loan facility june 30 2020 expense net also included 22 million gain dedesignated interest rate swaps year ended december 31 2020 related fair value adjustments subsequent dedesignation note 14 fair value disclosures company’s financial instruments include cash equivalents fees receivable customers accounts payable accrued liabilities normally shortterm nature company believes carrying amounts financial instruments reasonably approximate fair values due shortterm nature company’s financial instruments also include outstanding variablerate borrowings 2020 credit agreement company believes carrying amounts variablerate borrowings reasonably approximate fair values rates interest borrowings reflect current market rates interest similar instruments comparable maturities company enters limited number derivatives transactions enter repurchase agreements securities lending transactions master netting arrangements receivables payables result derivatives transactions recorded gross consolidated balance sheets fasb asc topic 820 provides framework measurement fair value valuation hierarchy based transparency inputs used valuation assets liabilities classification within valuation hierarchy based lowest level input significant resulting fair value measurement valuation hierarchy contains three levels level 1 measurements consist quoted prices active markets identical assets liabilities level 2 measurements include significant observable inputs quoted prices similar assets liabilities active markets identical assets liabilities inactive markets observable inputs interest rates yield curves marketcorroborated inputs level 3 measurements include significant unobservable inputs internallycreated valuation models company currently utilize level 3 valuation inputs remeasure assets liabilities however level 3 inputs may used company required annual impairment review goodwill information regarding periodic assessment company’s goodwill included note 1 business significant accounting policies company typically transfer assets liabilities different levels valuation hierarchy table presents fair value certain financial assets liabilities recorded fair value measured recurring basis companys consolidated balance sheets thousands 1the company deferred compensation plan benefit certain highly compensated officers managers key employees see note 15 employee benefits assets consist investments money market funds mutual funds companyowned life insurance contracts money market funds consist cash equivalents mutual fund investments consist publiclytraded quoted equity shares company considers fair values assets based level 1 inputs assets fair values 26 million 23 million december 31 2020 2019 respectively carrying amounts life insurance contracts equal cash surrender values cash surrender value represents estimated amount company would receive upon termination contract approximates fair value company considers life insurance contracts valued based level 2 inputs assets fair values 859 million 734 million december 31 2020 2019 respectively related deferred compensation plan liabilities recorded fair value estimated amount needed settle liability company considers level 2 input 2the company enters foreign currency forward exchange contracts hedge effects adverse fluctuations foreign currency exchange rates see note 13 derivatives hedging valuation contracts based observable foreign currency exchange rates active markets company considers level 2 input 3the company interest rate swap contracts hedge risk variability interest payments borrowings see note 6 debt fair values interest rate swaps based marktomarket valuations prepared thirdparty broker valuations based observable interest rates recently executed market transactions observable market data company considers level 2 inputs company independently corroborates reasonableness valuations prepared thirdparty broker using electronic quotation service table presents carrying amounts fair values financial instruments recorded fair value company’s consolidated balance sheets thousands estimated fair value financial instruments derived quoted market prices provided independent dealer company considers level 2 input note 15 employee benefits defined contribution plans company savings investment plans “401k plans” covering substantially us employees company contributions based level employee contributions maximum 4 employee’s eligible salary subject annual maximum 2020 maximum company match 7200 result impact covid19 company temporarily suspended company match april 1 2020 company reinstituted match january 1 2021 retroactive april 1 2020 amounts expensed connection 401k plans totaled 439 million 441 million 367 million 2020 2019 2018 respectively deferred compensation plans company supplemental deferred compensation plans benefit certain highly compensated officers managers key employees plans’ investment assets recorded fair value assets consolidated balance sheets value assets 885 million 757 million december 31 2020 2019 respectively see note 14 fair value disclosures fair value information related deferred compensation plan liabilities 945 million 796 million december 31 2020 2019 respectively carried fair value adjusted corresponding charge credit compensation expense reflect fair value amount owed employees deferred compensation plan liabilities recorded liabilities consolidated balance sheets compensation expense recognized company’s deferred compensation plans 19 million 06 million 17 million 2020 2019 2018 respectively defined benefit pension plans company defined benefit pension plans several international locations benefits earned paid plans generally based years service level employee compensation company’s vested benefit obligation actuarial present value vested benefits employee entitled based employee’s expected date separation retirement company’s defined benefit pension plans accounted accordance fasb asc topics 715 960 table presents components company’s defined benefit pension plan expense years ended december 31 thousands components pension expense service cost recorded expense income net consolidated statements operations table presents key assumptions used computation pension expense years ended december 31 1discount rates typically determined using yields longterm corporate government bonds relevant country duration consistent expected term underlying pension obligations table provides information regarding changes projected benefit obligation company’s defined benefit pension plans years ended december 31 thousands table presents key assumptions used determining projected benefit obligations december 31 1the actuarial losses 2020 2019 primarily due reduction weighted average discount rate assumption 2the company projects benefit payments made future years directly plan participants follows 18 million 2021 18 million 2022 23 million 2023 23 million 2024 25 million 2025 151 million total five years thereafter 3measured december 31 4discount rates typically determined using yields longterm corporate government bonds relevant country duration consistent expected term underlying pension obligations tables provide information regarding funded status company’s defined benefit pension plans related amounts recorded consolidated balance sheets december 31 thousands 1the pension plan assets held thirdparty trustees invested diversified portfolio equities highquality government corporate bonds investments assets primarily valued based level 1 level 2 inputs fair value hierarchy fasb asc topic 820 majority invested assets considered lowtomedium investment risk company projects future longterm rate return plan assets 119 believes reasonable based composition assets current projected market conditions additional information regarding pension plan asset activity provided 2funded status shortfall represents amount projected benefit obligation company funded thirdparty trustee liabilities company recorded liabilities consolidated balance sheets level future contributions company vary dependent number factors including investment returns interest rate fluctuations plan demographics funding regulations results final actuarial valuation 3the deferred actuarial loss december 31 2020 recorded aocil reclassified aocil recognized pension expense approximately 14 years subject certain limitations set forth fasb asc topic 715 amortization deferred actuarial losses aocil pension expense years ended december 31 2020 2019 2018 immaterial table provides rollforward company’s defined benefit pension plans assets years ended december 31 thousands company also reinsurance asset arrangement large international insurance company intended fund benefit payments one plans reinsurance asset pension plan asset company december 31 2020 2019 reinsurance asset recorded cash surrender value 100 million 89 million respectively recorded assets consolidated balance sheets company believes cash surrender value approximates fair value equivalent level 2 input fasb’s fair value hierarchy fasb asc topic 820 note 16 segment information products services delivered three segments research conferences consulting described •research provides trusted objective insights advice missioncritical priorities leaders across functional areas enterprise reports briefings proprietary tools access research experts peer networking services membership programs enable clients drive organizational performance •conferences provides business professionals across organization opportunity learn share network gartner symposiumxpo series industryleading conferences focused specific business roles topics peerdriven sessions offerings enable attendees experience best gartner insight advice •consulting combines power gartner marketleading research custom analysis ontheground support help chief information officers senior executives driving technologyrelated strategic initiatives move confidently insight action company evaluates segment performance allocates resources based gross contribution margin gross contribution presented table defined operating income loss excluding certain cost services product development expenses selling general administrative expenses depreciation amortization intangibles acquisition integration charges certain bonus fringe benefit costs included consolidated cost services product development allocated segment expense accounting policies used reportable segments used company intersegment revenues company identify allocate tangible assets including capital expenditures reportable segment accordingly tangible assets reported segment information available segment reviewed evaluation segment performance making decisions regarding allocation resources company earns revenue clients many countries united states individual country revenues external clients represent 10 company’s consolidated revenues additionally single client accounted 10 company’s consolidated revenues loss single client management’s opinion would material adverse effect revenues tables present information company’s reportable segments years ended december 31 thousands 1 2018 company divested noncore businesses comprised segment moved small residual product segment research business result operating activity recorded segment 2019 2020 note 2 acquisitions divestitures provides additional information regarding company’s 2018 divestitures table provides reconciliation total segment gross contribution net income years ended december 31 thousands 1the unallocated amounts consist certain bonus fringe costs recorded consolidated cost services product development allocated segment expense company’s policy allocate bonuses segments 100 segment employee’s target bonus amounts 100 absorbed corporate disaggregated revenue information reportable segment three years ended december 31 2020 presented note 9 revenue related matters longlived asset information geographic location december 31 summarized table thousands 1excludes goodwill intangible assets dates note 17 contingencies legal matters company involved legal proceedings litigation arising ordinary course business record provision pending litigation consolidated financial statements determine unfavorable outcome probable amount loss reasonably estimated believe potential liability excess amounts already accrued proceedings claims litigation material effect financial position cash flows results operations resolved future period indemnifications company various agreements may obligate us indemnify party respect certain matters generally indemnification clauses included contracts arising normal course business customarily agree hold party harmless losses arising breach representations related matters title assets sold licensed certain intellectual property rights possible predict maximum potential amount future payments indemnification agreements due conditional nature company’s obligations unique facts particular agreement historically payments made us agreements material december 31 2020 company material payment obligations indemnification agreements note 18 valuation qualifying accounts company maintains allowance losses comprised bad debt allowance december 31 2017 revenue reserve table summarizes activity company’s allowance losses years ended december 31 thousands 1 allowance losses december 31 2017 included 62 million attributable company’s revenue reserve result company’s adoption asc 606 january 1 2018 revenue reserve balance included accounts payable accrued liabilities consolidated balance sheets note 9 revenue related matters provides additional information regarding company’s adoption asc 606 note 19 subsequent events share repurchase authorization february 4 2021 company’s board directors authorized incremental share repurchases additional 300 million gartner’s common stock authorization addition previously authorized repurchases 12 billion end january 2021 approximately 568 million remaining psu discretionary award february 5 2020 prior covid19 related shutdown us compensation committee “committee” board directors company established performance measures performancebased rsus awarded company’s executive officers 2020 gartner inc longterm incentive plan “plan” based preliminary corporate performance results 2020 performance measures 2020 performancebased rsus would earned 50 target however february 3 2021 committee determined use discretion plan approve payout 95 target deciding exercise discretion adjust performancebased rsu payout committee considered company’s strong overall performance 2020 despite significant negative impact covid19 pandemic item 16 form 10k summary none signatures pursuant requirements securities exchange act 1934 registrant caused report form 10k signed behalf undersigned duly authorized stamford connecticut february 24 2021 power attorney person whose signature appears appoints eugene hall craig w safian acting individually attorneyinfact full power substitution capacities sign amendments report form 10k file appropriate exhibits related documents securities exchange commission undersigned ratifies confirms signatures may signed attorneyinfact amendments report pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicatednannanitem 15 exhibits financial statement schedules 1 2 consolidated financial statements schedules reports independent registered public accounting firm consolidated financial statements listed index consolidated financial statements herein filed part report financial statement schedules listed index omitted information required applicable shown consolidated financial statements notes thereto 3 exhibits index consolidated financial statements gartner inc consolidated financial statements financial statement schedules omitted information required applicable shown consolidated financial statements notes thereto report independent registered public accounting firm board directors stockholders gartner inc audited accompanying consolidated balance sheets gartner inc subsidiaries company december 31 2015 2014 related consolidated statements operations comprehensive income stockholders’ deficit equity cash flows years threeyear period ended december 31 2015 consolidated financial statements responsibility company’s management responsibility express opinion consolidated financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements referred present fairly material respects financial position gartner inc subsidiaries december 31 2015 2014 results operations cash flows years threeyear period ended december 31 2015 conformity us generally accepted accounting principles also audited accordance standards public company accounting oversight board united states company’s internal control financial reporting december 31 2015 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission coso report dated february 24 2016 expressed unqualified opinion effectiveness company’s internal control financial reporting kpmg llp logo kpmg llp new york new york february 24 2016 report independent registered public accounting firm board directors stockholders gartner inc audited gartner inc subsidiaries’ company internal control financial reporting december 31 2015 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission coso company’s management responsible maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included accompanying management’s annual report internal control financial reporting responsibility express opinion company’s internal control financial reporting based audit conducted audit accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether effective internal control financial reporting maintained material respects audit included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audit also included performing procedures considered necessary circumstances believe audit provides reasonable basis opinion company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate opinion company maintained material respects effective internal control financial reporting december 31 2015 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission coso also audited accordance standards public company accounting oversight board united states consolidated balance sheets gartner inc subsidiaries december 31 2015 2014 related consolidated statements operations comprehensive income stockholders’ deficit equity cash flows years threeyear period ended december 31 2015 report dated february 24 2016 expressed unqualified opinion consolidated financial statements kpmg llp logo kpmg llp new york new york february 24 2016 gartner inc consolidated balance sheets thousands except share data see notes consolidated financial statements gartner inc consolidated statements operations thousands except per share data see notes consolidated financial statements gartner inc consolidated statements comprehensive income thousands see notes consolidated financial statements gartner inc consolidated statements stockholders’ deficit equity thousands see notes consolidated financial statements gartner inc consolidated statements cash flows thousands see notes consolidated financial statements gartner inc notes consolidated financial statements 1 business significant accounting policies business gartner inc global information technology research advisory company founded 1979 headquarters stamford connecticut gartner delivers principal products services three business segments research consulting events used notes terms “gartner” “company” “we” “us” “our” refer gartner inc consolidated subsidiaries basis presentation accompanying consolidated financial statements prepared accordance generally accepted accounting principles united states america “us gaap” defined financial accounting standards board “fasb” accounting standards codification “asc” topic 270 financial information applicable instructions us securities exchange commission “sec” regulation sx fiscal year gartner represents twelvemonth period january 1 december 31 references 2015 2014 2013 herein refer fiscal year unless otherwise indicated principles consolidation accompanying consolidated financial statements include accounts company whollyowned subsidiaries significant intercompany transactions balances eliminated use estimates preparation accompanying consolidated financial statements requires management make estimates assumptions future events estimates underlying assumptions affect amounts assets liabilities reported disclosures contingent assets liabilities reported amounts revenues expenses estimates include valuation fees receivable goodwill intangible assets longlived assets well tax accruals liabilities addition estimates used revenue recognition income tax expense performancebased compensation charges depreciation amortization management believes use estimates accompanying consolidated financial statements reasonable management continuously evaluates revises estimates using historical experience factors including general economic environment actions may take future management adjusts estimates facts circumstances dictate however estimates may involve significant uncertainties judgments cannot determined precision addition estimates based management’s best judgment point time result differences estimates actual results could material would reflected company’s consolidated financial statements future periods business acquisitions company completed acquisitions 2015 2014 information related acquisitions included note 2 acquisitions company accounts acquisitions accordance acquisition method accounting prescribed fasb asc topic 805 business combinations acquisition method accounting requires company record net assets liabilities acquired based estimated fair values acquisition date excess consideration transferred estimated fair value net assets acquired including identifiable intangible assets recorded goodwill acquisition method operating results acquired companies included companys consolidated financial statements beginning date acquisition determination fair value intangible assets acquired acquisitions requires management judgment consideration number factors significant among historical financial performance acquired businesses projected performance estimates surrounding customer turnover well assumptions regarding level competition cost reproduce certain assets establishing useful lives amortizable intangibles also requires management judgment evaluation number factors among projected cash flows likelihood competition company classifies charges directlyrelated acquisitions line acquisition integration charges condensed consolidated statements operations company recorded 262 million 219 million 03 million charges 2015 2014 2013 respectively included directlyrelated incremental charges legal consulting retention severance accruals cash payments subject continuing employment certain key employees acquired companies 2015 company paid 92 million cash accrued achievement certain employment conditions acquisition completed 2014 revenue recognition revenue recognized accordance us gaap sec staff accounting bulletin 104 revenue recognition “sab 104” revenues recognized required criteria recognition met accompanying consolidated statements operations present revenues net sales valueadded taxes collect customers remit government authorities company’s revenues significant source follows research revenues mainly derived subscription contracts research products related revenues deferred recognized ratably applicable contract term fees derived assisting organizations selecting right business software needs recognized leads provided vendors company typically enters subscription contracts research products twelvemonth periods longer majority research contracts billable upon signing absent special terms granted limited basis time research contracts noncancelable nonrefundable except government contracts may cancellation fiscal funding clauses historically produced material cancellations policy record entire amount contract billable fee receivable time contract signed corresponding amount deferred revenue since contract represents legally enforceable claim consulting revenues primarily derived consulting measurement strategic advisory services paid oneday analyst engagements principally generated fixed fee time materials engagements revenues fixed fee engagements recognized proportional performance basis revenues time material engagements recognized work delivered andor services provided revenues related contract optimization engagements contingent nature recognized upon satisfaction conditions related payment unbilled fees receivable associated consulting engagements 432 million december 31 2015 440 million december 31 2014 events revenues deferred recognized upon completion related symposium conference exhibition addition company defers certain costs directly related events expenses costs period related symposium conference exhibition occurs companys policy defer costs primarily prepaid site production services costs incremental directly attributable specific event costs organizing producing events primarily company personnel nonevent specific expenses expensed period incurred end fiscal quarter company assesses eventbyevent basis whether expected direct costs producing scheduled event exceed expected revenues costs expected exceed revenues company records expected loss period determined allowance losses company maintains allowance losses composed bad debt allowance sales reserve provisions charged earnings either reduction revenues increase expense determination allowance losses based historical loss experience assessment current economic conditions aging outstanding receivables financial health specific clients probable losses cost services product development “cos” cos expense includes direct costs incurred creation delivery products services costs primarily relate personnel selling general administrative “sga” sga expense includes direct indirect selling costs general administrative costs charges earnings related uncollectible accounts commission expense company records commission obligations upon signing customer contracts amortizes deferred obligation commission expense period related revenues earned commission expense included sga consolidated statements operations stockbased compensation expense company accounts stockbased compensation accordance fasb asc topics 505 718 sec staff accounting bulletins 107 “sab 107” 110 “sab 110” stockbased compensation cost based fair value award date grant expensed related service period net estimated forfeitures service period employee performs related services normally vesting period 2015 2014 2013 company recognized 461 million 388 million 347 million respectively stockbased compensation expense portion recorded cos sga consolidated statements operations see note 8 stockbased compensation additional information income tax expense company uses asset liability method accounting income taxes estimate income taxes jurisdictions operate process involves estimating current tax expense together assessing temporary differences resulting differing treatment items tax accounting purposes differences result deferred tax assets liabilities included within consolidated balance sheets assessing realizability deferred tax assets management considers likely deferred tax assets realized consider availability loss carryforwards projected reversal deferred tax liabilities projected future taxable income ongoing prudent feasible tax planning strategies making assessment company recognizes tax benefit uncertain tax position likely tax position sustained based technical merits position cash equivalents includes cash highly liquid investments original maturities three months less considered cash equivalents carrying value cash equivalents approximates fair value due shortterm maturity investments maturities three months classified marketable securities interest earned classified interest income consolidated statements operations property equipment leasehold improvements company leases facilities certain equipment leases classified operating leases accordance fasb asc topic 840 cost operating leases including contractual rent increases rent concessions landlord incentives recognized ratably life related lease agreement lease expense 338 million 315 million 308 million 2015 2014 2013 respectively equipment leasehold improvements fixed assets owned company recorded cost less accumulated depreciation except leasehold improvements fixed assets depreciated using straightline method estimated useful lives assets leasehold improvements amortized using straightline method shorter estimated useful lives improvement remaining term related lease company total depreciation expense 338 million 312 million 290 million 2015 2014 2013 respectively companys total fixed assets less accumulated depreciation amortization consisted following thousands company incurs costs develop internal use software used operations certain costs meeting criteria outlined fasb asc topic 350 capitalized amortized future periods net capitalized development costs internal use software 141 million december 31 2015 2014 included computer equipment software category amortization capitalized internal software development costs classified depreciation consolidated statements operations totaled 82 million three years ended december 31 2015 intangible assets company amortizable intangible assets amortized earnings using straightline method expected useful lives changes intangible assets subject amortization twoyear period ended december 31 2015 follows thousands 1 additions due companys acquisitions see note 2 acquisitions additional information 2 noncompetition intangible relates separation agreement companys former cfo 3 intangible assets amortized earnings following periods trade name2 4 years customer relationships 4 7 years content15 4 years software3 years noncompete3 5 years 4 aggregate amortization expense related intangible assets 133 million 82 million 54 million 2015 2014 2013 respectively estimated future amortization expense year amortizable intangibles follows thousands goodwill represents excess purchase price acquired businesses estimated fair value tangible identifiable intangible net assets acquired evaluation recoverability goodwill performed accordance fasb asc topic 350 requires annual assessment potential goodwill impairment reporting unit level whenever events changes circumstances indicate carrying value goodwill may recoverable required annual assessment recoverability recorded goodwill either quantitative qualitative nature combination two methods require use estimates turn contain judgments assumptions regarding future trends events result precision reliability resulting estimates subject uncertainty annual goodwill impairment evaluation determines fair value reporting unit less related carrying amount may recognize impairment charge earnings conducted quantitative assessment fair value companys reporting units third quarter 2015 results test determined fair values companys reporting units continue exceed respective carrying values following table presents changes carrying amount goodwill segment twoyear period ended december 31 2015 thousands 1 company accumulated goodwill impairment losses 2 addition due companys acquisitions see note 2acquisitions additional discussion recorded goodwill acquisitions included research segment impairment longlived assets companys longlived assets primarily consist intangible assets goodwill property equipment leasehold improvements company reviews longlived assets impairment whenever events changes circumstances indicate carrying amount respective asset may recoverable evaluation may based number factors including current projected operating results cash flows changes management’s strategic direction well external economic market factors company evaluates recoverability assets determining whether balance recovered undiscounted future operating cash flows events circumstances indicate carrying value might recoverable based undiscounted future operating cash flows impairment loss would recognized amount impairment measured based difference projected discounted future operating cash flows using discount rate reflecting company’s average cost funds carrying value asset company record impairment charges longlived assets three year period ended december 31 2015 pension obligations company definedbenefit pension plans several international locations see note 13 employee benefits earned plans generally based years service level employee compensation company accounts defined benefit plans accordance requirements fasb asc topic 715 company determines periodic pension expense related liabilities plans actuarial assumptions valuations company recognized 35 million 34 million 38 million expense plans 2015 2014 2013 respectively company classifies pension expense sga consolidated statements operations debt company presents amounts borrowed consolidated balance sheets amortized cost interest accrued amounts borrowed classified interest expense consolidated statements operations company refinanced debt 2014 8250 million debt outstanding december 31 2015 see note 5debt additional information foreign currency exposure functional currency foreign subsidiaries typically local currency assets liabilities foreign subsidiaries translated us dollars exchange rates effect balance sheet date income expense items translated average exchange rates year resulting translation adjustments recorded foreign currency translation adjustments component accumulated comprehensive loss income net within stockholders’ deficit equity section consolidated balance sheets currency transaction gains losses arising transactions denominated currencies functional currency subsidiary recognized results operations income expense net within consolidated statements operations company net currency transaction losses 26 million 17 million 09 million 2015 2014 2013 respectively company enters foreign currency forward exchange contracts mitigate effects adverse fluctuations foreign currency exchange rates transactions contracts generally short duration recorded fair value realized unrealized gains losses recorded expense net loss gain contracts 01 million 06 million 01 million 2015 2014 2013 respectively comprehensive income company reports comprehensive income separate statement termed consolidated statements comprehensive income included herein companys comprehensive income disclosures included note 7 stockholders deficit equity fair value disclosures company limited number assets liabilities adjusted fair value balance sheet date company’s fair value disclosures included note 12 fair value disclosures concentrations credit risk assets may subject company concentration credit risk consist primarily shortterm highly liquid investments classified cash equivalents fees receivable interest rate swaps pension reinsurance asset majority company’s cash equivalent investments interest rate swap contracts investment grade commercial banks accounts receivable balances deemed collectible customers limited concentration credit risk due diverse customer base geographic dispersion company’s pension reinsurance asset see note 13 employee benefits maintained large international insurance company rated investment grade december 31 2015 stock repurchase programs company records cost repurchase common shares treasury stock 2015 2014 2013 company used 5090 million 4320 million 1817 million respectively cash stock repurchases see note 7 stockholders’ deficit equity shares repurchased company added treasury shares retired adoption new accounting rules company adopted following new accounting rules year ended december 31 2015 balance sheet classification deferred taxes company early adopted fasb accounting standard update 201517 income taxes balance sheet classification deferred taxes december 31 2015 asu 201517 organizations present classified balance required classify deferred taxes noncurrent assets noncurrent liabilities company early adopted standard prospective basis prior period balance sheets retrospectively adjusted impact reclassification amounts companys december 31 2015 balance sheet immaterial discontinued operations company adopted fasb accounting standards update 201408 reporting discontinued operations disclosures disposals components entity january 1 2015 changes criteria determining disposal transactions presented discontinued operations modifies related disclosure requirements new guidance discontinued operation defined disposal component group components disposed classified held sale represents strategic shift major effect entity’s operations financial results adoption rule impact companys consolidated financial statements adoption however rule may impact companys consolidated financial statements future periods company discontinued operation recently issued accounting rules fasb also issued accounting rules yet become effective may impact company’s consolidated financial statements related disclosures future periods rules potential impact discussed business combinations september 2015 fasb issued accounting standards update asu 201516 business combinations simplifying accounting measurementperiod adjustments asu 201516 asu 201516 requires recognition adjustments business combination provisional amounts identified measurement period reporting period adjustments determined effects adjustments provisional amounts depreciation amortization income effects recognized currentperiod earnings accounting completed acquisition date disclosure portion adjustment recorded currentperiod earnings would reported prior reporting periods adjustment provisional amounts recognized acquisition date also required rule applied retrospectively effective gartner january 1 2016 asu 201516 impact company’s consolidated financial statements date adoption however asu 201616 could impact companys consolidated financial statements future transaction occurs within scope rule debt issuance cost presentation april 2015 fasb issued asu 201503 “simplifying presentation debt issuance costs” amends current presentation debt issuance costs financial statements asu 201503 requires debt issuance costs related recognized debt liability presented balance sheet direct deduction carrying amount debt liability consistent debt discounts instead deferred asset amendment applied retrospectively effective gartner january 1 2016 adoption new guidance likely result minor presentation changes company’s consolidated balance sheet disclosures revenue recognition may 2014 fasb issued asu 201409 revenue contracts customers asu 201409 asu 201409 related amendment intended clarify principles recognizing revenue removing inconsistencies weaknesses revenue recognition requirements providing robust framework addressing revenue issues improving comparability revenue recognition practices across entities industries jurisdictions capital markets providing useful information users financial statements improved revenue disclosure requirements asu 201409 effective gartner january 1 2018 continue evaluate impact asu 201409 fasb also continues work number significant accounting rules issued could materially impact companys accounting policies disclosures future periods however since rules yet issued effective dates potential impact unknown 2 acquisitions company completed following business acquisitions years ended december 31 company acquired 100 outstanding capital stock nubera ebusiness sl based barcelona spain nubera july 1 2015 capterra inc based arlington virginia capterra september 24 2015 acquired businesses assist organizations selecting right business software needs following table provides information regarding cash paid companys 2015 acquisitions millions 1 aggregate purchase price represents gross cash paid 100 outstanding capital stock acquired businesses includes 1792 million paid capterra approximately 277 million paid nubera 2 aggregate purchase price includes 300 million placed escrow cover potential indemnification claims amount 256 million restricted cash reported assets companys condensed consolidated balance sheets 3 cash acquired represents amount cash acquired businesses net cash paid represents amount paid cash flow reporting purposes addition aggregate purchase price paid businesses company may also required pay additional 320 million cash future subject continuing employment certain key employees 320 million recognized compensation expense three years reported line acquisition integration charges consolidated statements operations following table summarizes preliminary allocation purchase price fair value assets liabilities assumed 2015 acquisitions millions 1 includes 685 million 1211 million amortizable intangible assets goodwill respectively capterra approximately 111 million 170 million amortizable intangible assets goodwill respectively nubera 2 includes 256 million capterra escrow liability escrow liability scheduled paid late 2017 restricted cash company considers allocation purchase price preliminary respect completion certain tax contingencies finalization working capital adjustments company believes recorded goodwill supported anticipated revenue synergies resulting acquisitions operating results acquired businesses related goodwill reported companys research segment companys financial statements include operating results acquired businesses beginning respective acquisition dates material either companys consolidated operating results research segment results 2015 company acquired businesses prior periods impact companys operating results prior periods would material result pro forma financial information prior periods presented company acquired 100 outstanding shares three companies software advice inc “software advice” marketvisio oy marketvisio sircleit inc 2014 aggregate purchase price acquisitions 1154 million software advice assists customers software purchases marketvisio previously independent sales agent gartner research products sircleit inc developer cloudbased knowledge automation software cash flow reporting company paid 1099 million cash net basis 2014 acquisitions addition company placed 144 million escrow 08 million paid 2015 company recorded 1103 million goodwill intangible assets related 2014 acquisitions 51 million assets net basis addition aggregate purchase price paid company also obligated pay additional 319 million one acquisitions payment amount subject continuing employment certain key personnel satisfaction certain indemnity claims 319 million recognized compensation expense twoyear service period relevant employees classified line item acquisition integration charges consolidated statements operations company paid 92 million 319 million early 2015 anticipates pay remaining 227 million first half 2016 136 million paid escrow 3 assets consist following thousands 4 accounts payable accrued liabilities accounts payable accrued liabilities consist following thousands liabilities consist following thousands 5 debt 2014 credit agreement company 15 billion credit arrangement “2014 credit agreement” provides fiveyear 4000 million term loan 11 billion revolving credit facility addition 2014 credit agreement contains expansion feature term loan revolving credit facility may increased company’s option certain conditions additional 5000 million aggregate term loan repaid 16 consecutive quarterly installments commenced march 31 2015 plus final payment due december 2019 may prepaid time without penalty premium applicable breakage costs company’s option revolving credit facility may used loans 400 million may used letters credit revolving loans may borrowed repaid reborrowed december 2019 time amounts borrowed must repaid amounts borrowed 2014 credit agreement bear interest rate equal gartner’s option either 1 greater administrative agent’s prime rate ii average rate overnight federal funds plus 12 1 iii eurodollar rate adjusted statutory reserves plus 1 case plus margin equal 0125 050 depending gartner’s consolidated leverage ratio end four consecutive fiscal quarters recently ended 2 eurodollar rate adjusted statutory reserves plus margin equal 1125 150 depending gartner’s leverage ratio end four consecutive fiscal quarters recently ended 2014 credit agreement contains certain customary restrictive loan covenants including among others financial covenants requiring maximum leverage ratio minimum interest expense coverage ratio covenants limiting gartner’s ability incur indebtedness grant liens make acquisitions acquired dispose assets pay dividends repurchase stock make capital expenditures make investments enter certain transactions affiliates company full compliance loan covenants december 31 2015 following table summarizes company’s total outstanding borrowings thousands 1 contractual annual interest rate december 31 2015 term loan revolver 180 consisted floating eurodollar base rate 042 plus margin 138 however company interest rate swap contracts convert floating eurodollar base rate fixed base rate 7000 million borrowings see 2 company 6560 million available borrowing capacity revolver including expansion feature december 31 2015 3 consists 50 million state connecticut economic development loan 30 fixed rate interest loan originated 2012 10 year maturity principal payments deferred first five years loan may repaid point company without penalty loan principal forgiveness provision 25 million loan may forgiven company meets certain employment targets first five years loan 4 december 31 2015 350 million debt classified short term 7900 million classified long term consolidated balance sheets 5 weightedaverage annual interest rate companys outstanding debt december 31 2015 276 includes impact companys interest swap contracts interest rate hedges company three fixedforfloating interest rate swap contracts designates accounting hedges forecasted interest payments 7000 million company’s variable rate borrowings company pays base fixed rates swaps ranging 153 160 return receives floating eurodollar base rate 7000 million 30 day notional borrowings company accounts interest rate swaps cash flow hedges accordance fasb asc topic 815 since swaps hedge forecasted interest payments changes fair value swaps recorded accumulated comprehensive loss income component equity long swaps continue highly effective hedges designated interest rate risk ineffective portion change fair value hedges recorded earnings swaps highly effective hedges forecasted interest payments december 31 2015 interest rate swaps total negative fair value company december 31 2015 2014 51 million 29 million respectively deferred classified accumulated comprehensive loss income net tax effect letters credit company 82 million letters credit related guarantees outstanding yearend 2015 company issues instruments ordinary course business facilitate transactions customers others 6 commitments contingencies contractual lease commitments company leases various facilities computer office equipment furniture assets noncancelable operating lease agreements expiring 2016 2030 future minimum annual cash payments operating lease agreements december 31 2015 follows thousands legal matters involved various legal administrative proceedings litigation arising ordinary course business outcome individual matters predictable time however believe ultimate resolution matters considering amounts already accrued insurance coverage material adverse effect financial position results operations cash flows future periods indemnifications company various agreements may obligate us indemnify party respect certain matters generally indemnification clauses included contracts arising normal course business customarily agree hold party harmless losses arising breach representations related matters title assets sold licensed certain intellectual property rights possible predict maximum potential amount future payments indemnification agreements due conditional nature company’s obligations unique facts particular agreement historically payments made us agreements material december 31 2015 indemnification agreements could require material payments 7 stockholders’ deficit equity common stock holders gartner’s common stock par value 0005 per share “common stock” entitled one vote per share matters voted stockholders company currently pay cash dividends common stock also 2014 credit agreement contains negative covenant may limit ability pay dividends following table summarizes transactions relating common stock three years ending december 31 2015 1 company used total 5090 million 4320 million 1817 million cash share repurchases 2015 2014 2013 respectively share repurchase authorization company 12 billion board authorization repurchase companys common stock company may repurchase common stock timetotime amounts prices company deems appropriate subject availability stock prevailing market conditions trading price stock company’s financial performance conditions repurchases may made open market purchases private transactions funded cash hand borrowings company’s 2014 credit agreement december 31 2015 approximately 11 billion authorization remained available repurchases accumulated comprehensive loss income net following tables disclose information changes accumulated comprehensive loss income aocli component equity component related amounts reclassified aocli income years indicated net tax thousands 1 amounts parentheses represent debits deferred losses 2 reclassifications related interest rate swaps cash flow hedge recorded interest expense net tax effect see note 11 derivatives hedging information regarding hedges 3 reclassifications related defined benefit pension plans recorded selling general administrative expense net tax effect see note 13 employee benefits information regarding company’s defined benefit pension plans 8 stockbased compensation company grants stockbased compensation awards incentive employees directors contribute company’s longterm success company currently awards stocksettled stock appreciation rights servicebased performancebased restricted stock units common stock equivalents december 31 2015 company 70 million shares common stock available awards stockbased compensation 2014 longterm incentive plan company accounts stockbased compensation awards accordance fasb asc topics 505 718 sec staff accounting bulletins 107 “sab 107” 110 “sab 110” stockbased compensation expense based fair value award date grant recognized expense related service period net estimated forfeitures service period related service performed generally vesting period currently company issues treasury shares upon exercise release settlement stockbased compensation awards determining appropriate fair value model calculating fair value stockbased compensation awards requires input certain complex subjective assumptions including expected life stockbased compensation awards common stock price volatility addition determining appropriate amount associated periodic expense requires management estimate amount employee forfeitures likelihood achievement certain performance targets assumptions used calculating fair value stockbased compensation awards associated periodic expense represent management’s best estimates involve inherent uncertainties application judgment result factors change company deems necessary future modify assumptions made use different assumptions quantity nature company’s stockbased compensation awards changes amount expense may need adjusted future stockbased compensation expense could materially different recorded current period company recognized following amounts stockbased compensation expense award type years ended december 31 millions 1 includes charges 201 million 148 million 125 million 2015 2014 2013 respectively awards retirementeligible employees awards vest accelerated basis stockbased compensation expense recognized line item consolidated statements operations years ended december 31 follows millions december 31 2015 company 479 million total unrecognized stockbased compensation cost expected recognized stockbased compensation expense remaining weightedaverage service period approximately 22 years stockbased compensation awards following disclosures provide information regarding company’s stockbased compensation awards classified equity awards accordance fasb asc topic 505 stock appreciation rights stocksettled stock appreciation rights sars permit holder participate appreciation companys common stock sars settled shares common stock employee applicable vesting criteria met sars vest ratably fouryear service period expire seven years grant date fair value sars awards recognized compensation expense straightline basis four years sars awarded company’s executive officers sars exercised number shares common stock issued calculated follows 1 total proceeds sars exercise calculated closing price common stock date exercise less exercise price sars multiplied number sars exercised divided 2 closing price common stock reported new york stock exchange exercise date company withholds portion shares common stock issued upon exercise satisfy minimum statutory tax withholding requirements sars recipients stockholder rights actual shares common stock issued respect award subject prior satisfaction vesting criteria relating grants following table summarizes changes sars outstanding year ended december 31 2015 na applicable 1 december 31 2015 08 million sars unvested company expects substantially unvested awards vest future periods 2 december 31 2015 sars outstanding intrinsic value 458 million sars vested exercisable intrinsic value 237 million fair value sars granted estimated date grant using blackscholesmerton valuation model following weightedaverage assumptions years ended december 31 1 dividend yield assumption based history expectation company’s dividend payouts historically company paid cash dividends common stock 2 determination expected stock price volatility based historical common stock prices implied volatility publicly traded options common stock 3 riskfree interest rate based yield us treasury security maturity similar expected life award 4 expected life represents company’s weightedaverage estimate period time sars expected outstanding period service inception date expected exercise date restricted stock units restricted stock units rsus give awardee right receive shares common stock vesting conditions met restrictions lapse rsu vests entitles awardee one common share rsu awardees right gartner stockholder including voting rights right receive dividends distributions shares released fair value rsus determined date grant based closing price common stock reported new york stock exchange date servicebased rsus vest ratably four years expensed straightline basis four years performancebased rsus subject performance service conditions vest ratably four years expensed accelerated basis following table summarizes changes rsus outstanding year ended december 31 2015 1 06 million rsus granted 2015 consisted 03 million performancebased rsus awarded executives 03 million servicebased rsus awarded nonexecutive employees nonmanagement board members aggregate target number performancebased rsus awarded 2015 02 million final award subject adjustment 0 200 target number depending upon level achieved companys subscriptionbased research contract value cv measured december 31 2015 actual cv level achieved 2015 resulted adjustment 160 target number performancebased rsus awarded turn resulted final grant approximately 03 million performancebased rsus executives 2015 2 company expects substantially outstanding awards december 31 2015 vest future periods 3 weightedaverage remaining contractual term outstanding rsus approximately 1 year common stock equivalents common stock equivalents cses convertible common stock cse entitles holder one common share members board directors receive directors’ fees payable cses unless opt receive 50 fees cash generally cses defined term converted common shares service director terminates unless director elected accelerated release fair value cses determined date grant based closing price common stock reported new york stock exchange date cses vest immediately result recorded expense date grant following table summarizes changes cses outstanding year ended december 31 2015 employee stock purchase plan company employee stock purchase plan “esp plan” eligible employees permitted purchase common stock payroll deductions may exceed 10 employee’s compensation 23750 calendar year price equal 95 closing price common stock reported new york stock exchange end offering period december 31 2015 company approximately 10 million shares available purchase esp plan esp plan considered noncompensatory fasb asc topic 718 result company record stockbased compensation expense employee share purchases company received 75 million 78 million 60 million cash share purchases esp plan exercises stock options 2015 2014 2013 respectively 9 computation earnings per share basic earnings per share “eps” computed dividing net income weighted average number shares common stock outstanding period diluted eps reflects potential dilution securities could share earnings impact common share equivalents antidilutive excluded calculation following table sets forth reconciliation basic diluted earnings per share computations years ended december 31 thousands except per share amounts 1 company repurchased 62 million 59 million 34 million shares common stock 2015 2014 2013 respectively following table presents number common share equivalents included computation diluted eps table effect would antidilutive periods net income common share equivalents antidilutive exercise price greater average market value share common stock period 10 income taxes following summary components income taxes years ended december 31 thousands expense income taxes income consists following components thousands current longterm deferred tax assets liabilities comprised following thousands 1 reduction net deferred tax assets yearoveryear primarily attributable recognition deferred tax liabilities purchased intangibles conjunction companys 2015 acquisitions company early adopted fasb accounting standard update 201517 income taxes balance sheet classification deferred taxes december 31 2015 asu 201517 organizations present classified balance required classify deferred taxes noncurrent assets noncurrent liabilities company early adopted standard prospective basis prior period balance sheets retrospectively adjusted impact reclassification amounts companys december 31 2015 balance sheet immaterial pursuant adoption asu 201517 company current deferred tax assets liabilities december 31 2015 december 31 2014 current net deferred tax assets current net deferred tax liabilities 175 million 21 million respectively reported prepaid expenses current assets accounts payable accrued liabilities consolidated balance sheets longterm net deferred tax assets longterm net deferred tax liabilities 264 million 234 million december 31 2015 180 million 06 million december 31 2014 respectively reported assets liabilities consolidated balance sheets management concluded likely reversal deferred tax liabilities results future operations generate sufficient taxable income realize deferred tax assets net valuation allowance december 31 2015 valuation allowances 18 million december 31 2015 06 million 2014 primarily relate net operating losses likely realized december 31 2015 company state local tax net operating loss carryforwards 55 million 04 million expire within one five years 31 million expire within six fifteen years 20 million expire within sixteen twenty years company also state tax credits 12 million largely expire within two five years december 31 2015 company nonus net operating loss carryforwards 239 million 03 million expire next 20 years 236 million carried forward indefinitely addition company also foreign tax credit carryforwards 03 million majority expire end 2026 amounts reduced unrecognized tax benefits consistent fasb asu 201311 differences us federal statutory income tax rate company’s effective tax rate income taxes years ended december 31 follow 2015 company decided sell certain tax credits would otherwise expire result audit settlement enactment tax legislation connecticut favorable company provision income taxes includes benefit audit settlement offset expense reduction tax credits sold income includes gain 68 million sale tax credits 2015 2014 state income taxes net federal tax benefit include approximately 16 million 13 million respectively benefit relating economic development tax credits associated renovation company’s stamford headquarters facility july 2015 united states tax court “court” issued opinion relating treatment stockbased compensation expense intercompany costsharing arrangement opinion court held affiliated companies may exclude stockbased compensation expense costsharing arrangement uncertainty related final resolution litigation recognition potential benefits company recorded financial benefit associated decision company monitor developments related case potential impact developments company’s current future financial statements december 31 2015 december 31 2014 company unrecognized tax benefits 259 million 206 million respectively increase primarily attributable positions taken respect exclusion stockbased compensation expense companys costsharing arrangement unrecognized tax benefits december 31 2015 related primarily utilization certain tax attributes state income tax positions ability realize certain refund claims intercompany transactions reasonably possible unrecognized tax benefits decreased 13 million within next 12 months due anticipated closure audits expiration certain statutes limitation included balance unrecognized tax benefits december 31 2015 potential benefits 208 million recognized would reduce effective tax rate income continuing operations also included balance unrecognized tax benefits december 31 2015 potential benefits 51 million recognized would result adjustments tax accounts primarily deferred taxes additional paid capital company classifies uncertain tax positions expected settled within one year long term liabilities december 31 2015 december 31 2014 company 246 million 157 million respectively related long term uncertain tax positions following reconciliation beginning ending amount unrecognized tax benefits excluding interest penalties years ending december 31 thousands company accrues interest penalties related unrecognized tax benefits income tax provision december 31 2015 december 31 2014 company 37 million 33 million respectively accrued interest penalties related unrecognized tax benefits amounts addition unrecognized tax benefits disclosed total amount interest penalties recognized consolidated statements operations years ending december 31 2015 december 31 2014 09 million 01 million respectively number years open statutes limitation varies depending tax jurisdiction company’s statutes open respect us federal jurisdiction 2011 forward india 2003 forward major taxing jurisdictions including us states united kingdom canada japan france ireland companys statutes vary open far back 2009 us accounting rules provision income taxes may result remittance earnings held overseas required company intends reinvest funds overseas current plans demonstrate need repatriate undistributed earnings fund us operations otherwise satisfy liquidity needs us operations intend reinvest earnings nonus operations except instances repatriation earnings would result minimal additional tax result company recognized additional income tax expense may result remittance earnings accumulated undistributed earnings nonus subsidiaries approximately 2700 million december 31 2015 income tax would payable earnings indefinitely invested estimated 600 million 11 derivatives hedging company enters limited number derivative contracts offset potentially negative economic effects interest rate foreign exchange movements company accounts outstanding derivative contracts accordance fasb asc topic 815 requires derivatives including derivatives designated accounting hedges recorded balance sheet fair value following tables provide information regarding company’s outstanding derivatives contracts years ended december 31 thousands except number outstanding contracts 1 swap designated cash flow hedge forecasted interest payments borrowings result changes fair value swap deferred recorded oci net tax effect see note 5 debt additional information 2 company foreign exchange transaction risk since typically enters transactions normal course business denominated foreign currencies differ local functional currency company enters shortterm foreign currency forward exchange contracts mitigate economic effects foreign currency transaction risks contracts accounted fair value realized unrealized gains losses recognized expense net since company designate contracts hedges accounting purposes outstanding contracts december 31 2015 matured end january 2016 3 see note 12 fair value disclosures determination fair value instruments december 31 2015 company’s derivative counterparties large investment grade financial institutions company collateral arrangements derivative counterparties none derivative contracts contained creditrisk related contingent features following table provides information regarding amounts recognized consolidated statements operations derivative contracts years ended december 31 thousands 1 consists interest expense interest rate swap contracts 2 consists realized unrealized gains losses foreign currency forward contracts 12 fair value disclosures company’s financial instruments include cash equivalents fees receivable customers accounts payable accruals normally shortterm nature company believes carrying amounts financial instruments reasonably approximates fair value due shortterm nature company’s financial instruments also includes borrowings outstanding 2014 credit agreement december 31 2015 company 8200 million floating rate debt outstanding arrangement carried amortized cost company believes carrying amount outstanding borrowings reasonably approximates fair value since rate interest borrowings reflect current market rates interest similar instruments comparable maturities fasb asc topic 820 provides framework measurement fair value valuation hierarchy based upon transparency inputs used valuation assets liabilities classification within hierarchy based upon lowest level input significant resulting fair value measurement valuation hierarchy contains three levels level 1 measurements consist quoted prices active markets identical assets liabilities level 2 measurements include significant observable inputs quoted prices similar assets liabilities active markets identical assets liabilities inactive markets observable inputs interest rates yield curves marketcorroborated inputs level 3 measurements include significant unobservable inputs internallycreated valuation models company currently utilize level 3 valuation inputs remeasure assets liabilities however level 3 inputs may used company required annual impairment review goodwill information regarding periodic assessment company’s goodwill included note 1 business significant accounting policies company typically transfer assets liabilities different levels fair value hierarchy company enters limited number derivatives transactions hedge certain interest rate foreign currency risks enter repurchase agreements securities lending transactions master netting arrangements receivables payables result derivatives transactions recorded gross company’s consolidated balance sheets company’s assets liabilities remeasured fair value presented following table thousands 1 company deferred compensation plan benefit certain highly compensated officers managers key employees see note 13 employee benefits plan’s assets consist investments money market mutual funds companyowned life insurance contracts money market funds consist cash equivalents mutual fund investments consist publiclytraded quoted equity shares company considers fair value assets based level 1 inputs assets fair value 87 million 77 million december 31 2015 2014 respectively carrying amount life insurance contracts equals cash surrender value cash surrender value represents estimated amount company would receive upon termination contract approximates fair value company considers life insurance contracts valued based level 2 input assets fair value 255 million 270 million december 31 2015 2014 respectively related deferred compensation plan liabilities recorded amount needed settle liability approximates fair value based level 2 input 2 company enters foreign currency forward exchange contracts hedge effects adverse fluctuations foreign currency exchange rates see note 11 derivatives hedging valuation foreign currency forward contracts based foreign currency exchange rates active markets company considers level 2 input 3 company interest rate swap contracts hedge risk variability cash flows associated changes floating rates interest borrowings see note 11 derivatives hedging fair values swaps based marktomarket valuations provided thirdparty broker valuation based observable interest rates recently executed market transactions observable market data company considers level 2 inputs company independently corroborates reasonableness valuations prepared thirdparty broker use electronic quotation service 13 employee benefits defined contribution plan company savings investment plan “401k plan” covering substantially us employees company contributions based upon level employee contributions maximum 4 employee’s eligible salary subject annual maximum 2015 maximum match 7200 amounts expensed connection 401k plan totaled 200 million 174 million 158 million 2015 2014 2013 respectively deferred compensation plan company supplemental deferred compensation plan benefit certain highly compensated officers managers key employees structured rabbi trust plan’s investment assets classified assets consolidated balance sheets fair value assets 341 million 347 million december 31 2015 2014 respectively see note 12 fair value disclosures detailed fair value information corresponding deferred compensation liability 391 million december 31 2015 2014 carried fair value adjusted corresponding charge credit compensation expense reflect fair value amount owed employees classified liabilities consolidated balance sheets total compensation expense recognized plan 05 million 06 million 04 million 2015 2014 2013 defined benefit pension plans company definedbenefit pension plans several nonus locations benefits earned plans based years service level employee compensation company accounts defined benefit plans accordance requirements fasb asc topics 715 960 following components defined benefit pension expense years ended december 31 thousands 1 pension expense classified sga consolidated statements operations following key assumptions used computation pension expense years ended december 31 1 discount rates typically determined utilizing yields longterm corporate government bonds relevant country duration consistent expected term underlying pension obligations following table provides information related changes projected benefit obligation years ended december 31 thousands 1 company estimates following benefit payments made future years plan participants 09 million 2016 20 million 2017 11 million 2018 12 million 2019 14 million 2020 90 million total five years thereafter 2 measured december 31 following table provides information regarding funded status plans related amounts recorded company’s consolidated balance sheets december 31 thousands 1 pension plan assets held thirdparty trustees invested diversified portfolio equities high quality government corporate bonds investments assets primarily valued based level 1 level 2 inputs fair value hierarchy fasb asc topic 820 majority invested assets considered lowtomedium investment risk company projects future longterm rate return plan assets 27 believes reasonable based composition assets current projected market conditions yearended december 31 2015 company contributed 13 million plans benefits paid participants 08 million 2 funded status shortfall represents amount projected benefit obligation company funded thirdparty trustee amount liability company recorded liabilities company’s consolidated balance sheets 3 deferred actuarial loss december 31 2015 recorded aocli reclassified aocli recognized pension expense approximately 13 years subject certain limitations set forth fasb asc topic 715 impact amortization pension expense 2016 projected result approximately 02 million additional expense amortization deferred actuarial losses aocli pension expense three years ending december 31 2015 immaterial company also maintains reinsurance asset arrangement large international insurance company whose purpose provide funding benefit payments one plans reinsurance asset pension plan asset company december 31 2015 reinsurance asset recorded cash surrender value 79 million classified assets companys consolidated balance sheet company believes cash surrender value approximates fair value equivalent level 2 input fasb’s fair value framework asc topic 820 14 segment information company manages business three reportable segments research consulting events research consists primarily subscriptionbased research products access research inquiry peer networking services membership programs consulting consists primarily consulting measurement engagements strategic advisory services events consists various symposia conferences exhibitions company evaluates reportable segment performance allocates resources based gross contribution margin gross contribution presented table defined operating income excluding certain cos expenses sga expense depreciation acquisition integration charges amortization intangibles certain bonus fringe benefit costs included consolidated cos allocated segment expense accounting policies used reportable segments used company intersegment revenues company earns revenue clients many countries united states individual country revenues external clients represent 10 company’s consolidated revenues additionally single client accounted 10 total revenue loss single client management’s opinion would material adverse effect revenues company identify allocate assets including capital expenditures reportable segment accordingly assets reported segment information available segment reviewed evaluation performance making decisions allocation resources following tables present operating information company’s reportable segments years ended december 31 thousands following table provides reconciliation total segment gross contribution net income periods indicated thousands 1 unallocated amounts consist certain bonus related fringe costs recorded consolidated cost services product development expense allocated segment expense companys policy allocate bonus related fringe charges segments 100 segment employees target bonus amounts 100 absorbed corporate company’s revenues generated primarily direct sales clients domestic international sales forces network independent international sales agents company’s products services provided integrated worldwide basis integrated delivery practical precisely separate revenues geographic location accordingly separation set forth table based upon internal allocations involve certain management estimates judgments revenues table reported based sale fulfilled “other international” revenues attributable areas located outside united states canada well europe middle east africa summarized information geographic location years ended december 31 follows thousands 1 excludes goodwill intangible assets 15 valuation qualifying accounts company maintains allowance losses composed bad debt allowance revenue reserve provisions charged earnings either increase expense reduction revenues following table summarizes activity company’s allowance years ended december 31 thousands signatures pursuant requirements securities exchange act 1934 registrant caused report form 10k signed behalf undersigned duly authorized stamford connecticut february 24 2016 power attorney person whose signature appears appoints eugene hall craig w safian acting individually attorneyinfact full power substitution capacities sign amendments report form 10k file appropriate exhibits related documents securities exchange commission undersigned ratifies confirms signatures may signed attorneyinfact amendments report pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicateditem 15 exhibits financial statement schedules 1 2 consolidated financial statements schedules reports independent registered public accounting firm consolidated financial statements listed index consolidated financial statements herein filed part report financial statement schedules listed index omitted information required applicable shown consolidated financial statements notes thereto 3 exhibits index consolidated financial statements gartner inc consolidated financial statements report independent registered public accounting firm report independent registered public accounting firm consolidated balance sheets december 31 2008 2007 consolidated statements operations years ended december 31 2008 2007 2006 consolidated statements stockholders’ deficit equity comprehensive income years ended december 31 2008 2007 2006 consolidated statements cash flows years ended december 31 2008 2007 2006 notes consolidated financial statements financial statement schedules omitted information required applicable shown consolidated financial statements notes thereto report independent registered public accounting firm board directors stockholders gartner inc audited accompanying consolidated balance sheets gartner inc subsidiaries gartner inc company december 31 2008 2007 related consolidated statements operations stockholders’ deficit equity comprehensive income cash flows years threeyear period ended december 31 2008 consolidated financial statements responsibility company’s management responsibility express opinion consolidated financial statements based audits conducted audits accordance generally accepted auditing standards established auditing standards board united states accordance auditing standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements referred present fairly material respects financial position gartner inc subsidiaries december 31 2008 2007 results operations cash flows years ended conformity us generally accepted accounting principles also audited accordance standards public company accounting oversight board united states gartner inc’s internal control financial reporting december 31 2008 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso report dated february 20 2009 expressed unqualified opinion effectiveness company’s internal control financial reporting kpmg llp new york new york february 20 2009 report independent registered public accounting firm board directors stockholders gartner inc audited gartner inc subsidiaries gartner inc company internal control financial reporting december 31 2008 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso gartner inc’s management responsible maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included accompanying management’s annual report internal control financial reporting responsibility express opinion company’s internal control financial reporting based audit conducted audit accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether effective internal control financial reporting maintained material respects audit included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audit also included performing procedures considered necessary circumstances believe audit provides reasonable basis opinion company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate opinion gartner inc maintained material respects effective internal control financial reporting december 31 2008 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission also audited accordance standards public company accounting oversight board united states consolidated balance sheets gartner inc subsidiaries december 31 2008 2007 related consolidated statements operations stockholders’ deficit equity comprehensive income cash flows years threeyear period ended december 31 2008 report dated february 20 2009 expressed unqualified opinion consolidated financial statements kpmg llp new york new york february 20 2009 gartner inc consolidated balance sheets thousands except share data see notes consolidated financial statements gartner inc consolidated statements operations thousands except per share data see notes consolidated financial statements gartner inc consolidated statements stockholders’ deficit equity comprehensive income thousands see notes consolidated financial statements gartner inc consolidated statements cash flows thousands see notes consolidated financial statements gartner inc notes consolidated financial statements 1summary significant accounting policies basis presentation fiscal year gartner inc “company” represents period january 1 december 31 certain prior year amounts reclassified conform current year presentation used notes terms “company” “we” “us” “our” mean gartner inc consolidated subsidiaries principles consolidation consolidated financial statements include accounts company majorityowned subsidiaries significant intercompany transactions balances eliminated investments companies company owns less 50 ability exercise significant influence operating financial policies accounted using equity method investments company ability exercise significant influence accounted cost method accounting april 1 2005 company acquired meta group inc “meta” technology research firm acquisition accounted purchase business combination consolidated financial statements include results meta date acquisition use estimates preparation accompanying consolidated financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions future events estimates underlying assumptions affect amounts assets liabilities reported disclosures contingent assets liabilities reported amounts revenues expenses estimates include valuation accounts receivable goodwill intangible assets longlived assets well tax accruals liabilities addition estimates used revenue recognition income tax expense stockbased compensation charges depreciation amortization allowance loan losses management believes use estimates accompanying consolidated financial statements reasonable management evaluates estimates ongoing basis using historical experience factors include general economic environment adjust estimates facts circumstances dictate however estimates may involve significant uncertainties judgments cannot determined precision addition estimates based best judgment point time current global credit crisis economic downturn volatile foreign currency rates cuts travel marketing technology budgets combined increase risks uncertainty inherent estimates external factors increased risks company’s faces relates particular estimates regarding collection receivables valuation goodwill future events effects cannot determined precision actual results could differ significantly estimates used changes estimates resulting continuing weakness economic environment could material would reflected company’s financial statements future periods revenues commission expense recognition company typically enters annually renewable subscription contracts research products revenues research products deferred recognized ratably applicable contract term company records commission obligation related research contracts upon signing contract amortizes corresponding deferred commission expense contract period related revenues earned majority research contracts billable upon signing absent special terms granted limited basis time research contracts noncancelable nonrefundable except government contracts may cancellation fiscal funding clauses produced material cancellations date exception certain government contracts permit termination contracts special billing terms company policy record entire amount contract billable fee receivable time contract signed represents legally enforceable claim corresponding amount deferred revenue government contracts permit termination company bills client full amount billable contract records receivable equal earned portion contract addition company records deferred revenue government contracts cash received deferred revenue attributable government contracts 616 million 576 million december 31 2008 2007 respectively addition december 31 2008 2007 company recognized receivables deferred revenues relating government contracts permit termination 121 million 108 million respectively billed yet collected consulting revenues primarily derived consulting measurement strategic advisory services paid oneday analyst engagements principally generated fixed fee time materials discrete projects revenues projects recognized work delivered andor services provided unbilled fees receivables associated consulting engagements 353 million december 31 2008 358 million december 31 2007 revenues related contract optimization contracts contingent nature recognized upon satisfaction conditions related payment events revenues deferred recognized upon completion related symposium conference exhibition addition company defers certain costs directly related events expenses costs period related symposium conference exhibition occurs company policy defer costs primarily prepaid site production services costs incremental directly attributable specific event costs organizing producing events primarily company personnel nonevent specific expenses expensed period incurred end fiscal quarter company assesses eventbyevent basis whether expected direct costs producing scheduled event exceed expected revenues costs expected exceed revenues company records expected loss period determined revenues consist primarily fees research reprints reprint fees recognized reprint shipped cash equivalents highly liquid investments original maturities three months less classified cash equivalents carrying value investments approximates fair value based upon shortterm maturity investments maturities three months classified marketable securities property leases costs lease facilities including contractual rent concessions rent increases expensed ratably life lease expense 225 million 2008 238 million 2007 226 million 2006 property equipment leasehold improvements property equipment leasehold improvements stated cost less accumulated depreciation amortization property equipment depreciated using straightline method estimated useful lives assets leasehold improvements amortized using straightline method shorter estimated useful lives assets remaining term related leases property equipment leasehold improvements less accumulated depreciation amortization consist following thousands total depreciation expense 259 million 243 million 234 million 2008 2007 2006 respectively december 31 2008 2007 capitalized development costs internal use software 196 million 186 million respectively net accumulated amortization 189 million 124 million respectively amortization capitalized internal software development costs included depreciation consolidated statements operations totaled 74 million 65 million 46 million 2008 2007 2006 respectively intangible assets intangible assets amortized using straightline method expected useful lives customer relationships amortized five years noncompete agreements generally amortized two five years intangible assets subject amortization include following thousands aggregate amortization expense related intangible assets 16 million 21 million 108 million 2008 2007 2006 respectively estimated future amortization expense year purchased intangibles follows thousands goodwill represents excess purchase price acquired businesses estimated fair value tangible identifiable intangible net assets acquired sfas 142 “goodwill intangible assets” goodwill amortized tested impairment least annually reporting unit level reporting unit operating segment business discrete financial information prepared reviewed management impairment test reporting unit’s carrying amount exceeds estimated fair value goodwill impairment recognized extent reporting unit’s carrying amount goodwill exceeds implied fair value goodwill fair value reporting units estimated using discounted cash flows market multiples valuation techniques changes carrying amount goodwill reporting segment 2008 balance december 31 2008 follows thousands 1 company reduced research goodwill 05 million due meta tax purchase accounting adjustment relates utilization anticipated utilization net operating losses valuation recorded acquisition date 2 company reduced events segment goodwill 18 million related sale visions events business february 2008 see note 2 discontinued operations impairment longlived assets intangible assets company reviews longlived assets intangible assets goodwill impairment whenever events changes circumstances indicate carrying amount respective asset may recoverable evaluation may based number factors including current projected operating results cash flows changes management’s strategic direction well economic market variables company’s policy regarding longlived assets intangible assets goodwill evaluate recoverability assets determining whether balance recovered undiscounted future operating cash flows events circumstances indicate carrying value might recoverable based undiscounted future operating cash flows impairment loss would recognized amount impairment measured based difference projected discounted future operating cash flows using discount rate reflecting company’s average cost funds carrying value asset pension obligations company definedbenefit pension plans several international locations see note 13 employee benefits earned plans based years service level employee compensation company accounts material defined benefit plans accordance requirements statement financial accounting standards 87 “employers’ accounting pensions” amended sfas 87 sfas 87 benefit obligation related benefit expense based actuarial assumptions valuations company 22 million 27 million 29 million expense plans 2008 2007 2006 respectively foreign currency translation assets liabilities foreign subsidiaries translated us dollars exchange rates effect balance sheet date resulting translation adjustments recorded foreign currency translation adjustments component accumulated comprehensive income loss net within stockholders’ equity section consolidated balance sheets income expense items translated average exchange rates year currency transaction gains losses arising transactions denominated currencies functional currency subsidiary included results operations within income expense net within consolidated statements operations net currency transaction losses gains 16 million 2008 11 million 2007 06 million 2006 may enter foreign currency forward exchange contracts offset effects adverse fluctuations foreign currency exchange rates contracts generally short maturity recorded fair value unrealized realized gains losses recorded income expense 2008 net loss contracts 06 million december 31 2008 company 15 foreign currency forward contracts outstanding total notional value 734 million contracts expired january 2009 income taxes deferred tax assets liabilities recognized based differences book tax basis assets liabilities using presently enacted tax rates provision income taxes sum amount income tax paid payable year determined applying provisions enacted tax laws taxable income year net changes year deferred tax assets liabilities credit additional paidin capital realized tax benefits arising stock transactions employees tax benefit nonqualified stock option equal tax effect difference market price company’s common stock date exercise price sales taxes sales tax collected customers remitted governmental authorities presented net basis consolidated statements operations fair value disclosures company’s fair value disclosures included note 12fair value disclosures concentrations credit risk items potentially subject company concentration credit risk december 31 2008 consist primarily shortterm highly liquid investments classified cash equivalents accounts receivable interest rate swaps pension reinsurance asset majority company’s cash equivalent investments two interest rate swap contracts investment grade commercial banks participants company’s credit agreement accounts receivable balances deemed collectible customers limited concentration credit risk due diverse customer base geographic dispersion company’s pension reinsurance asset maintained large international insurance company rated investment grade december 31 2008 stock repurchase programs company records cost repurchase shares treasury stock 2008 2007 2006 company recorded 1986 million 1691 million 2692 million respectively stock repurchases see note 8equity shares repurchased company added treasury shares retired accounting stockbased compensation january 1 2006 company adopted statement financial accounting standards 123r “sharebased payment” “sfas 123r” interpreted sec staff accounting bulletin 107 “sab 107” stockbased compensation cost based fair value award date grant expensed related service period net forfeitures service period employee performs related services normally vesting period company adopted sfas 123r modified prospective transition method consequently prior period results restated transition method company’s reported stock compensation expense includes expense related remaining unvested portion awards granted prior january 1 2006 based grant date fair value estimated accordance original provisions sfas 123 b expense related stock compensation awards granted subsequent january 1 2006 based grant date fair value estimated accordance provisions sfas 123r prior january 1 2006 company applied apb opinion 25 “accounting stock issued employees” “apb 25” accounting employee stock compensation applied statement financial accounting standards 123 “accounting stock issued employees” “sfas 123” disclosure purposes apb 25 intrinsic value method used account stockbased employee compensation plans expense recorded awards intrinsic value 2008 2007 2006 company 207 million 242 million 167 million respectively stockbased compensation expense see note 9stockbased compensation recent accounting developments december 2007 fasb issued sfas 141 revised 2007 “business combinations” “sfas 141r” replaces fasb statement 141 sfas 141r establishes principles requirements acquirer recognizes measures financial statements identifiable assets acquired liabilities assumed non controlling interest acquiree goodwill acquired business combination statement requires adjustments tax benefits related acquiree recorded subsequent acquisition date recognized income rather adjustment goodwill current rules statement also establishes disclosure requirements enable users evaluate nature financial effects business combination sfas 141r effective beginning entity’s fiscal year begins december 15 2008 gartner fiscal year beginning january 1 2009 december 2007 fasb issued sfas 160 “noncontrolling interests consolidated financial statementamendments arb 51 “sfas 160”” sfas 160 requires accounting reporting minority interests noncontrolling interests classified component equity statement also establishes reporting requirements provide sufficient disclosures clearly identify distinguish interests parent interests noncontrolling owners sfas 160 applies entities prepare consolidated financial statements except notforprofit organizations affect entities outstanding noncontrolling interest one subsidiaries deconsolidate subsidiary statement effective beginning entity’s first fiscal year beginning december 15 2008 company’s fiscal year beginning january 1 2009 2discontinued operations february 2008 company sold vision events business part company’s events segment 114 million cash accordance sfas 144 “accounting impairment disposal longlived assets” operating results vision events business reported separately discontinued operation periods presented vision events business generated revenues zero 207 million 230 million 2008 2007 2006 respectively operating loss income 03 million 29 million 39 million 2008 2007 2006 respectively company realized net cash proceeds sale approximately 78 million company recorded net gain sale approximately 71 million deducting direct costs sell charge 18 million events segment goodwill related tax charges gain recorded income discontinued operations consolidated statements operations goodwill charge recorded accordance sfas 142 “goodwill intangible assets” requires allocated portion goodwill included gain loss disposal portion reporting unit december 31 2007 recorded assets liabilities vision events business consisted primarily 33 million accounts receivable prepaid expenses recorded liabilities consisted primarily 34 million deferred revenues amounts material company’s condensed consolidated balance sheet cash flow december 31 2007 3other charges company recorded charges 0 2008 91 million 2007 0 2006 charges 91 million recorded 2007 included charges 87 million related litigation settlement 27 million related decision exit consulting operations asia offsetting charges credit 23 million related excess facility 87 million litigation settlement charge 2007 related settlement agreement company entered expert choice inc company’s insurance carriers settle claims causes action disputes arising litigation entitled expert choice inc v gartner inc us district court district connecticut civil docket 303cv02234 settlement agreement provided full complete mutual releases among parties dismissal litigation resolved disputes parties total amount settlement 215 million 95 million paid company aggregate 120 million paid company’s insurers addition 87 million charge recorded 2007 company previously accrued 10 million toward settlement matter company also recorded charge 27 million 2007 severance benefits costs related company’s decision exit consulting operations asia resulted reduction 31 consultants addition company also recorded credit approximately 23 million reduce accrual related excess facility returned service company recorded original accrual excess facility 2002 following table summarizes activity related restructuring costs recorded charges consolidated statements operations thousands 1 37 million liability excess facilities represents present value estimated remaining lease payments less projected sublease income accretion expense related obligations charged operations 2 costs excess facilities paid leases expire 2011 company intends fund payments existing cash 4other assets consist following thousands 5accounts payable accrued liabilities accounts payable accrued liabilities consist following thousands 1 85 million termination benefits payable december 31 2008 represents accrual severance benefits costs related reduction company’s workforce 117 employees company recorded charge fourth quarter 2008 accordance sfas 112 “employers’ accounting postemployment benefits” company expects majority 85 million paid first half 2009 liabilities consist following thousands 6debt credit agreement company credit agreement dated january 31 2007 provides 3000 million revolving credit facility fiveyear 1800 million term loan “original term loan” april 9 2008 company entered first amendment “first amendment” lenders credit agreement provided new 1500 million term loan “2008 term loan” revolving credit facility may increased additional 1000 million discretion company’s lenders “expansion feature” total revolving credit facility 4000 million however 1000 million expansion feature may available company depending upon prevailing credit market conditions date company sought borrow expansion feature borrowings credit agreement carry interest rates either primebased liborbased interest rates borrowings include base rate plus margin 000 075 primebased borrowings 0625 175 liborbased borrowings generally company’s borrowings liborbased revolving loans may borrowed repaid reborrowed january 31 2012 time amounts borrowed must repaid revolver borrowing capacity reduced amounts outstanding revolver letters credit original term loan repaid 18 consecutive quarterly installments commenced september 30 2007 final payment due january 31 2012 may prepaid time without penalty premium option company 2008 term loan coterminus original 2007 term loan credit agreement repaid 16 consecutive quarterly installments commenced june 30 2008 plus final payment due january 31 2012 may prepaid time without penalty premium option gartner credit agreement contains certain customary restrictive loan covenants including among others financial covenants requiring maximum leverage ratio minimum fixed charge coverage ratio minimum annualized contract value ratio covenants limiting gartner’s ability incur indebtedness grant liens make acquisitions acquired dispose assets pay dividends repurchase stock make capital expenditures make investments company full compliance debt covenants december 31 2008 failure comply covenants future could result acceleration amounts outstanding credit agreement would materially impact financial condition unless accommodations could negotiated lenders december 31 2008 company 4163 million total debt outstanding credit agreement included 1575 million outstanding original term loan 1388 million outstanding 2008 term loan 1200 million outstanding revolver company approximately 1783 million available borrowing capacity 3000 million revolving credit facility including expansion feature december 31 2008 december 31 2008 annualized interest rates original term loan 2008 term loan revolver 246 296 147 respectively rates original term loan 2008 term loan consisted threemonth libor base rate plus margins 100 150 respectively rate revolver consisted onemonth libor base rate plus margin 100 2008 2007 2006 company 224 million 251 million 191 million respectively interest expense includes amounts related debt outstanding interest receivedpaid interest rate swaps discussed interest rate swap contracts company two interest rate swap contracts hedge base interest rate risk two term loans effect swaps convert floating base rates term loans fixed rates swap terms company pays fixed rate return receives threemonth libor rate threemonth libor rate received swaps matches base rate paid term loans since company optionally selects threemonth libor rate term loans interest rate swaps amortizing swaps notional value swaps declines time constantly matches outstanding amounts term loans including effect interest rate swaps annualized interest rates original term loan 2008 term loan 606 442 respectively december 31 2008 company accounts swaps cash flow hedges accordance sfas 133 “accounting derivative instruments hedging activities” “sfas 133” sfas 133 requires derivatives whether designated hedges recorded balance sheet fair value since swaps qualify cash flow hedges sfas 133 changes fair values swaps recorded comprehensive income long swaps continue effectively hedge base interest rate risk respective term loans ineffective portion changes fair value hedges recorded earnings december 31 2008 ineffective portion hedges defined sfas 133 two interest rate swaps net negative fair value approximately 147 million december 31 2008 recorded comprehensive income net tax effect letters credit company issues letters credit related guarantees ordinary course business december 31 2008 company outstanding letters credit guarantees approximately 38 million 7commitments contingencies company leases various facilities furniture computer equipment operating lease arrangements expiring 2009 2025 future minimum annual cash payments noncancelable operating lease agreements december 31 2008 follows thousands 1 excludes approximately 77 million contractual sublease rental income involved legal proceedings litigation arising ordinary course business believe potential liability excess amounts already accrued proceedings claims litigation material effect financial position results operations resolved future period company various agreements may obligate us indemnify party respect certain matters generally indemnification clauses included contracts arising normal course business customarily agree hold party harmless losses arising breach representations related matters title assets sold licensed certain intellectual property rights possible predict maximum potential amount future payments indemnification agreements due conditional nature company’s obligations unique facts particular agreement historically payments made us agreements material december 31 2008 indemnification agreements would require material payments company received cash proceeds 12 million 2008 related settlement litigation matter 18 million 2007 related settlement claim amounts recorded gains expense income net consolidated statements operations 8equity capital stock holders common stock entitled one vote per share matters voted stockholders company currently pay cash dividends common stock also credit arrangement contains negative covenant may limit ability pay dividends addition amended restated security holders agreement silver lake requires us obtain silver lake’s consent prior declaring paying dividends following table summarizes transactions relating company’s common stock three years’ ending december 31 2008 share repurchase programs february 2007 company’s board directors authorized new program repurchase 2000 million gartner common stock board directors supplemented february 2008 additional 2500 million authorization share repurchases new program replaced repurchase program approved october 2005 repurchases program generally made timetotime open market purchases repurchases subject availability stock prevailing market conditions trading price stock company’s financial performance conditions repurchases funded cash flow operations possible borrowings company’s credit agreement 2008 2007 2006 company 1986 million 1691 million 2692 million respectively common share repurchases included totals 269 million 2000 million shares repurchased directly silver lake 2008 2006 respectively adoption staff accounting bulletin 108 company adopted sec staff accounting bulletin 108 “considering effects prior year misstatements quantifying misstatements current year financial statements” “sab 108” effective beginning fiscal year ended december 31 2006 sab 108 provides guidance consideration effects prior year misstatements quantifying current year misstatements purpose materiality assessment sab 108 establishes approach requires quantification financial statement errors based effects company’s financial statements related financial statement disclosures accordance requirements sab 108 company adjusted opening accumulated earnings 2006 accompanying consolidated statements stockholders’ deficit equity comprehensive income three items described net impact adjustments increased company’s opening balance accumulated earnings 2006 approximately 32 million increased opening balance additional paidincapital approximately 72 million company considered adjustments immaterial consolidated statements operations consolidated balance sheets prior periods company recorded adjustment 107 million related overstatement current taxes payable resulting increase opening accumulated earnings 74 million 33 million increase opening additional paidin capital adjustment impact tax expense adjustment due carryover impact excess payable balance prior years current taxes payable account accumulated period years prior 2000 prior october 1999 exercise price stock options granted employees company’s stock option plans equal average closing price company’s common stock five trading days immediately preceding grant date 2006 company determined valuation purposes exercise price closing price date grant formula used company since october 1999 accordingly company revalued options granted prior october 1999 using closing price date grant determined additional 60 million compensation expense recorded cumulative effect adjustment resulted reduction opening accumulated earnings approximately 38 million increase additional paidin capital 39 million tax effect less 01 million lastly company recorded adjustment 07 million related correction accounting treatment certain operating leases resulted reduction opening accumulated earnings approximately 04 million net tax effect 03 million promulgated accounting principles require contractual rent concessions rent increases applied ratably life operating lease company applied requirement operating leases certain threshold resulting adjustment amount accumulating period years 9stockbased compensation company grants stockbased compensation awards incentive employees directors contribute company’s longterm success company’s stock compensation awards include stock options stocksettled stock appreciation rights restricted stock service performancebased restricted stock units common stock equivalents december 31 2008 company approximately 58 million shares common stock available awards stockbased compensation 2003 longterm incentive plan company accounts stockbased compensation accordance statement financial accounting standards 123r sharebased payment “sfas 123r” interpreted sec staff accounting bulletins 107 “sab 107” 110 “sab 110” sfas 123r stockbased compensation expense based fair value award date grant recognized related service period net estimated forfeitures service period related service performed generally vesting period present time company issues treasury shares upon exercise settlement stockbased compensation awards determining appropriate fair value model calculating fair value stock compensation awards requires input certain highly complex subjective assumptions including expected life stock compensation awards company’s common stock price volatility addition determining appropriate amount associated periodic expense requires management estimate rate employee forfeitures likelihood achievement certain performance targets assumptions used calculating fair value stock compensation awards associated periodic expense represent management’s best estimates involve inherent uncertainties application judgment result factors change company deems necessary future modify assumptions made use different assumptions quantity nature company’s stockbased compensation awards changes amount expense may need adjusted future stock compensation expense could materially different recorded current period company recognized following amounts stockbased compensation expense sfas 123r consolidated statement operations years ended december 31 millions december 31 2008 company 405 million total unrecognized stockbased compensation cost expected recognized stockbased compensation expense remaining weightedaverage service period approximately 21 years currently company issues treasury shares upon exercise settlement stockbased compensation awards stockbased compensation awards following disclosures provide information regarding company’s stockbased compensation awards classified equity awards accordance sfas 123r stock options company may grant stock options employees allow purchase shares company’s common stock certain price company determines fair value stock options date grant using blackscholesmerton valuation model options vest annually fouryear vesting period options granted prior 2005 expire ten years grant date whereas options granted beginning 2005 generally expire seven years grant date company made new stock option awards since 2006 company recognized 19 million 58 million 79 million expense related stock options 2008 2007 2006 respectively remaining unamortized cost related stock options december 31 2008 company received 420 million 317 million cash stock option exercises 2008 2007 respectively summary changes stock options outstanding year ended december 31 2008 follows stock appreciation rights stocksettled stock appreciation rights “sars” settled common shares similar options permit holder participate appreciation company’s common stock sars may settled common shares employee applicable vesting criteria met sars exercised number gartner common shares awarded calculated follows 1 total proceeds sars exercise closing price gartner common stock date exercise less exercise price sars multiplied number sars exercised divided 2 closing price gartner common stock exercise date company withhold portion common shares issuable upon exercise satisfy minimum statutory tax withholding requirements sars recipients rights gartner stockholder including voting rights right receive dividends distributions actual shares common stock issued respect award subject prior satisfaction vesting criteria relating grants present time sars awarded company’s executive officers company determines fair value sars date grant using blackscholesmerton valuation model sars vest ratably fouryear service period expire seven years grant date total compensation expense sars 32 million 24 million 10 million 2008 2007 2006 respectively summary changes sars outstanding year ended december 31 2008 follows fair value company’s sars determined date grant using blackscholesmerton valuation model following weightedaverage assumptions years ended december 31 1 dividend yield assumption based history expectation company’s dividend payouts historically gartner paid cash dividends common stock 2 determination expected stock price volatility based historical gartner common stock prices implied volatility publicly traded options gartner common stock 3 riskfree interest rate based yield us treasury security maturity similar expected life award 4 expected life years based “simplified” calculation provided sec staff accounting bulletin 107 simplified method determines expected life years based vesting period contractual terms set forth award made company continues use simplified method awards stockbased compensation january 1 2008 permitted sec staff accounting bulletin 110 “sab 110” since necessary historical exercise forfeiture data determine expected life sars originally use simplified method due expire december 31 2007 sab 110 permits continued use simplified method company concludes reasonable base estimate expected term experience historical exercise patterns restricted stock restricted stock units common stock equivalents restricted stock awards give awardee right vote restricted common shares receive dividends distributions shares however awardee may sell restricted shares restrictions release shares lapsed shares released restricted stock units rsus give awardee right receive gartner common shares restrictions lapse vesting conditions met rsu vests entitles awardee one common share rsu awardees rights gartner stockholder including voting rights right receive dividends distributions common shares released common stock equivalents cses convertible gartner common shares cse entitles holder one common share certain members board directors receive directors’ fees payable cses unless opt cash payment generally cses converted service director terminates fair value restricted stock restricted stock units rsus common stock equivalents cses determined date grant based closing price company’s common stock reported new york stock exchange date fair value awards recognized compensation expense follows outstanding restricted stock awards vest based achievement market condition expensed straightline basis three years ii servicebased rsus vest ratably four years expensed straightline basis four years iii performancebased rsus subject performance service conditions vest ratably four years expensed accelerated basis required sfas 123r iv cses vest immediately recorded expense date grant company recognized following amounts stockbased compensation expense years ended december 31 millions summary changes restricted stock rsus cses year ended december 31 2008 presented table 1 13 million rsus granted 2008 consisted 05 million performancebased rsus awarded executives 08 million servicebased rsus awarded executive nonexecutive staff number performancebased rsus awarded subject achievement performance condition tied annual increase company’s subscriptionbased contract value 2008 ranged 0 200 target number awarded depending performance level achieved aggregate target performancebased rsus awarded 2008 06 million actual performance target achieved 751 resulting 05 million performancebased rsus awarded 2 cses represent fees paid directors cses vest granted convertible common shares director leaves board directors earlier director elects accelerate release 3 vesting 200000 shares restricted stock held ceo subject market condition follows 100000 shares vest company’s common stock trades average price 25 trading day sixty consecutive trading days ii 100000 shares vest company’s common stock trades average price 30 trading day sixty consecutive trading days 4 weightedaverage remaining contractual term rsus 13 years restricted stock defined contractual term employee stock purchase plan company employee stock purchase plan “espp plan” eligible employees permitted purchase gartner common stock payroll deductions may exceed 10 employee’s compensation 23750 calendar year price equal 95 common stock price reported new york stock exchange end offering period december 31 2008 company 18 million shares available purchase espp plan espp plan considered noncompensatory sfas 123r result company record compensation expense related employee share purchases company received 27 million cash share purchases plan year ended december 31 2008 10computation earnings per share basic earnings per share “eps” computed dividing net income loss weighted average number common shares outstanding period diluted eps reflects potential dilution securities could share earnings impact stock options stockbased compensation antidilutive excluded calculation following table sets forth reconciliation basic diluted earnings per share computations thousands except per share amounts following table presents number options share equivalents included computation diluted eps table effect would antidilutive periods reported income options share equivalents antidilutive exercise prices greater average market value share common stock period periods reported loss options share equivalents outstanding would antidilutive effect 11income taxes following summary components income taxes thousands expense income taxes income consists following components thousands current longterm deferred tax assets liabilities comprised following thousands current net deferred tax assets net deferred tax liabilities 157 million 28 million december 31 2008 78 million 49 december 31 2007 respectively included prepaid expenses current assets accounts payable accrued liabilities consolidated balance sheets longterm net deferred tax assets net deferred tax liabilities 464 million 12 million december 31 2008 558 million 03 million december 31 2007 respectively included assets liabilities consolidated balance sheets valuation allowances 2008 2007 relate primarily nonus net operating losses domestic capital loss carryforwards domestic foreign tax credits likely expire unutilized net decrease valuation allowance 134 million 2008 relates primarily following items release approximately 94 million valuation allowances changes actual anticipated utilization foreign tax credits b release approximately 26 million valuation allowances federal state capital loss carryovers due utilization expiration capital loss carryovers company established full valuation allowance domestic realized unrealized capital losses future utilization losses uncertain december 31 2008 company us federal capital loss carryforwards 51 million 50 million expire 2010 01 million expire 2011 company also 73 million state local capital loss carryforwards expire similar time period december 31 2008 company state local tax net operating loss carryforwards 1812 million 69 million expire within one five years 1070 million expire within six fifteen years 673 million expire within sixteen twenty years addition company nonus net operating loss carryforwards 376 million 62 million expire next 20 years 314 million carried forward indefinitely december 31 2008 company also foreign tax credit carryforwards 150 million expire 2017 differences us federal statutory income tax rate company’s effective tax rate income taxes company adopted fin 48 january 1 2007 december 31 2008 2007 company gross unrecognized tax benefits 163 million 181 million respectively reduction primarily attributable expiration certain statutes limitation second quarter 2008 reasonably possible gross unrecognized tax benefits decreased 21 million within next 12 months due primarily expiration relevant statutes limitation nature uncertainty relates tax effects intercompany charges deductibility certain expenses fin 48 also requires companies reclassify uncertain tax positions expected settled within one year long term liabilities december 31 2008 2007 company liabilities 142 million 154 million respectively related long term uncertain tax positions upon adoption fin 48 company elected accounting policy classify accrued interest penalties related unrecognized tax benefits income tax provision previously policy classified interest penalties operating expense arriving pretax income company 36 million 25 million accrued interest penalties recorded december 31 2008 2007 respectively related unrecognized tax benefits amounts addition gross unrecognized tax benefits noted total amount interest penalties recognized consolidated statements operations years ending december 31 2008 2007 14 million 26 million respectively reconciliation beginning ending amount unrecognized tax benefits excluding interest penalties years ending december 31 thousands december 2008 company repatriated 550 million foreign subsidiary cost repatriation offset utilization foreign tax credits capital loss carryovers valuation allowance previously established number years open statues limitation varies depending tax jurisdiction generally statutes open tax years ended september 30 2004 forward major taxing jurisdictions include us federal state united kingdom italy canada japan ireland company received examination reports internal revenue service “irs” october 2005 october 2006 connection audits company’s federal income tax returns tax years ended september 30 1999 december 31 2004 february 27 2008 company received official written notification case cleared irs joint committee officially closes irs audit periods company recently received notice irs intends conduct audit 2007 tax year company expect material impact financial position result review undistributed earnings subsidiaries outside us amounted approximately 128 million december 31 2008 company intends reinvest earnings nonus operations however company may repatriate portion earnings extent incur additional us tax liability accordingly provision us federal state income taxes provided thereon 12fair value disclosures company’s financial instruments include cash equivalents fees receivable customers accounts payable accruals shortterm nature company believes carrying amounts financial instruments reasonably approximates fair value december 31 2008 company 4163 million outstanding floating rate debt two interest rate swap contracts see note 6 debt well foreign currency forward contracts see note 1 summary significant accounting policies items considered financial instruments company’s debt carried amortized cost interest rate swaps forward contracts carried fair value company believes carrying amount debt approximates fair value rate interest term loans revolver floating rate reflect current market rates interest similar instruments comparable maturities additional information regarding determination fair value interest rate swaps forward contracts discussed adoption sfas 157 fair value measurements january 1 2008 company partially adopted sfas 157 “fair value measurements” “sfas 157” required additional disclosures impact consolidated financial statements company partially adopted sfas 157 due issuance fasb staff position “fsp” fasb 1572 “effective date fasb statement 157” “fsp 1572” sfas 157 defines fair value establishes common framework measuring fair value us gaap expands disclosures fair value measurements assets liabilities sfas 157 require additional assets liabilities accounted fair value beyond already required us gaap accounting standards fsp 1572 deferred effective date sfas 157 nonfinancial assets nonfinancial liabilities recognized disclosed fair value financial statements recurring basis least annually included scope fsp 1572 nonfinancial assets liabilities acquired business combinations impaired assets effective date nonfinancial assets nonfinancial liabilities delayed one year fiscal years beginning november 15 2008 interim periods within fiscal years company continues assess deferred portion sfas 157 sfas 157 framework measuring fair value valuation hierarchy based upon transparency inputs used valuation asset liability classification within hierarchy based upon lowest level input significant resulting fair value measurement valuation hierarchy contains three levels • level 1 valuation inputs unadjusted quoted market prices identical assets liabilities active markets • level 2 valuation inputs quoted prices identical assets liabilities markets active quoted market prices similar assets liabilities active markets observable inputs directly indirectly related asset liability measured • level 3 valuation inputs unobservable significant fair value measurement following table presents company assets liabilities measured fair value recurring basis thousands 1 company supplemental deferred compensation arrangement benefit certain highly compensated officers managers key employees see note 13employee benefits plan’s assets consist 45 million investments money market mutual funds 94 million companyowned life insurance money market mutual funds consist cash equivalents securities traded active markets company considers fair value assets based level 1 inputs defined sfas 157 value companyowned life insurance based indirect observable inputs company considers level 2 company 15 foreign currency forward contracts outstanding december 31 2008 notional value 734 million contracts expired end january 2009 company periodically enters foreign currency forward exchange contracts offset effects adverse fluctuations foreign currency exchange rates instruments typically short term duration recorded fair value unrealized realized gains losses recorded earnings valuation foreign currency forward contracts based foreign currency exchange rates active markets thus company measures fair value contracts level 2 input defined sfas 157 3 company two interest rate swap contracts hedge base interest rate risk term loans contracts accounted cash flow hedges accordance sfas 133 fair value swaps recorded comprehensive income net tax effect see note 6debt determine value swaps company relies marktomarket valuations prepared thirdparty brokers based observable interest rate yield curves accordingly fair value swaps determined level 2 input defined sfas 157 13employee benefits savings investment plan company savings investment plan covering substantially domestic employees company contributions based upon level employee contributions maximum 4 employee’s eligible salary subject annual maximum 2008 maximum match 6200 addition company also contributes least 1 employee’s base compensation subject irs annual limitation 2300 2008 amounts expensed connection plan totaled 125 million 118 million 109 million 2008 2007 2006 respectively deferred compensation arrangement company supplemental deferred compensation arrangement benefit certain highly compensated officers managers key employees structured rabbi trust classify plan’s investment assets consolidated balance sheets current fair value assets 139 million 188 million december 31 2008 2007 respectively corresponding deferred compensation liability 165 million 219 million december 31 2008 2007 respectively recorded fair market value adjusted corresponding charge credit compensation cost reflect fair value amount owed employee included liabilities consolidated balance sheets total compensation benefit expense arrangement 04 million 03 million 03 million 2008 2007 2006 respectively defined benefit pension plans company definedbenefit pension plans several international locations benefits earned plans based years service level employee compensation company accounts material defined benefit plans accordance requirements statement financial accounting standards 87 “employers’ accounting pensions” amended sfas 87 december 31 2006 company adopted fasb statement 158 “employers’ accounting defined benefit pension postretirement plans amendment fasb statements 87 88 106 132r” “sfas 158” standard requires employer recognize statement financial position asset plan’s overfunded status liability plan’s underfunded status b measure plan’s assets obligations determine funded status end employer’s fiscal year limited exceptions c recognize changes funded status defined benefit postretirement plan year changes occur following components net periodic pension expense years ended december 31 thousands assumptions used computation net periodic pension expense follows company determines weightedaverage discount rate utilizing yields longterm corporate bonds relevant country duration consistent pension obligations following table provides information related changes projected benefit obligation thousands following table provides information related funded status plans amounts recorded consolidated balance sheets thousands 1 company reinsurance asset arrangement large international insurance company rated investment grade december 31 2008 purpose reinsurance asset arrangement fund benefit obligation one plans however reinsurance asset recognized plan asset sfas 87 since considered asset company legally segregated restricted purposes meeting pension obligation reinsurance asset carried cash surrender value company believes approximates fair value december 31 2008 2 contributions expected paid plans 2009 01 million 3 28 million recorded stockholders’ equity december 31 2008 represents plan’s net unrecognized actuarial gain amount recorded accordance sfas 158 amortized net periodic pension cost approximately 15 years amortization gain estimated reduce net periodic pension cost 2009 approximately 02 million 14segment information company manages business three reportable segments research consulting events research consists primarily subscriptionbased research products access research inquiry well peer networking services membership programs consulting consists primarily consulting measurement engagements strategic advisory services events consists various symposia conferences exhibitions company evaluates reportable segment performance allocates resources based gross contribution margin gross contribution presented defined operating income excluding certain cost services product development sga expenses depreciation meta integration charges amortization intangibles charges certain costs included consolidated cost services product development allocated segment expense primarily web maintenance customer relationship database costs certain bonus fringe charges accounting policies used reportable segments used company earn revenue clients many countries united states individual country revenues external clients represent 10 company’s consolidated revenues additionally single client accounted 10 total revenue loss single client management’s opinion would material adverse effect revenues identify allocate assets including capital expenditures operating segment accordingly assets reported segment information available segment reviewed evaluation performance making decisions allocation resources following tables present information company’s reportable segments thousands “other” column includes certain revenues corporate expenses unallocated reportable segments expenses allocated operations meet segment reporting quantitative threshold charges intersegment revenues company’s consolidated revenues generated primarily direct sales clients domestic international sales forces network independent international sales agents revenues table reported based sale fulfilled “other international” revenues attributable areas located outside united states canada well europe middle east africa products services provided integrated worldwide basis integration products services delivery practical separate precisely revenues geographic location longlived assets exclude goodwill intangible assets accordingly separation set forth table based upon internal allocations involve certain management estimates judgments summarized information geographic location follows thousands 15valuation qualifying accounts following table provides information regarding company’s allowance doubtful accounts returns allowances thousands 1 amounts charged revenues signatures pursuant requirements securities exchange act 1934 registrant caused report form 10k signed behalf undersigned duly authorized stamford connecticut february 20 2009 power attorney person whose signature appears appoints eugene hall christopher j lafond acting individually attorneyinfact full power substitution capacities sign amendments report form 10k file appropriate exhibits related documents securities exchange commission undersigned ratifies confirms signatures may signed attorneyinfact amendments report pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicateditem 15 exhibits financial statement schedules 1 2 consolidated financial statements schedules reports independent registered public accounting firm consolidated financial statements listed index consolidated financial statements herein filed part report financial statement schedules listed index omitted information required applicable shown consolidated financial statements notes thereto 3 exhibits filed document management compensation plan arrangement 1 incorporated reference company’s current report form 8k dated june 29 2005 filed july 6 2005 2 incorporated reference company’s current report form 8k dated november 27 2006 filed november 30 2006 3 incorporated reference company’s current report form 8k dated may 3 2007 filed may 3 2007 4 incorporated reference company’s current report form 8k dated january 31 2007 filed february 6 2007 5 incorporated reference company’s annual report form 10k filed december 21 1995 6 incorporated reference company’s annual report form 10k filed december 12 1997 7 incorporated reference company’s annual report form 10k filed december 22 1999 8 incorporated reference company’s quarterly report form 10q filed may 8 2008 9 incorporated reference company’s form s8 filed february 16 2000 10 incorporated reference company’s quarterly report form 10q filed november 9 2005 11 incorporated reference company’s current report form 8k dated february 11 2010 filed february 16 2010 12 incorporated reference company’s current report form 8k dated april 9 2008 filed april 14 2008 13 incorporated reference company’s current report form 8k dated december 30 2009 filed january 5 2010 14 incorporated reference company’s proxy statement schedule 14a filed april 21 2009 15 incorporated reference company’s annual report form 10k filed february 20 2009 index consolidated financial statements gartner inc consolidated financial statements financial statement schedules omitted information required applicable shown consolidated financial statements notes thereto report independent registered public accounting firm board directors stockholders gartner inc audited accompanying consolidated balance sheets gartner inc subsidiaries company december 31 2009 2008 related consolidated statements operations stockholders’ equity deficit comprehensive income loss cash flows years threeyear period ended december 31 2009 consolidated financial statements responsibility company’s management responsibility express opinion consolidated financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements referred present fairly material respects financial position gartner inc subsidiaries december 31 2009 2008 results operations cash flows years threeyear period ended december 31 2009 conformity us generally accepted accounting principles also audited accordance standards public company accounting oversight board united states company’s internal control financial reporting december 31 2009 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso report dated february 19 2010 expressed unqualified opinion effectiveness company’s internal control financial reporting new york new york february 19 2010 report independent registered public accounting firm board directors stockholders gartner inc audited gartner inc subsidiaries’ company internal control financial reporting december 31 2009 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso company’s management responsible maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included accompanying management’s annual report internal control financial reporting responsibility express opinion company’s internal control financial reporting based audit conducted audit accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether effective internal control financial reporting maintained material respects audit included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audit also included performing procedures considered necessary circumstances believe audit provides reasonable basis opinion company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate opinion company maintained material respects effective internal control financial reporting december 31 2009 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission also audited accordance standards public company accounting oversight board united states consolidated balance sheets gartner inc subsidiaries december 31 2009 2008 related consolidated statements operations stockholders’ equity deficit comprehensive income loss cash flows years threeyear period ended december 31 2009 report dated february 19 2010 expressed unqualified opinion consolidated financial statements new york new york february 19 2010 gartner inc consolidated balance sheets thousands except share data see notes consolidated financial statements gartner inc consolidated statements operations thousands except per share data see notes consolidated financial statements gartner inc consolidated statements stockholders’ equity deficit comprehensive income thousands see notes consolidated financial statements gartner inc consolidated statements cash flows thousands see notes consolidated financial statements gartner inc notes consolidated financial statements 1 business significant accounting policies business gartner inc global information technology research advisory company founded 1979 headquarters stamford connecticut gartner inc delivers principal products services three business segments research consulting events basis presentation fiscal year gartner inc “company” represents period january 1 december 31 certain prior year amounts reclassified conform current year presentation used notes terms “company” “we” “us” “our” mean gartner inc consolidated subsidiaries december 18 2009 acquired amr research inc december 30 2009 acquired burton group inc see note 2 acquisitions results businesses included operating results beginning respective dates acquisition principles consolidation consolidated financial statements include accounts company whollyowned subsidiaries significant intercompany transactions balances eliminated use estimates preparation accompanying consolidated financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions future events estimates underlying assumptions affect amounts assets liabilities reported disclosures contingent assets liabilities reported amounts revenues expenses estimates include valuation accounts receivable goodwill intangible assets longlived assets well tax accruals liabilities addition estimates used revenue recognition income tax expense performancebased compensation charges depreciation amortization allowance losses management believes use estimates consolidated financial statements reasonable management evaluates estimates ongoing basis using historical experience factors including general economic environment actions may take future adjust estimates facts circumstances dictate however estimates may involve significant uncertainties judgments cannot determined precision addition estimates based best judgment point time estimates may ultimately differ actual results global credit crisis economic downturn began 2008 volatile foreign currency rates cuts travel marketing technology budgets external factors combined increase risks uncertainty inherent estimates external factors may increase risks company faces developing estimates particular relating collection receivables achievement performance targets performancebased compensation elements valuation goodwill changes estimates resulting continuing weakness economic environment factors beyond control could material would reflected company’s financial statements future periods reclassifications effective january 1 2009 company reclassified certain amounts presented consolidated statements operations follows “other” revenues company eliminated previously reported “other” revenue line “other” revenue line primarily consisted fees earned research reprints miscellaneous products revenues related expenses included research segment company made change “other” revenue declined magnitude approximately 100 million 2007 slightly less 10 total revenues year 83 million 2008 half percent total revenues year trend continuing revenue decline reflects company’s decision discontinue products expense reclassifications certain expenses formerly classified selling general administrative expense included cost services product development reclassifications reflect changes way service deliver value research clients related changes work responsibilities certain departments associates prior periods reclassified order consistent current period presentation see note 16 segment information additional information codification accounting standards september 30 2009 company adopted sfas 168 fasb accounting standards codification hierarchy generally accepted accounting principles codification combines previous us gaap hierarchy included four levels authoritative accounting literature distributed among number different sources codification create new accounting standards instead reorganizes thousands pages existing us gaap accounting rules approximately 90 accounting topics existing accounting standard documents superseded codification accounting literature included codification considered nonauthoritative codification explicitly recognizes rules interpretive releases securities exchange commission “sec” federal securities laws authoritative gaap sec registrants codification single source authoritative nongovernmental accounting standards united states result codification references authoritative accounting pronouncements included herein annual report form 10k refer codification topic section rather specific accounting rule past practice subsequent events company evaluated potential impact subsequent events consolidated financial statements herein date filing annual report form 10k revenues research products deferred recognized ratably applicable contract term company typically enters annually renewable subscription contracts research products reprint fees recognized reprint shipped majority research contracts billable upon signing absent special terms granted limited basis time research contracts noncancelable nonrefundable except government contracts may cancellation fiscal funding clauses produced material cancellations date exception certain government contracts permit termination contracts special billing terms company policy record entire amount contract billable fee receivable time contract signed represents legally enforceable claim corresponding amount deferred revenue government contracts permit termination company bills client full amount billable contract records receivable equal earned portion contract addition company records deferred revenue government contracts cash received deferred revenue attributable government contracts 653 million 616 million december 31 2009 2008 respectively addition december 31 2009 2008 company recognized receivables deferred revenues relating government contracts permit termination 83 million 121 million respectively billed yet collected consulting revenues primarily derived consulting measurement strategic advisory services paid oneday analyst engagements principally generated fixed fee time materials discrete projects revenues projects recognized work delivered andor services provided unbilled fees receivable associated consulting engagements 300 million december 31 2009 353 million december 31 2008 revenues related contract optimization contracts contingent nature recognized upon satisfaction conditions related payment events revenues deferred recognized upon completion related symposium conference exhibition addition company defers certain costs directly related events expenses costs period related symposium conference exhibition occurs company policy defer costs primarily prepaid site production services costs incremental directly attributable specific event costs organizing producing events primarily company personnel nonevent specific expenses expensed period incurred end fiscal quarter company assesses eventbyevent basis whether expected direct costs producing scheduled event exceed expected revenues costs expected exceed revenues company records expected loss period determined company maintains allowance losses composed bad debt allowance sales reserve provisions charged earnings either reduction revenues increase expense amount allowance losses based historical loss experience aging outstanding receivables assessment current economic conditions financial health specific clients cost services product development includes costs incurred creation delivery products services selling general administrative “sga” sga expense includes direct indirect selling costs general administrative costs commission expense company records commission obligation related research contracts upon signing contract amortizes corresponding deferred commission expense contract period related revenues earned company records commission expense sga consolidated statements operations stockbased compensation expense company accounts stockbased compensation accordance fasb asc topics 505 718 interpreted sec staff accounting bulletins 107 “sab 107” 110 “sab 110” stockbased compensation cost based fair value award date grant expensed related service period net estimated forfeitures service period employee performs related services normally vesting period company records expense cost services product development sga consolidated statements operations 2009 2008 2007 company recognized 261 million 207 million 242 million respectively stockbased compensation expense see note 10 stockbased compensation income tax expense provision income taxes sum amount income tax paid payable year determined applying provisions enacted tax laws taxable income year net changes year deferred tax assets liabilities deferred tax assets liabilities recognized based differences book tax basis assets liabilities using presently enacted tax rates credit additional paidin capital realized tax benefits arising stock transactions employees tax benefit nonqualified stock option equal tax effect difference market price common stock date exercise price sales taxes sales tax collected customers remitted governmental authorities presented net basis consolidated statements operations cash equivalents highly liquid investments original maturities three months less classified cash equivalents carrying value investments approximates fair value based upon shortterm maturity investments maturities three months classified marketable securities interest earned investments classified interest income consolidated statements operations property equipment leasehold improvements company leases facilities certain equipment leases classified operating leases accordance fasb asc topic 840 cost operating leases including contractual rent concessions contractual rent increases landlord incentives recognized ratably life related lease agreement lease expense 225 million 2009 2008 238 million 2007 equipment leasehold improvements fixed assets owned company recorded cost less accumulated depreciation amortization depreciated using straightline method estimated useful lives assets leasehold improvements amortized using straightline method shorter estimated useful lives assets remaining term related leases property equipment leasehold improvements less accumulated depreciation amortization consist following thousands company also capitalizes certain development costs incurred develop internal use software accordance fasb asc topic 350 december 31 2009 2008 capitalized development costs internal use software 161 million 196 million respectively net accumulated amortization 204 million 189 million respectively amortization capitalized internal software development costs classified depreciation consolidated statements operations totaled 83 million 74 million 65 million 2009 2008 2007 respectively company total depreciation expense 254 million 259 million 243 million 2009 2008 2007 respectively intangible assets intangible assets amortized using straightline method expected useful lives intangible assets subject amortization include following thousands 1 includes 236 million purchased intangibles related acquisitions amr research inc burton group inc december 2009 see note 2 acquisitions additional information intangible assets amortized earnings following period aggregate amortization expense related intangible assets 16 million 16 million 21 million 2009 2008 2007 respectively estimated future amortization expense year purchased intangibles follows thousands goodwill represents excess purchase price acquired businesses estimated fair value tangible identifiable intangible net assets acquired evaluation goodwill performed accordance fasb asc topic 350 requires annual assessment potential goodwill impairment reporting unit level reporting unit operating segment business discrete financial information prepared reviewed management impairment test reporting unit’s carrying amount exceeds estimated fair value goodwill impairment recognized extent reporting unit’s carrying amount goodwill exceeds implied fair value goodwill fair value reporting units estimated using discounted cash flows market multiples valuation techniques following table presents changes carrying amount goodwill reporting segment two years ended december 31 2009 thousands 1 company recorded charges goodwill impairment since adoption current goodwill impairment rules january 1 2002 accordingly company considers goodwill amount january 1 2008 gross amount goodwill 2 company reduced research goodwill 05 million due tax purchase accounting adjustment related acquisition meta group inc 2005 adjustment related utilization anticipated utilization net operating losses valuation recorded acquisition date 3 company reduced events segment goodwill 18 million related sale visions events business february 2008 see note 3 discontinued operations 4 company recorded 1090 million goodwill related acquisitions amr research inc burton group inc december 2009 see note 2 acquisitions impairment longlived assets intangible assets company reviews longlived assets intangible assets goodwill impairment whenever events changes circumstances indicate carrying amount respective asset may recoverable evaluation may based number factors including current projected operating results cash flows changes management’s strategic direction well economic market variables company’s policy regarding longlived assets intangible assets goodwill evaluate recoverability assets determining whether balance recovered undiscounted future operating cash flows events circumstances indicate carrying value might recoverable based undiscounted future operating cash flows impairment loss would recognized amount impairment measured based difference projected discounted future operating cash flows using discount rate reflecting company’s average cost funds carrying value asset pension obligations company definedbenefit pension plans several international locations see note 15 employee benefits earned plans based years service level employee compensation company accounts material defined benefit plans accordance requirements fasb asc topic 715 company determines pension obligations related benefit expense plans actuarial assumptions valuations company recognized 22 million 22 million 27 million expense plans 2009 2008 2007 respectively company classifies pension expense sga consolidated statements operations foreign currency exposure assets liabilities foreign subsidiaries translated us dollars exchange rates effect balance sheet date resulting translation adjustments recorded foreign currency translation adjustments component accumulated comprehensive income loss net within stockholders’ equity section consolidated balance sheets income expense items translated average exchange rates year currency transaction gains losses arising transactions denominated currencies functional currency subsidiary included results operations within income expense net within consolidated statements operations net currency transaction losses gains 36 million 09 million 41 million 2009 2008 2007 respectively may enter foreign currency forward exchange contracts offset effects adverse fluctuations foreign currency exchange rates contracts generally short duration recorded fair value unrealized realized gains losses recorded income expense net gain loss contracts 07 million 06 million 30 million 2009 2008 2007 respectively fair value disclosures company’s fair value disclosures included note 14 fair value disclosures concentrations credit risk items potentially subject company concentration credit risk december 31 2009 consist primarily shortterm highly liquid investments classified cash equivalents accounts receivable interest rate swaps pension reinsurance asset majority company’s cash equivalent investments two interest rate swap contracts investment grade commercial banks participants company’s credit agreement accounts receivable balances deemed collectible customers limited concentration credit risk due diverse customer base geographic dispersion company’s pension reinsurance asset maintained large international insurance company rated investment grade december 31 2009 stock repurchase programs company records cost repurchase shares treasury stock 2009 2008 2007 company recorded 37 million 1986 million 1691 million respectively stock repurchases see note 9equity shares repurchased company added treasury shares retired recent accounting developments january 2010 fasb issued asu 20106 improving disclosures fair value measurements requires reporting entities make new disclosures recurring nonrecurring fairvalue measurements including significant transfers level 1 level 2 fairvalue measurements information purchases sales issuances settlements gross basis reconciliation level 3 fairvalue measurements asu 20106 effective annual reporting periods beginning december 15 2009 except level 3 reconciliation disclosures effective annual periods beginning december 15 2010 2acquisitions company acquired two businesses december 2009 amr research inc december 18 2009 company acquired outstanding shares amr research inc “amr research” privatelyowned bostonbased firm 170 employees approximately 630 million cash amr leading authority global supply chain supporting technologies amr offers operations technology executives manufacturing retail companies integrated set services including written research access research analysts peer networking forum advisory services consulting participation executive conferences gartner’s strategic objective acquiring amr leverage gartner’s scale worldwide distribution capability sell amr’s suite research consulting events offerings gartner’s much larger client base supply chain technology concerns well introduce amr’s supply chain clients gartner’s suite products combination also expected drive operational efficiencies cost savings burton group inc december 30 2009 company acquired outstanding shares burton group inc “burton group” privatelyowned utahbased firm 120 employees approximately 550 million cash burton group leading research advisory services firm focuses providing practical technically indepth advice frontline professionals gartner’s strategic objective acquiring burton group expand gartner’s product service offerings leverage gartner’s scale worldwide distribution capability sell burton group’s suite research consulting events offerings gartner’s much larger client base combination also expected drive operational efficiencies cost savings operating results company’s consolidated financial statements include operating results acquisitions beginning respective dates acquisition material company’s 2009 results company recorded 29 million pretax acquisition integration charges related businesses year ended december 31 2009 classified acquisition integration expense consolidated statements operations included charges legal fees consultant fees connection acquisition integration well severance costs related redundant headcount company’s acquisitions amr research burton group considered material individually aggregate result pro forma financial statements presented however pro forma basis acquisitions businesses occurred january 1 2007 company would recorded approximately 720 million 790 million 670 million additional revenues 2007 2008 2009 respectfully impact company’s consolidated operating income net income years would material purchase price allocation gartner utilized existing cash hand availability revolving credit facility fund acquisitions final acquisition costs subject certain postclosing adjustments acquisitions accounted acquisition method accordance fasb asc topic 805 business combination requires consideration paid allocated net assets liabilities acquired based estimated fair values acquisition date excess purchase price estimated fair value net assets acquired including identifiable intangible assets allocated goodwill company considers allocation respective purchase prices preliminary particularly respect valuation intangibles certain tax related items accordance existing accounting rules final determination purchase price allocation must made within one year acquisition dates following table represents aggregate preliminary purchase price allocation assets acquired liabilities assumed two acquisitions dollars thousands total 1090 million recorded goodwill 861 million 153 million 76 million allocated research consulting events segments respectively company believes recorded goodwill supported anticipated revenues synergies general administrative costs preliminary purchase price allocation includes estimate fair value cost fulfill deferred revenue obligations determined estimating costs provide services plus normal profit margin include costs associated selling efforts preliminary amount expected deductible tax purposes approximately 554 million connection acquisitions company received contractual indemnifications selling shareholders certain preacquisition liabilities acquired companies company estimates liabilities approximately 61 million accordance fasb asc topic 805 company recorded 61 million receivable prepaid expenses current assets 61 million liability accrued liabilities included purchase price allocation table company believes indemnification assets fully collectible since portion sale proceeds escrowed pending resolution liabilities 3discontinued operations early 2008 company sold vision events business part company’s events segment 114 million cash accordance fasb asc topic 205 operating results vision events business reported separately discontinued operation 2008 2007 vision events business generated revenues zero 207 million 2008 2007 respectively operating loss income 03 million 29 million 2008 2007 respectively company realized net cash proceeds sale 78 million recorded net gain sale approximately 71 million deducting direct costs sell charge 18 million events segment goodwill related tax charges gain recorded income discontinued operations consolidated statements operations goodwill charge recorded accordance fasb asc topic 350 requires allocated portion goodwill included gain loss disposal portion reporting unit assets liabilities vision events business included sale material company’s consolidated balance sheet consolidated statements cash flows 4other charges company recorded charges 0 2009 2008 91 million 2007 charges 91 million recorded 2007 included charges 87 million related litigation settlement 27 million related decision exit consulting operations asia offsetting charges credit 23 million related excess facility returned service following table summarizes activity related restructuring costs recorded charges consolidated statements operations thousands 1 08 million liability excess facilities represents present value estimated remaining lease payments less projected sublease income accretion expense related obligations charged earnings 2 costs excess facilities paid leases expire 2011 company intends fund payments existing cash 5other assets consist following thousands 6accounts payable accrued liabilities accounts payable accrued liabilities consist following thousands 1 includes amounts payable consisting primarily portion purchase price related acquisition burton group december 30 2009 amounts paid january 2010 liabilities consist following thousands 7debt credit agreement company credit agreement dated january 31 2007 provides 3000 million revolving credit facility fiveyear 1800 million term loan “original term loan” april 9 2008 company entered first amendment “first amendment” lenders credit agreement provided new 1500 million term loan “2008 term loan” revolving credit facility may increased additional 1000 million discretion company’s lenders “expansion feature” total revolving credit facility 4000 million however 1000 million expansion feature may available company depending upon prevailing credit market conditions date company sought borrow expansion feature following table provides information regarding amounts outstanding company’s credit agreement 1 2009 company repaid 315 million original term loan 238 million 2008 term loan pursuant loan amortization schedules addition company prepaid 400 million 2008 term loan september 30 2009 2 rate original term loan consisted interest rate swap rate see plus margin 075 rate 2008 term loan consisted threemonth libor base rate plus margin 100 revolver consisted onemonth libor base rate plus margin 075 3 company approximately 1700 million available borrowing capacity revolver including expansion feature december 31 2009 borrowings credit agreement carry interest rates either primebased liborbased interest rates borrowings include base rate plus margin 000 075 primebased borrowings 0625 175 liborbased borrowings generally company’s borrowings liborbased revolving loans may borrowed repaid reborrowed january 31 2012 time amounts borrowed must repaid revolver borrowing capacity reduced amounts outstanding revolver letters credit original term loan repaid 18 consecutive quarterly installments commenced september 30 2007 final payment due january 31 2012 may prepaid time without penalty premium option company 2008 term loan coterminus original 2007 term loan credit agreement repaid 16 consecutive quarterly installments commenced june 30 2008 plus final payment due january 31 2012 may prepaid time without penalty premium option gartner credit agreement contains certain customary restrictive loan covenants including among others financial covenants requiring maximum leverage ratio minimum fixed charge coverage ratio minimum annualized contract value ratio covenants limiting gartner’s ability incur indebtedness grant liens make acquisitions acquired dispose assets pay dividends repurchase stock make capital expenditures make investments company full compliance financial covenants december 31 2009 giving effect acquisitions failure comply covenants future could result acceleration amounts outstanding credit agreement would materially impact financial condition unless accommodations could negotiated lenders interest rate swap contracts company two interest rate swap contracts swap designated hedge company interest rate swap contract hedges base interest rate risk original term loan effect swap convert floating base rate term loan fixed rate swap terms company pays fixed rate 506 original term loan return receives threemonth libor rate threemonth libor rate received swap matches base rate paid term loan since company optionally selects threemonth libor rate term loan notional amount interest rate swap declines time constantly matches outstanding amount term loan critical terms swap term loan also match company accounts interest rate swap original term loan cash flow hedge accordance fasb asc topic 815 since swap hedging forecasted interest payments term loan qualifies cash flow hedge changes fair value swap recorded comprehensive income long swap continues highly effective hedge base interest rate risk term loan ineffective portion change fair value hedge recorded earnings december 31 2009 ineffective portion hedge interest rate swap negative fair value approximately 66 million december 31 2009 recorded comprehensive income net tax effect swap designated hedge september 30 2009 company discontinued hedge accounting interest rate swap contract previously hedged 2008 term loan addition date company prepaid 400 million outstanding amount 2008 term loan interest rate swap negative fair value 33 million september 30 2009 accordance hedge accounting rules fasb asc topic 815 33 million recorded comprehensive income net tax effect deferred loss however 400 million loan prepayment company reclassified 11 million deferred loss comprehensive income interest expense net remaining 22 million deferred loss comprehensive income september 30 2009 amortized interest expense maturity 2008 term loan 2008 term loan matures january 2012 three months ended december 31 2009 company reclassified approximately 04 million deferred loss comprehensive income interest expense letters credit company issues letters credit related guarantees ordinary course business december 31 2009 company outstanding letters credit guarantees approximately 25 million 8commitments contingencies company leases various facilities furniture computer equipment operating lease arrangements expiring 2010 2026 future minimum annual cash payments noncancelable operating lease agreements december 31 2009 follows thousands 1 excludes approximately 55 million contractual sublease rental income involved legal proceedings litigation arising ordinary course business believe potential liability excess amounts already accrued proceedings claims litigation material effect financial position results operations resolved future period company various agreements may obligate us indemnify party respect certain matters generally indemnification clauses included contracts arising normal course business customarily agree hold party harmless losses arising breach representations related matters title assets sold licensed certain intellectual property rights possible predict maximum potential amount future payments indemnification agreements due conditional nature company’s obligations unique facts particular agreement historically payments made us agreements material december 31 2009 indemnification agreements would require material payments company received cash proceeds 12 million 2008 related settlement litigation matter recorded gain expense income net consolidated statements operations 9equity capital stock holders gartner’s common stock par value 0005 per share “common stock” entitled one vote per share matters voted stockholders company currently pay cash dividends common stock also credit arrangement contains negative covenant may limit ability pay dividends following table summarizes transactions relating common stock three years’ ending december 31 2009 share repurchase programs company 2500 million authorized stock repurchase program 786 million remained available december 31 2009 repurchases made timetotime open market purchases subject availability stock prevailing market conditions trading price stock company’s financial performance conditions repurchases also made timetotime connection settlement sharedbased compensation awards repurchases may funded cash flow operations borrowings company’s credit agreement 2009 2008 2007 company recorded 37 million 1986 million 1691 million respectively common stock repurchases included 2008 total 269 million shares repurchased directly silver lake partners affiliates collectively “silver lake” secondary offering december 14 2009 silver lake sold 7960641 shares common stock secondary offering represented entire remaining holdings common stock company receive proceeds sale shares additionally conjunction sale amended restated securityholders agreement dated july 12 2002 company silver lake pursuant silver lake entitled designate two board members certain consent rights terminated exception certain indemnification rights 10stockbased compensation company grants stockbased compensation awards incentive employees directors contribute company’s longterm success company’s stock compensation awards include stocksettled stock appreciation rights restricted stock service performancebased restricted stock units common stock equivalents stock options december 31 2009 company approximately 74 million shares common stock available awards stockbased compensation 2003 longterm incentive plan includes 40 million additional shares approved stockholders company’s 2009 annual meeting stockholders company accounts stockbased compensation accordance fasb asc topics 505 718 interpreted sab 107 sab 110 stockbased compensation expense based fair value award date grant recognized related service period net estimated forfeitures service period related service performed generally vesting period determining appropriate fair value model calculating fair value stock compensation awards requires input certain highly complex subjective assumptions including expected life stock compensation awards company’s common stock price volatility addition determining appropriate amount associated periodic expense requires management estimate amount employee forfeitures likelihood achievement certain performance targets assumptions used calculating fair value stock compensation awards associated periodic expense represent management’s best estimates involve inherent uncertainties application judgment result factors change company deems necessary future modify assumptions made use different assumptions quantity nature company’s stockbased compensation awards changes amount expense may need adjusted future stock compensation expense could materially different recorded current period company recognized following amounts stockbased compensation expense millions years ended december 31 1 includes 19 million 13 million 09 million 2009 2008 2007 respectively charges related retirementeligible employees stockbased compensation millions recognized consolidated statements operations years ended december 31 follows december 31 2009 company 415 million total unrecognized stockbased compensation cost expected recognized stockbased compensation expense remaining weightedaverage service period approximately 2 years currently company issues treasury shares upon exercise release settlement stockbased compensation awards stockbased compensation awards following disclosures provide information regarding company’s stockbased compensation awards classified equity awards stock appreciation rights stocksettled stock appreciation rights “sars” settled common shares similar options permit holder participate appreciation common stock sars may settled common stock employee applicable vesting criteria met sars exercised number shares common stock issued calculated follows 1 total proceeds sars exercise calculated closing price common stock date exercise less exercise price sars multiplied number sars exercised divided 2 closing price common stock exercise date company withhold portion common stock issued upon exercise satisfy minimum statutory tax withholding requirements sars recipients rights gartner stockholder including voting rights right receive dividends distributions actual shares common stock issued respect award subject prior satisfaction vesting criteria relating grants present time sars awarded company’s executive officers company determines fair value sars date grant using blackscholesmerton valuation model sars vest ratably fouryear service period expire seven years grant date total compensation expense sars 44 million 32 million 24 million 2009 2008 2007 respectively summary changes sars outstanding year ended december 31 2009 follows nanot applicable 1 sars exercised 2009 immaterial 2 december 31 2009 sars outstanding intrinsic value 94 million sars vested exercisable intrinsic value 24 million fair value company’s sars determined date grant using blackscholesmerton valuation model following weightedaverage assumptions years ended december 31 1 dividend yield assumption based history expectation company’s dividend payouts historically gartner paid cash dividends common stock 2 determination expected stock price volatility based historical common stock prices implied volatility publicly traded options common stock 3 riskfree interest rate based yield us treasury security maturity similar expected life award 4 expected life years based “simplified” calculation provided sab 107 simplified method determines expected life years based vesting period contractual terms set forth award made company continues use simplified method awards stockbased compensation since necessary historical exercise forfeiture data determine expected life sars permitted sab 110 restricted stock restricted stock units common stock equivalents restricted stock awards give awardee right vote receive dividends distributions shares however awardee may sell restricted shares restrictions release shares lapsed shares released restricted stock units rsus give awardee right receive common stock vesting conditions met restrictions lapse rsu vests entitles awardee one common share rsu awardees rights gartner stockholder including voting rights right receive dividends distributions common shares released common stock equivalents cses convertible common stock cse entitles holder one common share certain members board directors receive directors’ fees payable cses unless opt cash payment generally cses converted service director terminates unless director elected accelerated release fair value restricted stock rsus cses determined date grant based closing price common stock reported new york stock exchange date fair value awards recognized compensation expense follows outstanding restricted stock awards vest based achievement market condition expensed straightline basis approximately three years ii servicebased rsus vest ratably four years expensed straightline basis four years iii performancebased rsus subject performance service conditions vest ratably four years expensed accelerated basis iv cses vest immediately recorded expense date grant summary changes restricted stock rsus cses year ended december 31 2009 presented table nanot available 1 23 million rsus granted 2009 consisted 11 million performancebased rsus awarded executives 12 million servicebased rsus awarded nonexecutive employees number performancebased rsus granted subject achievement performance condition tied annual increase company’s subscriptionbased contract value 2009 ranged 0 200 target number depending performance level achieved aggregate performancebased rsu target 2009 10 million actual performance target achieved 1194 resulting granting 11 million performancebased rsus 2009 2 cses represent fees paid directors cses vest granted convertible common shares director leaves board directors earlier director elects accelerate release 3 vesting 200000 shares restricted stock held ceo subject market condition follows 100000 shares vest common stock trades average price 25 trading day sixty consecutive trading days ii 100000 shares vest common stock trades average price 30 trading day sixty consecutive trading days remaining unamortized cost shares 4 weightedaverage remaining contractual term rsus 128 years restricted stock awards cses defined contractual term stock options historically company granted stock options employees allowed purchase shares common stock certain price company made significant stock option grants since 2005 outstanding options fully vested remaining unamortized cost company received approximately 122 million cash option exercises year ended december 31 2009 summary changes stock options outstanding year ended december 31 2009 follows nanot applicable 1 options exercised 2009 aggregate intrinsic value 77 million 2 december 31 2009 options outstanding aggregate intrinsic value 348 million employee stock purchase plan company employee stock purchase plan “espp plan” eligible employees permitted purchase common stock payroll deductions may exceed 10 employee’s compensation 23750 calendar year price equal 95 common stock price reported new york stock exchange end offering period december 31 2009 company 16 million shares common stock available purchase espp plan espp plan considered noncompensatory result company record compensation expense related employee share purchases company received 27 million cash share purchases espp plan year ended december 31 2009 11computation earnings per share basic earnings per share “eps” computed dividing net income weighted average number shares common stock outstanding period diluted eps reflects potential dilution securities could share earnings impact common share equivalents antidilutive excluded calculation following table sets forth reconciliation basic diluted earnings per share computations thousands except per share amounts 1 2009 2008 2007 company repurchased 03 million 97 million 84 million shares common stock respectively 2 basic diluted earnings per share include income discontinued operations 007 per share 003 per share 2008 2007 respectively following table presents number common share equivalents included computation diluted eps table effect would antidilutive periods reported income common share equivalents antidilutive exercise price greater average market value share common stock period periods reported loss common share equivalents would antidilutive effect 12income taxes following summary components income taxes years ended december 31 thousands expense income taxes income consists following components thousands current longterm deferred tax assets liabilities comprised following thousands current net deferred tax assets current net deferred tax liabilities 190 million 12 million december 31 2009 157 million 28 million december 31 2008 respectively included prepaid expenses current assets accounts payable accrued liabilities consolidated balance sheets longterm net deferred tax assets longterm net deferred tax liabilities 295 million 01 million december 31 2009 464 million 12 million december 31 2008 respectively included assets liabilities consolidated balance sheets valuation allowances 2009 2008 relate primarily nonus net operating losses domestic capital loss carryforwards domestic foreign tax credits likely expire unutilized net decrease valuation allowance 52 million 2009 relates primarily following items release approximately 19 million valuation allowance changes actual anticipated utilization foreign tax credits b release approximately 32 million valuation allowance federal state capital loss carryovers company established full valuation allowance domestic realized unrealized capital losses future utilization losses uncertain december 31 2009 company us federal capital loss carryforwards 155 million 134 million expire 2011 21 million expire 2012 2013 company also 155 million state local capital loss carryforwards expire similar period time december 31 2009 company federal net operating loss carryforwards 18 million expiring 2028 2029 utilization net operating losses subject certain limitations internal revenue code company believes losses fully utilized prior expiration december 31 2009 company also state local tax net operating loss carryforwards 1612 million 35 million expires within one five years 980 million expires within six fifteen years 597 million expires within sixteen twenty years addition company nonus net operating loss carryforwards 305 million 47 million expires next 20 years 258 million carried forward indefinitely december 31 2009 company also foreign tax credit carryforwards 121 million expire 2018 differences us federal statutory income tax rate company’s effective tax rate income taxes company adopted new accounting principles accounting uncertain tax positions january 1 2007 december 31 2009 december 31 2008 company gross unrecognized tax benefits 138 million 163 million respectively reduction primarily attributable expiration certain statutes limitation third quarter 2009 reasonably possible gross unrecognized tax benefits decreased 03 million within next 12 months due primarily anticipated settlements company classifies uncertain tax positions expected settled within one year long term liabilities december 31 2009 december 31 2008 company liabilities 135 million 142 million respectively related long term uncertain tax positions company records accrued interest penalties related unrecognized tax benefits income tax provision december 31 2009 december 31 2008 company 28 million 36 million accrued interest penalties respectively related unrecognized tax benefits amounts addition gross unrecognized tax benefits noted total amount interest penalties recognized consolidated statements operations years ending december 31 2009 2008 05 million 14 million respectively following reconciliation beginning ending amount unrecognized tax benefits excluding interest penalties years ending december 31 thousands 2009 company repatriated approximately 520 million foreign subsidiaries cost repatriation offset utilization foreign tax credits number years open statutes limitation varies depending tax jurisdiction generally company’s statutes open tax years ended december 31 2006 forward major taxing jurisdictions include us federal state united kingdom italy canada japan netherlands ireland internal revenue service “irs” commenced audit company’s 2007 tax year early 2009 audit ongoing irs proposed adjustments time company believes recorded reserves sufficient cover exposures related review however resolution matters involves uncertainties assurances ultimate resolution exceed amounts recorded results audit could material effect company’s financial position results operations cash flows period periods determination made undistributed earnings subsidiaries outside us amounted approximately 16 million december 31 2009 company intends reinvest earnings nonus operations however company may repatriate portion earnings extent incur additional us tax liability accordingly provision us federal state income taxes provided thereon 13derivatives hedging company typically enters limited number derivative contracts offset potentially negative effects interest rate foreign exchange movements company accounts outstanding derivative contracts accordance fasb asc topic 815 requires derivatives whether designated hedges recorded balance sheet fair value information regarding company’s derivatives activity twelve months ended december 31 2009 follows thousands except number outstanding contracts 1 company designates accounts interest rate swap cash flow hedge see note 7debt 2 company discontinued hedge accounting interest rate swap september 30 2009 see note 7debt 3 company foreign exchange transaction risk since typically enters transactions normal course business denominated foreign currencies differ local functional currencies company subsidiaries operate company may enter foreign currency forward exchange contracts offset effects foreign currency transaction risk contracts normally short term duration realized unrealized gains losses recognized earnings since company designate contracts hedges accounting purposes 4 see note 14fair value disclosures determination fair value instruments 5 gainloss swaps recorded interest expense net represents amounts reclassified comprehensive income oci earnings period gain foreign currency forward contracts recorded income expense net represents net amount realized unrealized gains losses recorded year 6 represents amounts recorded oci december 31 2009 net income taxes december 31 2009 company’s derivative counterparties large investment grade financial institutions company collateral arrangements derivative counterparties none derivative contracts contained creditrisk related contingent features 14fair value disclosures company’s financial instruments include cash equivalents fees receivable customers accounts payable accruals normally shortterm nature company believes carrying amounts financial instruments reasonably approximates fair value december 31 2009 company 3290 million outstanding floating rate debt carried amortized cost company believes carrying amount debt reasonably approximates fair value rate interest term loans revolver floating rate reflect current market rates interest similar instruments comparable maturities fasb asc topic 820 provides framework measuring fair value valuation hierarchy based upon transparency inputs used valuation asset liability classification within hierarchy based upon lowest level input significant resulting fair value measurement valuation hierarchy contains three levels • level 1valuation inputs unadjusted quoted market prices identical assets liabilities active markets • level 2valuation inputs quoted prices identical assets liabilities markets active quoted market prices similar assets liabilities active markets observable inputs directly indirectly related asset liability measured • level 3valuation inputs unobservable significant fair value measurement following table presents company assets liabilities measured fair value recurring basis thousands 1 company supplemental deferred compensation arrangement benefit certain highly compensated officers managers key employees see note 15employee benefits plan’s assets consist investments money market mutual funds companyowned life insurance money market mutual funds consist cash equivalents securities traded active markets company considers fair value assets based level 1 input value companyowned life insurance based indirectly observable prices company considers level 2 inputs 2 company periodically enters foreign currency forward exchange contracts hedge effects adverse fluctuations foreign currency exchange rates see note 13derivatives hedging valuation foreign currency forward contracts based foreign currency exchange rates active markets thus company measures fair value contracts level 2 input 3 company two interest rate swap contracts see note 7debt determine fair value swaps company relies marktomarket valuations prepared thirdparty brokers based observable interest rate yield curves accordingly fair value swaps determined level 2 input 15employee benefits savings investment plan company savings investment plan covering substantially domestic employees company contributions based upon level employee contributions maximum 4 employee’s eligible salary subject annual maximum 2009 maximum match 6600 addition company also contributes least 1 employee’s base compensation subject irs annual limitation 2450 2009 amounts expensed connection plan totaled 130 million 125 million 118 million 2009 2008 2007 respectively deferred compensation arrangement company supplemental deferred compensation arrangement benefit certain highly compensated officers managers key employees structured rabbi trust classify plan’s investment assets consolidated balance sheets current fair value assets 202 million 139 million december 31 2009 2008 respectively corresponding deferred compensation liability 230 million 165 million december 31 2009 2008 respectively recorded fair market value adjusted corresponding charge credit compensation cost reflect fair value amount owed employees included liabilities consolidated balance sheets total compensation expense benefit arrangement 01 million 04 million 03 million 2009 2008 2007 respectively defined benefit pension plans company definedbenefit pension plans several international locations benefits earned plans based years service level employee compensation company accounts material defined benefit plans accordance requirements fasb asc topics 715 960 following components net periodic pension expense years ended december 31 thousands assumptions used computation net periodic pension expense follows company determines weightedaverage discount rate utilizing yields longterm corporate bonds relevant country duration consistent pension obligations following table provides information related changes projected benefit obligation thousands 1 estimated benefits paid future years follows 02 million 2010 02 million 2011 03 million 2012 09 million 2013 10 million 2014 36 million five years thereafter 2 measured december 31 following table provides information related funded status plans amounts recorded consolidated balance sheets thousands 1 company reinsurance asset arrangement large international insurance company rated investment grade december 31 2009 purpose reinsurance asset arrangement fund benefit obligation one plans however reinsurance asset acknowledged plan asset accounting purposes since considered asset company legally segregated restricted purposes meeting pension obligation reinsurance asset carried cash surrender value company believes approximates fair value december 31 2009 2 contributions expected paid plans 2010 total 02 million 3 32 million recorded stockholders’ equity net tax effect december 31 2009 represents plan’s net unrecognized actuarial gain amount amortized net periodic pension cost approximately 15 years amortization gain estimated reduce net periodic pension cost 2010 approximately 02 million 16segment information company manages business three reportable segments research consulting events research consists primarily subscriptionbased research products access research inquiry well peer networking services membership programs consulting consists primarily consulting measurement engagements strategic advisory services events consists various symposia conferences exhibitions company evaluates reportable segment performance allocates resources based gross contribution margin gross contribution presented table defined operating income excluding certain cost services product development sga expenses depreciation acquisition integration charges amortization intangibles charges certain bonus fringe benefit costs included consolidated cost services product development allocated segment expense accounting policies used reportable segments used company intersegment revenues earn revenue clients many countries united states individual country revenues external clients represent 10 company’s consolidated revenues additionally single client accounted 10 total revenue loss single client management’s opinion would material adverse effect revenues identify allocate assets including capital expenditures operating segment accordingly assets reported segment information available segment reviewed evaluation performance making decisions allocation resources january 1 2009 company eliminated previously reported “other” revenue line “other” revenue line primarily consisted fees earned research reprints miscellaneous products revenues related expenses included research segment addition certain expenses formerly classified selling general administrative expense reported cost sales product development included research segment prior periods presented reclassified order consistent current period presentation 2008 actions increased research segment revenue 83 million increased research segment expense 206 million decreased research segment gross contribution 123 million 2007 actions increased research segment revenue 100 million increased research segment expense 194 million decreased research segment gross contribution 94 million following tables present operating information company’s reportable segments thousands company’s consolidated revenues generated primarily direct sales clients domestic international sales forces network independent international sales agents revenues table reported based sale fulfilled “other international” revenues attributable areas located outside united states canada emea europe middle east africa products services provided integrated worldwide basis integration products services delivery practical separate precisely revenues geographic location longlived assets exclude goodwill intangible assets accordingly separation set forth table based upon internal allocations involve certain management estimates judgments summarized information geographic location follows thousands 17valuation qualifying accounts following table provides information regarding company’s allowance doubtful accounts returns allowances thousands 1 amounts charged revenues signatures pursuant requirements securities exchange act 1934 registrant caused report form 10k signed behalf undersigned duly authorized stamford connecticut february 19 2010 power attorney person whose signature appears appoints eugene hall christopher j lafond acting individually attorneyinfact full power substitution capacities sign amendments report form 10k file appropriate exhibits related documents securities exchange commission undersigned ratifies confirms signatures may signed attorneyinfact amendments report pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated