UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

Commission File Number 1-14443

Gartner, Inc.

(Exact name of Registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)		04-3099750 (I.R.S. Employer Identification Number)
P.O. Box 10212 56 Top Gallant Road Stamford, CT (Address of principal executive offices)		06902-7700 (Zip Code)

Registrant’s telephone number, including area code: (203) 316-1111

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o		Smaller reporting company o
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

As of October 26, 2010, 96,117,674 shares of the registrant’s common shares were outstanding.

 

 

Table of Contents

		Page
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (Unaudited)
Condensed Consolidated Balance Sheets at September 30, 2010 and December 31, 2009			3
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2010 and 2009			4
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2010 and 2009			5
Notes to Condensed Consolidated Financial Statements			6
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			19
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			32
ITEM 4. CONTROLS AND PROCEDURES			33
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS			34
ITEM 1A. RISK FACTORS			34
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			34
ITEM 6. EXHIBITS			35

PART I FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

GARTNER, INC.

Condensed Consolidated Balance Sheets
(Unaudited, in thousands)

		September 30,				December 31,
		2010				2009
Assets
Current assets:
Cash and cash equivalents		$	148,412			$	116,574
Fees receivable, net			299,987				317,598
Deferred commissions			53,823				70,253
Prepaid expenses and other current assets			69,626				53,400
Total current assets			571,848				557,825
Property, equipment and leasehold improvements, net			44,272				52,466
Goodwill			509,652				513,612
Intangible assets, net			16,116				24,113
Other assets			94,485				67,263
Total Assets		$	1,236,373			$	1,215,279
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued liabilities		$	182,529			$	255,966
Deferred revenues			496,348				437,207
Current portion of long-term debt			248,500				205,000
Total current liabilities			927,377				898,173
Long-term debt			51,500				124,000
Other liabilities			103,273				80,571
Total Liabilities			1,082,150				1,102,744
Stockholders’ Equity
Preferred stock, $.01 par value, 5,000,000 shares authorized; none issued or outstanding			—				—
Common stock, $.0005 par value, 250,000,000 shares authorized; 156,234,416 shares issued for both periods			78				78
Additional paid-in capital			599,971				590,864
Accumulated other comprehensive income, net			14,496				11,322
Accumulated earnings			568,983				509,392
Treasury stock, at cost, 60,076,022 and 60,356,672 common shares, respectively			(1,029,305	)			(999,121	)
Total Stockholders’ Equity			154,223				112,535
Total Liabilities and Stockholders’ Equity		$	1,236,373			$	1,215,279

See the accompanying notes to the condensed consolidated financial statements.

GARTNER, INC.

Condensed Consolidated Statements of Operations
(Unaudited, in thousands, except per share data)

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2010				2009				2010				2009
Revenues:
Research		$	214,680			$	185,718			$	634,448			$	557,325
Consulting			65,397				65,708				212,796				205,341
Events			16,045				16,043				58,906				48,307
Total revenues			296,122				267,469				906,150				810,973
Costs and expenses:
Cost of services and product development			125,897				118,120				387,279				351,864
Selling, general and administrative			127,488				115,049				388,378				345,980
Depreciation			6,194				6,363				19,218				19,176
Amortization of intangibles			2,531				416				7,994				1,220
Acquisition and integration charges			1,249				—				7,090				—
Total costs and expenses			263,359				239,948				809,959				718,240
Operating income			32,763				27,521				96,191				92,733
Interest expense, net			(3,005	)			(4,914	)			(9,569	)			(13,105	)
Other (expense) income, net			(373	)			(127	)			736				(2,505	)
Income before income taxes			29,385				22,480				87,358				77,123
Provision for income taxes			9,310				2,413				27,767				19,875
Net income		$	20,075			$	20,067			$	59,591			$	57,248
Income per common share:
Basic		$	0.21			$	0.21			$	0.62			$	0.61
Diluted		$	0.20			$	0.21			$	0.60			$	0.59
Weighted average shares outstanding:
Basic			95,473				94,872				95,698				94,380
Diluted			98,797				97,657				99,584				96,885

See the accompanying notes to the condensed consolidated financial statements.

GARTNER, INC.

Condensed Consolidated Statements of Cash Flows
(Unaudited, in thousands)

		Nine Months Ended
		September 30,
		2010				2009
Operating activities:
Net income		$	59,591			$	57,248
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of intangibles			27,212				20,396
Stock-based compensation expense			23,298				19,477
Excess tax benefits from stock-based compensation			(12,575	)			(1,685	)
Deferred taxes			(6,699	)			451
Amortization of debt issue costs			785				1,161
Changes in assets and liabilities:
Fees receivable, net			15,148				78,251
Deferred commissions			15,685				9,613
Prepaid expenses and other current assets			(3,212	)			(3,534	)
Other assets			(36,317	)			(5,964	)
Deferred revenues			59,811				(8,844	)
Accounts payable, accrued, and other liabilities			(16,352	)			(48,930	)
Cash provided by operating activities			126,375				117,640
Investing activities:
Additions to property, equipment and leasehold improvements			(12,211	)			(11,125	)
Acquisitions (net of cash received)			(12,151	)			—
Cash used in investing activities			(24,362	)			(11,125	)
Financing activities:
Proceeds from stock issued for stock plans			19,380				11,011
Proceeds from debt issuance			27,000				—
Payments on debt			(56,000	)			(151,250	)
Purchases of treasury stock			(76,476	)			(3,733	)
Excess tax benefits from stock-based compensation			12,575				1,685
Cash used by financing activities			(73,521	)			(142,287	)
Net increase (decrease) in cash and cash equivalents			28,492				(35,772	)
Effects of exchange rates on cash and cash equivalents			3,346				7,621
Cash and cash equivalents, beginning of period			116,574				140,929
Cash and cash equivalents, end of period		$	148,412			$	112,778

See the accompanying notes to the condensed consolidated financial statements.

GARTNER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 1 — Basis of Presentation

The fiscal year of Gartner, Inc. (the “Company”) represents the period from January 1 through December 31. When used in these notes, the terms “Company,” “we,” “us,” or “our” refer to Gartner, Inc. and its consolidated subsidiaries.

These interim condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States of America, as defined in the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 270 for interim financial information and with the instructions to Rule 10-01 of Regulation S-X on Form 10-Q and should be read in conjunction with the consolidated financial statements and related notes of Gartner, Inc. filed in its Annual Report on Form 10-K for the year ended December 31, 2009.

In the opinion of management, all normal recurring accruals considered necessary for a fair presentation of financial position, results of operations and cash flows at the dates and for the periods presented herein have been included. The results of operations for the three and nine months ended September 30, 2010 may not be indicative of the results of operations for the remainder of 2010.

Principles of consolidation. The accompanying interim condensed consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries. All significant intercompany transactions and balances have been eliminated.

Use of estimates. The preparation of the accompanying interim condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions about future events. These estimates and the underlying assumptions affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities, and reported amounts of revenues and expenses. Such estimates include the valuation of accounts receivable, goodwill, intangible assets, other long-lived assets, assets and liabilities acquired in business acquisitions, tax accruals and other liabilities. In addition, estimates are used in revenue recognition, income tax expense, performance-based compensation charges, depreciation and amortization, and the allowance for losses. Management believes its use of estimates in the interim condensed consolidated financial statements to be reasonable.

Management evaluates its estimates on an ongoing basis using historical experience and other factors, including the general economic environment and actions it may take in the future. We adjust such estimates when facts and circumstances dictate. However, these estimates may involve significant uncertainties and judgments and cannot be determined with precision. In addition, these estimates are based on our best judgment at a point in time and as such these estimates may ultimately differ from actual results. Changes in estimates resulting from weakness in the economic environment or other factors beyond our control could be material and would be reflected in the Company’s financial statements in future periods.

Note 2 — Acquisitions

In December 2009 the Company acquired all of the outstanding shares of AMR Research, Inc. (“AMR Research”) and Burton Group, Inc. (“Burton Group’) for a total of $117.7 million in cash. The Company’s consolidated results include the operating results of these businesses beginning on their respective acquisition dates. During the three months ended September 30, 2010, the Company finalized the allocation of the purchase price related to these acquisitions, resulting in immaterial adjustments to recorded goodwill. The Company recorded $1.2 million and $7.1 million of acquisition and integration expenses related to these acquisitions in the three and nine months ended September 30, 2010, respectively.

The Company received contractual indemnifications from the selling shareholders of AMR Research and Burton Group for certain pre-acquisition liabilities, which the Company estimated at $6.1 million. In accordance with FASB ASC Topic 805, the Company recorded a $6.1 million indemnification receivable in Prepaid expenses and other current assets and a $6.1 million liability in Accrued liabilities, which were included in the purchase price allocation. Separately, a portion of the sale proceeds were placed in an escrow account pending resolution of the pre-acquisition liabilities. During the nine months ended September 30, 2010, the Company paid $3.9 million related to the settlement of a portion of these pre-acquisition liabilities and received reimbursement from the escrow for the same amount. As a result, the settlement of these liabilities had no impact on the Company’s results of operations, cash flows, or

goodwill. The Company believes the remaining $2.2 million recorded in Accrued liabilities is a reasonable estimate of the amount necessary to satisfy the outstanding exposures, which is fully reimbursable from the escrow account.

Note 3 — Comprehensive Income

The components of Comprehensive income include net income, foreign currency translation adjustments, realized and unrealized gains or losses on interest rate swaps, and deferred gains and losses on defined benefit pension plans. Amounts recorded in Comprehensive income are as follows:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2010				2009				2010				2009
Net income:		$	20,075			$	20,067			$	59,591			$	57,248
Other comprehensive income, net of tax effect:
Foreign currency translation adjustments			7,415				3,722				1,086				9,682
Unrealized gains on interest rate swaps			673				851				2,296				2,772
Amortization of realized gain on terminated interest rate swap			—				(51	)			(39	)			(188	)
Amortization of pension unrealized gain			(56	)			(48	)			(169	)			(138	)
Other comprehensive income			8,032				4,474				3,174				12,128
Comprehensive income		$	28,107			$	24,541			$	62,765			$	69,376

Note 4 — Computation of Earnings Per Share

The following table sets forth the reconciliation of basic and diluted earnings per share (in thousands, except per share data):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2010				2009				2010				2009
Numerator:
Net income used for calculating basic and diluted earnings per share		$	20,075			$	20,067			$	59,591			$	57,248
Denominator:
Weighted average number of common shares used in the calculation of basic earnings per share			95,473				94,872				95,698				94,380
Common stock equivalents associated with stock-based compensation plans (1), (2)			3,324				2,785				3,886				2,505
Shares used in the calculation of diluted earnings per share			98,797				97,657				99,584				96,885
Basic earnings per share		$	0.21			$	0.21			$	0.62			$	0.61
Diluted earnings per share		$	0.20			$	0.21			$	0.60			$	0.59

Note 5 — Stock-Based Compensation

The Company grants stock-based compensation awards as an incentive for employees and directors to contribute to the Company’s long-term success. The Company currently awards stock-settled stock appreciation rights, service- and performance-based restricted stock units, and common stock equivalents. At September 30, 2010, the Company had approximately 6.7 million shares of its common stock, par value $.0005 per share (the “Common Stock”) available for awards of stock-based compensation under its 2003 Long-Term Incentive Plan.

The Company accounts for stock-based compensation in accordance with FASB ASC Topics 505 and 718, as interpreted by SEC Staff Accounting Bulletins No. 107 (“SAB No. 107”) and No. 110 (“SAB No. 110”). Stock-based compensation expense is based on the fair value of the award on the date of grant, which is recognized over the related service period, net of estimated forfeitures.

The service period is the period over which the related service is performed, which is generally the same as the vesting period. At the present time, the Company issues treasury shares upon the exercise, release or settlement of stock-based compensation awards.

Determining the appropriate fair value model and calculating the fair value of stock compensation awards requires the input of certain highly complex and subjective assumptions, including the expected life of the stock compensation awards and the Common Stock price volatility. In addition, determining the appropriate amount of associated periodic expense requires management to estimate the amount of employee forfeitures and the likelihood of the achievement of certain performance targets. The assumptions used in calculating the fair value of stock compensation awards and the associated periodic expense represent management’s best estimates, but these estimates involve inherent uncertainties and the application of judgment. As a result, if factors change and the Company deems it necessary in the future to modify the assumptions it made or to use different assumptions, or if the quantity and nature of the Company’s stock-based compensation awards changes, then the amount of expense may need to be adjusted and future stock compensation expense could be materially different from what has been recorded in the current period.

Stock-Based Compensation Expense

The Company recognized the following amounts of stock-based compensation expense by award type in the periods indicated (in millions):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
Award type:		2010				2009				2010				2009
Stock appreciation rights (SARs)		$	0.9			$	1.0			$	3.7			$	3.4
Common stock equivalents (CSEs)			0.2				0.1				0.4				0.3
Restricted stock units (RSUs)			6.2				5.3				19.2				15.8
Total		$	7.3			$	6.4			$	23.3			$	19.5

Stock-based compensation was recognized in the Consolidated Statements of Operations as follows (in millions):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
Amount recorded in:		2010				2009				2010				2009
Cost of services and product development		$	3.1			$	3.0			$	10.9			$	9.5
Selling, general and administrative			4.2				3.4				12.4				10.0
Total stock-based compensation expense		$	7.3			$	6.4			$	23.3			$	19.5

As of September 30, 2010, the Company had $47.1 million of total unrecognized stock-based compensation cost, which is expected to be recognized as stock-based compensation expense over the remaining weighted-average service period of approximately 2.1 years.

Stock-Based Compensation Awards

The following disclosures provide information regarding the Company’s stock-based compensation awards, all of which are classified as equity awards in accordance with FASB ASC Topic 505:

Stock Appreciation Rights

Stock-settled stock appreciation rights (SARs) are settled in common shares and are similar to stock options as they permit the holder to participate in the appreciation of the Common Stock. SARs may be settled in shares of Common Stock by the employee once the applicable vesting criteria have been met. SARs vest ratably over a four-year service period and expire seven years from the grant date. The fair value of SARs awards is recognized as compensation expense on a straight-line basis over four years. SARs are awarded only to the Company’s executive officers.

When SARs are exercised, the number of shares of Common Stock issued is calculated as follows: (1) the total proceeds from the SARs exercise (calculated as the closing price of the Common Stock on the date of exercise less the exercise price of the SARs, multiplied by the number of SARs exercised) is divided by (2) the closing price of the Common Stock on the exercise date. The Company withholds a portion of the shares of Common Stock issued upon exercise to satisfy minimum statutory tax withholding requirements. SARs recipients do not have any of the rights of a Gartner stockholder, including voting rights and the right to receive

dividends and distributions, until after actual shares of Common Stock are issued in respect of the award, which is subject to the prior satisfaction of the vesting and other criteria relating to such grants.

A summary of the changes in SARs outstanding for the nine months ended September 30, 2010, follows:

										Per Share				Weighted
						Per Share				Weighted-				Average
						Weighted-				Average				Remaining
		SARs in				Average				Grant Date				Contractual
		millions				Exercise Price				Fair Value				Term
Outstanding at December 31, 2009			2.9			$	15.43			$	6.09			4.67 years
Granted			0.6				22.06				8.27			6.37 years
Forfeited			—				—				—			na
Exercised			(0.6	)			14.51				5.99			na
Outstanding at September 30, 2010 (1)			2.9			$	16.97			$	4.90			4.68 years
Vested and exercisable at September 30, 2010 (1)			1.2			$	17.03			$	6.53			3.67 years

na=not applicable

The fair value of the SARs grants was determined on the date of the grant using the Black-Scholes-Merton valuation model with the following weighted-average assumptions:

		Nine Months Ended
		September 30, (1)
		2010				2009
Expected dividend yield (2)			0	%			0	%
Expected stock price volatility (3)			40	%			50	%
Risk-free interest rate (4)			2.4	%			2.3	%
Expected life in years (5)			4.8				4.8

Restricted Stock, Restricted Stock Units, and Common Stock Equivalents

Restricted stock awards give the awardee the right to vote and to receive dividends and distributions on these shares; however, the awardee may not sell the restricted shares until all restrictions on the release of the shares have lapsed and the shares are released.

Restricted stock units (RSUs) give the awardee the right to receive shares of Common Stock when the vesting conditions are met and the restrictions lapse, and each RSU that vests entitles the awardee to one common share. RSU awardees do not have any of the rights of a Gartner stockholder, including voting rights and the right to receive dividends and distributions, until after the common shares are released.

Common stock equivalents (CSEs) are convertible into Common Stock, and each CSE entitles the holder to one common share. Members of our Board of Directors receive directors’ fees payable in CSEs unless they opt to receive up to 50% of the fees in cash. Generally, the CSEs are converted when service as a director terminates unless the director has elected an accelerated release.

The fair value of restricted stock, RSUs, and CSEs is determined on the date of grant based on the closing price of the Common Stock as reported by the New York Stock Exchange on that date. The fair value of these awards is recognized as compensation expense as follows: (i) restricted stock awards vest based on the achievement of a market condition and are expensed on a straight-line basis over approximately three years; (ii) service-based RSUs vest ratably over four years and are expensed on a straight-line basis over four years; (iii) performance-based RSUs are subject to both performance and service conditions, vest ratably over four years, and are expensed on an accelerated basis; and (iv) CSEs vest immediately and are recorded as expense on the date of grant.

A summary of the changes in restricted stock, RSUs and CSEs during the nine months ended September 30, 2010, follows:

						Weighted-								Weighted-				Common				Weighted-
						Average				Restricted				Average				Stock				Average
		Restricted				Grant Date				Stock Units				Grant Date				Equivalents				Grant Date
		Stock				Fair Value (1)				(RSUs)				Fair Value (1)				(CSEs)				Fair Value (1)
Outstanding at December 31, 2009			200,000			$	7.30				3,763,805			$	14.57				135,224				na
Granted (2), (3)			—				—				1,117,721				22.17				14,627			$	24.93
Vested or released			—				—				(1,432,709	)			15.20				(34,859	)			na
Forfeited			—				—				(56,856	)			16.59				—				na
Outstanding at September 30, 2010 (4), (5)			200,000			$	7.30				3,391,961			$	16.52				114,992				na

na=not available

Stock Options

Historically, the Company granted stock options to employees that allowed them to purchase shares of the Common Stock at a certain price. The Company has not made any stock option grants since 2006. All outstanding options are fully vested and there is no remaining unamortized cost. The Company received approximately $17.2 million and $9.0 million in cash from option exercises in the nine months ended September 30, 2010 and 2009, respectively.

A summary of the changes in stock options outstanding in the nine months ended September 30, 2010, follows:

Weighted

Per Share

Average

Weighted-

Remaining

Aggregate

Options in

Average

Contractual

Intrinsic Value

millions

Exercise Price

Term

(in millions)

Vested and outstanding at December 31, 2009

4.7

$

10.65

3.07 years

$

34.8

Expired

—

—

na

na

Exercised (1)

(1.7

)

10.14

na

na

Vested and outstanding at September 30, 2010

3.0

$

10.94

2.68 years

$

55.6

na=not applicable

Employee Stock Purchase Plan

The Company has an employee stock purchase plan (the “ESPP Plan”) under which eligible employees are permitted to purchase Common Stock through payroll deductions, which may not exceed 10% of an employee’s compensation (or $23,750 in any calendar year), at a price equal to 95% of the closing price of the Common Stock as reported by the New York Stock Exchange at the end of each offering period.

At September 30, 2010, the Company had approximately 1.5 million shares available for purchase under the ESPP Plan. The ESPP Plan is considered non-compensatory under FASB ASC Topic 718, and as a result the Company does not record compensation expense related to employee share purchases. The Company received approximately $2.2 million and $2.0 million in cash from share purchases under the ESPP Plan in the nine months ended September 30, 2010 and 2009, respectively.

Note 6 — Segment Information

The Company manages its business in three reportable segments: Research, Consulting and Events. Research consists primarily of subscription-based research products, access to research inquiry, as well as peer networking services and membership programs. Consulting consists primarily of consulting, measurement engagements, and strategic advisory services. Events consists of various symposia, conferences, and exhibitions.

The Company evaluates reportable segment performance and allocates resources based on gross contribution margin. Gross contribution, as presented in the table below, is defined as operating income excluding certain Cost of services and product development and Selling, general and administrative (“SG&A”) expenses, depreciation, acquisition and integration charges, amortization of intangibles, and Other charges. Certain bonus and fringe benefit costs included in consolidated Cost of services and product development are not allocated to segment expense. The accounting policies used by the reportable segments are the same as those used by the Company.

The Company does not identify or allocate assets, including capital expenditures, by reportable segment. Accordingly, assets are not reported by segment because the information is not available and is not reviewed in the evaluation of segment performance or in making decisions in the allocation of resources. There are no inter-segment revenues.

The following tables present information about the Company’s reportable segments (in thousands):

		Research				Consulting				Events				Consolidated
Three Months Ended September 30, 2010:
Revenues		$	214,680			$	65,397			$	16,045			$	296,122
Gross contribution			140,605				23,981				5,974				170,560
Corporate and other expenses															(137,797	)
Operating income														$	32,763

		Research				Consulting				Events				Consolidated
Three Months Ended September 30, 2009:
Revenues		$	185,718			$	65,708			$	16,043			$	267,469
Gross contribution			122,611				23,658				5,934				152,203
Corporate and other expenses															(124,682	)
Operating income														$	27,521

		Research				Consulting				Events				Consolidated
Nine Months Ended September 30, 2010:
Revenues		$	634,448			$	212,796			$	58,906			$	906,150
Gross contribution			415,311				84,222				22,688				522,221
Corporate and other expenses															(426,030	)
Operating income														$	96,191

		Research				Consulting				Events				Consolidated
Nine Months Ended September 30, 2009:
Revenues		$	557,325			$	205,341			$	48,307			$	810,973
Gross contribution			366,807				78,314				16,300				461,421
Corporate and other expenses															(368,688	)
Operating income														$	92,733

Note 7 — Goodwill and Intangible Assets

Goodwill

Goodwill represents the excess of the purchase price of acquired businesses over the estimated fair value of the tangible and identifiable intangible net assets acquired. The evaluation of goodwill is performed in accordance with FASB ASC Topic 350, which requires an annual assessment of potential goodwill impairment at the reporting unit level. A reporting unit can be an operating segment or a business if discrete financial information is prepared and reviewed by management. Under the impairment test, if a reporting unit’s carrying amount exceeds its estimated fair value, goodwill impairment is recognized to the extent that the reporting unit’s carrying amount of goodwill exceeds the implied fair value of the goodwill. The fair value of reporting units is estimated using discounted cash flows, market multiples, and other valuation techniques.

The following table presents changes to the carrying amount of goodwill by reporting segment during the nine months ended September 30, 2010 (in thousands):

		Research				Consulting				Events				Total
Balance, December 31, 2009		$	370,630			$	100,744			$	42,238			$	513,612
Foreign currency translation adjustments and other (1)			(2,836	)			(802	)			(322	)			(3,960	)
Balance, September 30, 2010 (2)		$	367,794			$	99,942			$	41,916			$	509,652

Other Intangible Assets

										Customer				Noncompete
September 30, 2010		Content				Trade Name				Relationships				Agreements				Total
Gross cost		$	10,634			$	5,758			$	7,210			$	210			$	23,812
Accumulated amortization			(5,317	)			(864	)			(1,351	)			(164	)			(7,696	)
Net		$	5,317			$	4,894			$	5,859			$	46			$	16,116

										Customer				Noncompete
December 31, 2009		Content				Trade Name				Relationships				Agreements				Total
Gross cost		$	10,634			$	5,758			$	14,910			$	416			$	31,718
Accumulated amortization			—				—				(7,315	)			(290	)			(7,605	)
Net		$	10,634			$	5,758			$	7,595			$	126			$	24,113

All of the Company’s other intangible assets are being amortized against earnings over the following periods:

Customer

Noncompete

Content

Trade Name

Relationships

Agreements

Useful Life (Years)

1.5

5

4

2-5

Aggregate amortization expense related to intangible assets was $2.5 million and $0.4 million for the three months ended September 30, 2010 and 2009, respectively, and $8.0 million and $1.2 million for the nine months ended September 30, 2010 and 2009, respectively. The additional amortization was due to acquired intangibles from the AMR Research and Burton Group acquisitions.

The estimated future amortization expense by year from purchased intangibles is as follows (in thousands):

2010 (remaining three months)		$	2,541
2011			6,525
2012			2,955
2013			2,955
2014			1,140
		$	16,116

Note 8 — Debt

Credit Facility

The Company has a Credit Agreement dated as of January 31, 2007, that provides for a $300.0 million revolving credit facility and a five-year, $180.0 million term loan (the “original term loan”). On April 9, 2008, the Company entered into a First Amendment with the lenders to the Credit Agreement, which provided for a new $150.0 million term loan (the “2008 term loan”). The revolving credit facility may be increased up to an additional $100.0 million at the discretion of the Company’s lenders (the “expansion feature”), for a total revolving credit facility of $400.0 million. However, the $100.0 million expansion feature may or may not be available to the Company depending upon prevailing credit market conditions. To date, the Company has not sought to borrow under the expansion feature.

The following table provides information regarding amounts outstanding under the Company’s Credit Agreement:

		Amount				Amount
		Outstanding				Outstanding				Annualized
		December 31, 2009				September 30, 2010				Interest Rates
		(In thousands)				(In thousands)				September 30, 2010 (3)
Description:
Original term loan (1)		$	126,000			$	90,000			1.17%
2008 term loan (1)			75,000				55,000			1.54%
Revolver (2)			128,000				155,000			1.20%
Total		$	329,000			$	300,000

Borrowings under the Credit Agreement carry interest rates that are either prime-based or Libor-based. Interest rates under these borrowings include a base rate plus a margin between 0.00% and 0.75% on Prime-based borrowings and between 0.625% and 1.75% on Libor-based borrowings. Generally, the Company’s borrowings are Libor-based. The revolving loans may be borrowed, repaid and reborrowed until January 31, 2012, at which time all amounts borrowed must be repaid. The revolver borrowing capacity is reduced for both amounts outstanding under the revolver and for letters of credit.

The original term loan will be repaid in 18 consecutive quarterly installments which commenced on September 30, 2007, with the final payment due on January 31, 2012, and may be prepaid at any time without penalty or premium at the option of the Company. The 2008 term loan is co-terminus with the original 2007 term loan under the Credit Agreement and will be repaid in 16 consecutive quarterly installments plus a final payment due on January 31, 2012, and may be prepaid at any time without penalty or premium at the option of Gartner.

The Credit Agreement contains certain customary restrictive loan covenants, including, among others, financial covenants requiring a maximum leverage ratio, a minimum fixed charge coverage ratio, and a minimum annualized contract value ratio and covenants limiting Gartner’s ability to incur indebtedness, grant liens, make acquisitions, be acquired, dispose of assets, pay dividends, repurchase stock, make capital expenditures, and make investments. A failure to comply with these covenants in the future could result in acceleration of all amounts outstanding under the Credit Agreement, which would materially impact our financial condition unless accommodations could be negotiated with our lenders. The Company was in full compliance with its financial covenants as of September 30, 2010 and December 31, 2009.

The Company’s Credit Agreement expires in January 2012. The Company is currently exploring refinancing options, which may result in the accelerated payment of the amounts outstanding as of September 30, 2010.

Letters of Credit

The Company provides letters of credit and similar guarantees in the ordinary course of business to facilitate transactions with customers and others. At September 30, 2010, the Company had outstanding letters of credit and related guarantees of approximately $5.3 million.

Note 9 — Equity and Stock Programs

Share Repurchases

On August 5, 2010, the Company’s Board of Directors approved a new $500.0 million share repurchase program to be utilized to acquire additional shares of Common Stock. Repurchases may be made from time-to-time through open market purchases, private transactions, tender offers or other transactions. The amount and timing of repurchases will be subject to the availability of stock, prevailing market conditions, the trading price of the stock, the Company’s financial performance and other conditions. Repurchases may also be made from time-to-time in connection with the settlement of the Company’s shared-based compensation awards. Repurchases will be funded from cash flow from operations and borrowings under the Company’s Credit Agreement.

The Company’s share repurchase activity was as follows:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2010				2009				2010				2009
Number of shares repurchased			48,904				4,531				3,188,945				305,482
Cost of repurchased shares (in thousands) (1), (2):		$	1,372			$	75			$	76,475			$	3,734

Note 10 — Income Taxes

The provision for income taxes was $9.3 million for the three months ended September 30, 2010 compared to $2.4 million in the prior year quarter. The effective tax rate was 31.7% for the three months ended September 30, 2010 and 10.7% for the same period in 2009. The increase in the effective tax rate was primarily due to the impact of certain discrete items as well as a change in the estimated annual mix of pre-tax income by jurisdiction. Discrete items in the three months ended September 30, 2009 included the release of approximately $3.4 million of reserves and $0.5 million of related interest reserves due to the expiration of the relevant statutes of limitation.

The provision for income taxes was $27.8 million for the nine months ended September 30, 2010 compared to $19.9 million in the same period in 2009. The effective tax rate was 31.8% for the nine months ended September 30, 2010 and 25.8% for the same period in 2009. The increase in the effective tax rate was primarily due to the impact of certain discrete items as well as a change in the estimated annual mix of pre-tax income by jurisdiction. Discrete items in the nine months ended September 30, 2009 included the release of approximately $3.4 million of reserves and $0.5 million of related interest reserves due to the expiration of the relevant statutes of limitation.

As of September 30, 2010 and December 31, 2009, the Company had gross unrecognized tax benefits of $14.5 and $13.8 million, respectively. It is reasonably possible that the gross unrecognized tax benefits will be decreased by $0.7 million within the next 12 months, primarily due to settlements of outstanding audits and the expiration of the relevant statutes of limitation. As of September 30, 2010 and December 31, 2009, the Company had Other liabilities of $13.8 million and $13.5 million, respectively, related to long term uncertain tax positions.

The Internal Revenue Service has completed its examination of the Federal income tax return of the Company for the tax year ended December 31, 2007. The Company has not yet received a report of the findings. The Company believes that it has recorded reserves sufficient to cover exposures related to such review. However, the resolution of such matters involves uncertainties and there are no assurances that the ultimate resolution will not exceed the amounts we have recorded. Additionally, the results of an audit could have a material effect on our financial position, results of operations, and cash flows in the period or periods for which that determination is made.

Note 11 — Derivatives and Hedging

The Company typically enters into a limited number of derivative contracts to offset the potentially negative effects of interest rate and foreign exchange movements. The Company accounts for its outstanding derivative contracts in accordance with FASB ASC Topic 815, which requires all derivatives, whether designated as hedges or not, to be recorded on the balance sheet at fair value.

The following tables provide information regarding the Company’s outstanding derivatives contracts (in thousands, except for number of outstanding contracts):

September 30, 2010

		Number of				Contract				Fair Value				Balance				(Loss) Gain
		Outstanding				Notional				(Liability)				Sheet				Recorded in
Derivative Contract Type		Contracts				Amount				Asset (4)				Line Item				OCI (5)
Interest Rate Swap (1)			1			$	90,000			$	(3,695	)		Other liabilities				$	(2,750	)
Interest Rate Swap (2)			1				82,500				(1,871	)		Other liabilities					(534	)
Foreign Currency Forwards (3)			20				82,460				(426	)		Accrued liabilities					—
Total			22			$	254,960			$	(5,992	)						$	(3,284	)

December 31, 2009

		Number of				Contract				Fair Value				Balance				(Loss) Gain
		Outstanding				Notional				(Liability)				Sheet				Recorded in
Derivative Contract Type		Contracts				Amount				Asset (4)				Line Item				OCI (5)
Interest Rate Swap (1)			1			$	126,000			$	(6,594	)		Other liabilities				$	(3,956	)
Interest Rate Swap (2)			1				112,500				(2,769	)		Other liabilities					(1,090	)
Foreign Currency Forwards (3)			19				117,300				740			Other current assets					—
Total			21			$	355,800			$	(8,623	)						$	(5,046	)

At September 30, 2010, the Company’s derivative counterparties were all large investment grade financial institutions. The Company did not have any collateral arrangements with its derivative counterparties, and none of the derivative contracts contained credit-risk related contingent features.

The following table provides information regarding derivative gains and losses that have been recognized in the Condensed Consolidated Statements of Operations (in thousands):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
Amount recorded in:		2010				2009				2010				2009
Interest expense, net (1)		$	1,799			$	3,435			$	6,117			$	7,291
Other expense (income), net (2)			1,497				783				(1,413	)			(1,160	)
Total expense, net		$	3,296			$	4,218			$	4,704			$	6,131

Note 12 — Fair Value Disclosures

The Company’s financial instruments include cash and cash equivalents, fees receivable from customers, accounts payable, and accruals which are normally short-term in nature. The Company believes the carrying amounts of these financial instruments reasonably approximates their fair value.

At September 30, 2010, the Company had $300.0 million of outstanding floating rate debt, which is carried at amortized cost. The Company believes the carrying amount of the debt reasonably approximates its fair value as the rate of interest on the term loans and revolver are floating rate which reflect current market rates of interest for similar instruments with comparable maturities.

FASB ASC Topic 820 provides a framework for measuring fair value and a valuation hierarchy based upon the transparency of inputs used in the valuation of an asset or liability. Classification within the hierarchy is based upon the lowest level of input that is significant to the resulting fair value measurement. The valuation hierarchy contains three levels:

•

Level 1 — Valuation inputs are unadjusted quoted market prices for identical assets or liabilities in active markets.

•

Level 2 — Valuation inputs are quoted prices for identical assets or liabilities in markets that are not active, quoted market prices for similar assets and liabilities in active markets and other observable inputs directly or indirectly related to the asset or liability being measured.

•

Level 3 — Valuation inputs are unobservable and significant to the fair value measurement.

The following table presents Company assets and liabilities measured at fair value on a recurring basis (in thousands):

		Fair Value				Fair Value
		September 30, 2010				December 31, 2009
Description:
Assets:
Deferred compensation assets (1)		$	22,238			$	20,214
Foreign currency forward contracts, net (2)			—				740
		$	22,238			$	20,954
Liabilities:
Interest rate swap contracts (3)		$	5,566			$	9,363
Foreign currency forward contracts, net (2)			387				—
		$	5,953			$	9,363

Note 13 — Employee Benefits

Defined Benefit Pension Plans

The Company has defined-benefit pension plans in several of its international locations. Benefits paid under these plans are based on years of service and level of employee compensation. The Company accounts for material defined benefit plans in accordance with FASB ASC Topics 715 and 960. None of these plans have plan assets as defined under FASB ASC Topic 960. Net periodic pension expense was $0.5 million for both the three months ended September 30, 2010 and 2009, and $1.3 million for both the nine months ended September 30, 2010 and 2009.

Note 14 — Commitments and Contingencies

Stamford Headquarters Lease Renewal

Our corporate headquarters is located in approximately 213,000 square feet of leased office space in three buildings located in Stamford, Connecticut. Our Stamford facility accommodates research and analysis, marketing, sales, client support, production, corporate services, executive offices, and administration.

On April 16, 2010, the Company entered into an amended and restated lease agreement (the “2010 Lease”) for the Stamford headquarters facility. Under the terms of the 2010 Lease, the landlord will provide up to $25.0 million to be used to renovate the three buildings and the parking areas comprising the facility. The 2010 Lease provides for a term of fifteen years, which commences after the earlier of the completion of all of the renovations or June 1, 2012. The 2010 Lease also grants the Company three options to renew at fair market value for five years each, and an option to purchase at fair market value.

In accordance with FASB ASC Topic 840, the Company will account for the 2010 Lease as an operating lease. The total minimum payments the Company will be obligated to pay under the 2010 Lease, including contractual escalation clauses and reduced rents during the renovation period, will be expensed on a straight-line basis over the lease term. The total minimum lease payments under this non-cancelable lease agreement are approximately $59.0 million. The tenant improvement allowance was recorded as deferred rent (liability) and will be amortized as a reduction to rent expense on a straight-line basis over the term of the lease. Leasehold improvements for which Gartner is determined to be the owner for accounting purposes will be capitalized as fixed assets and amortized to depreciation expense.

The State of Connecticut has made certain tax and financial incentives available to the Company that may be used in connection with the renovation of the Stamford facility. These incentives include a $1.0 million sales tax exemption for construction materials, furniture, fixtures and equipment purchased for the facility, a $5.0 million ten year loan and up to $20.0 million in state income tax credits. The loan, which has not been drawn down by the Company, may be forgiven in part subject to achievement of certain employment growth. The tax credits will be available beginning in 2012 through 2018 and are contingent upon the achievement of certain employment growth and capital investment thresholds.

Contingencies

We are involved in legal proceedings and litigation arising in the ordinary course of business. We believe that the potential liability, if any, in excess of amounts already accrued from all proceedings, claims and litigation will not have a material effect on our financial position or results of operations when resolved in a future period.

The Company has various agreements that may obligate us to indemnify the other party with respect to certain matters. Generally, these indemnification clauses are included in contracts arising in the normal course of business under which we customarily agree to hold the other party harmless against losses arising from a breach of representations related to such matters as title to assets sold and licensed or certain intellectual property rights. It is not possible to predict the maximum potential amount of future payments under these indemnification agreements due to the conditional nature of the Company’s obligations and the unique facts of each particular agreement. Historically, payments made by us under these agreements have not been material. As of September 30, 2010, the Company did not have any indemnification agreements that would require material payments.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The purpose of the following Management’s Discussion and Analysis (“MD&A”) is to help facilitate the understanding of significant factors influencing the quarterly operating results, financial condition and cash flows of Gartner, Inc. Additionally, the MD&A also conveys our expectations of the potential impact of known trends, events or uncertainties that may impact future results. You should read this discussion in conjunction with our condensed consolidated financial statements and related notes included in this report and in our Annual Report on Form 10-K for the year ended December 31, 2009. Historical results and percentage relationships are not necessarily indicative of operating results for future periods. References to “the Company,” “we,” “our,” and “us” in this MD&A are to Gartner, Inc. and its subsidiaries.

As previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2009, in December 2009 we acquired AMR Research, Inc. (“AMR Research”), and Burton Group, Inc. (“Burton Group’). As a result, the MD&A disclosures herein include the operating results and business measurements of these acquired businesses for the three and nine months ended September 30, 2010, but excludes them for the comparable periods of 2009.

Forward-Looking Statements

In addition to historical information, this Quarterly Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are any statements other than statements of historical fact, including statements regarding our expectations, beliefs, hopes, intentions or strategies regarding the future. In some cases, forward-looking statements can be identified by the use of words such as “may,” “will,” “expects,” “should,” “believes,” “plans,” “anticipates,” “estimates,” “predicts,” “potential,” “continue,” or other words of similar meaning. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those discussed in, or implied by, the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in “Factors That May Affect Future Performance” and elsewhere in this report and in our Annual Report on Form 10-K for the year ended December 31, 2009. Readers should not place undue reliance on these forward-looking statements, which reflect management’s opinion only as of the date on which they were made. Except as required by law, we disclaim any obligation to review or update these forward-looking statements to reflect events or circumstances as they occur. Readers also should review carefully any risk factors described in other reports filed by us with the Securities and Exchange Commission.

BUSINESS OVERVIEW

Gartner, Inc. is the world’s leading information technology research and advisory company that helps executives use technology to build, guide and grow their enterprises. We offer independent and objective research and analysis on the information technology, computer hardware, software, communications and related technology industries. We provide comprehensive coverage of the IT industry to 11,000 client organizations, including approximately 400 of the Fortune 500 companies, across 85 countries. Our client base consists primarily of CIOs and other senior IT and executives from a wide variety of business enterprises, government agencies and the investment community.

We have three business segments: Research, Consulting and Events.

•

Research provides insight for CIOs, other IT executives and professionals, business leaders, technology companies and the investment community through research reports and briefings, access to our analysts, as well as peer networking services and membership programs.

•

Consulting consists primarily of client engagements that utilize our research insight, benchmarking data, problem-solving methodologies and hands on experience to improve the return on an organization’s IT investment through assessments of cost, performance, efficiency and quality.

•

Events consists of various symposia, summits, and conferences focused on the IT industry as a whole, as well as IT applicable to particular industries and particular roles within an organization.

BUSINESS MEASUREMENTS

We believe the following business measurements are important performance indicators for our business segments:

BUSINESS SEGMENT		BUSINESS MEASUREMENTS
Research		Contract value represents the value attributable to all of our subscription-related research products that recognize revenue on a ratable basis. Contract value is calculated as the annualized value of all subscription research contracts in effect at a specific point in time, without regard to the duration of the contract.
		Client retention rate represents a measure of client satisfaction and renewed business relationships at a specific point in time. Client retention is calculated on a percentage basis by dividing our current clients, who were also clients a year ago, by all clients from a year ago.
		Wallet retention rate represents a measure of the amount of contract value we have retained with clients over a twelve-month period. Wallet retention is calculated on a percentage basis by dividing the contract value of clients, who were clients one year earlier, by the total contract value from a year earlier, excluding the impact of foreign currency exchange. When wallet retention exceeds client retention, it is an indication of retention of higher-spending clients, or increased spending by retained clients, or both.
		Number of executive program members represents the number of paid participants in executive programs.
Consulting		Consulting backlog represents future revenue to be derived from in-process consulting, measurement and strategic advisory services engagements.
		Utilization rates represent a measure of productivity of our consultants. Utilization rates are calculated for billable headcount on a percentage basis by dividing total hours billed by total hours available to bill.
		Billing Rate represents earned billable revenue divided by total billable hours.
		Average annualized revenue per billable headcount represents a measure of the revenue generating ability of an average billable consultant and is calculated periodically by multiplying the average billing rate per hour times the utilization percentage times the billable hours available for one year.
Events		Number of events represents the total number of hosted events completed during the period.
		Number of attendees represents the number of people who attend events.

EXECUTIVE SUMMARY OF OPERATIONS AND FINANCIAL POSITION

The cornerstones of our growth strategy are to focus on producing extraordinary research content, deliver innovative and highly differentiated product offerings, enhance our sales capability, provide world class client service, and improve our operational effectiveness.

We had total revenues of $296.1 million in the third quarter of 2010, an increase of 11% compared to the prior year quarter. Adjusted for the unfavorable effect of foreign currency translation, total revenues were up 12% quarter-over-quarter. Revenues increased 16% in our Research segment, while both Consulting and Events were essentially flat; however, adjusted for foreign currency translation, segment revenues were up 17%, 2%, and 3%, respectively. We had net income of $20.1 million in the third quarter of both 2010 and 2009, but diluted earnings per share declined $0.01 quarter-over-quarter due to higher diluted shares.

For the nine month periods, 2010 revenues increased 12% over 2009, while diluted earnings per share increased by $.01 per share, to $0.60.

Research revenues rose 16% quarter-over-quarter, to $214.7 million in the third quarter of 2010 from $185.7 million in the prior year quarter, while the contribution margin declined by 1 point, to 65%. For the nine month periods, Research revenues rose 14%. At September 30, 2010, Research contract value was over $905.0 million, an increase of 22% over September 30, 2009. Client retention was 82% and wallet retention was 95% at September 30, 2010.

Consulting revenues were essentially flat in the three months ended September 30, 2010 compared to the same quarter in 2009, while the segment contribution margin improved by 1 point. Consultant utilization was 65% for the three months ended September 30, 2010, a 1 point increase over the prior year quarter, and we had 453 billable consultants at September 30, 2010. For the nine month periods, 2010 revenue increased 4% over 2009, while the gross contribution margin improved by 2 points.

Events revenues were flat quarter-over-quarter, with 14 events held in the third quarter of 2010 compared to 15 in the prior year quarter. The segment contribution margin was 37% for both quarters. We held 44 events in the nine months ended September 30, 2010, with a 22% increase in revenues and a 5 point increase in the gross contribution margin. The number of attendees increased 10% quarter-over-quarter and 32% when comparing the nine month periods.

For a more detailed discussion of our segment results, see Segment Results below.

We had over $148.0 million of cash and cash equivalents as of September 30, 2010, and we had $142.0 million of available borrowing capacity under our revolving credit facility. We believe we have a strong cash position and adequate borrowing capacity.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of financial statements requires the application of appropriate accounting policies and the use of estimates. The policies discussed below are considered by management to be critical to an understanding of Gartner’s financial statements because their application requires complex and subjective management judgments and estimates. Risks related to these critical accounting policies are described below.

Revenue recognition — We recognize revenue in accordance with SEC Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements (“SAB 101”), and SEC Staff Accounting Bulletin No. 104, Revenue Recognition (“SAB 104”). Once all required criteria for revenue recognition have been met, revenue by significant source is accounted for as follows:

•

Research revenues are derived from subscription contracts for research products and are deferred and recognized ratably over the applicable contract term. Fees from research reprints are recognized when the reprint is shipped.

•

Consulting revenues are principally generated from fixed fee and time and material engagements. Revenues from fixed fee contracts are recognized on a percentage of completion basis. Revenues from time and materials engagements are recognized as work is delivered and/or services are provided. Revenues related to contract optimization contracts are contingent in nature and are only recognized upon satisfaction of all conditions related to their payment.

•

Events revenues are deferred and recognized upon the completion of the related symposium, conference or exhibition.

The majority of research contracts are billable upon signing, absent special terms granted on a limited basis from time to time. Research contracts are non-cancelable and non-refundable, except for government contracts that may have cancellation or fiscal funding clauses, which have not produced material cancellations to date. It is our policy to record the entire amount of the contract that is billable as a fee receivable at the time the contract is signed with a corresponding amount as deferred revenue, since the contract represents a legally enforceable claim.

For those government contracts that permit cancellation, historically we only recorded fees receivables to the extent amounts were earned and deferred revenue to the extent cash was received. As of September 30, 2010, based on an analysis of historic contract cancellations, we determined that the likelihood of such cancellations was remote. Accordingly, as of that date we record the entire billable contract amount as fees receivable at the time the contract is signed with a corresponding amount to deferred revenue, consistent with other contracts. This change in estimate had an immaterial impact on the Company’s Condensed Consolidated Balance Sheet as of September 30, 2010 and no impact on the Condensed Consolidated Statements of Operations or Cash Flows. As of December 31, 2009, we had not recorded uncollected receivables or deferred revenues relating to government contracts that permit cancellation of $8.3 million

Uncollectible fees receivable — The allowance for losses is composed of a bad debt and a sales reserve. Provisions are charged against earnings, either as a reduction in revenues or an increase to expense. The measurement of likely and probable losses and the allowance for losses is based on historical loss experience, aging of outstanding receivables, an assessment of current economic

conditions and the financial health of specific clients. This evaluation is inherently judgmental and requires material estimates. These valuation reserves are periodically re-evaluated and adjusted as more information about the ultimate collectibility of fees receivable becomes available. Circumstances that could cause our valuation reserves to increase include changes in our clients’ liquidity and credit quality, other factors negatively impacting our clients’ ability to pay their obligations as they come due, and the effectiveness of our collection efforts.

The following table provides our total fees receivable, along with the related allowance for losses (in thousands):

		September 30,				December 31,
		2010				2009
Total fees receivable		$	307,687			$	325,698
Allowance for losses			(7,700	)			(8,100	)
Fees receivable, net		$	299,987			$	317,598

Impairment of goodwill and other intangible assets — The evaluation of goodwill is performed in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 350, which requires goodwill to be assessed for impairment at least annually and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. In addition, an impairment evaluation of our amortizable intangible assets is also performed on a periodic basis.

Our annual goodwill assessment requires us to estimate the fair values of our reporting units based on estimates of future business operations and market and economic conditions in developing long-term forecasts. If we determine that the fair value of any reporting unit is less than its carrying amount, we must recognize an impairment charge for a portion of the associated goodwill of that reporting unit against earnings in our financial statements.

Factors we consider important that could trigger a review for impairment include the following:

•

Significant under-performance relative to historical or projected future operating results;

•

Significant changes in the manner of our use of acquired assets or the strategy for our overall business;

•

Significant negative industry or economic trends;

•

Significant decline in our stock price for a sustained period; and

•

Our market capitalization relative to net book value.

Due to the numerous variables associated with our judgments and assumptions relating to the valuation of the reporting units and the effects of changes in circumstances affecting these valuations, both the precision and reliability of the resulting estimates are subject to uncertainty, and as additional information becomes known, we may change our estimates.

We completed our required annual goodwill impairment testing in the quarter ended September 30, 2010 and concluded that the fair values of each of the Company’s three reporting units substantially exceeded their respective carrying values.

Accounting for income taxes — As we prepare our consolidated financial statements, we estimate our income taxes in each of the jurisdictions where we operate. This process involves estimating our current tax expense together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheets. We record a valuation allowance to reduce our deferred tax assets when future realization is in question. We consider the availability of loss carryforwards, existing deferred tax liabilities, future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance. In the event we determine that we are able to realize our deferred tax assets in the future in excess of our net recorded amount, an adjustment is made to reduce the valuation allowance and increase income in the period such determination is made. Likewise, if we determine that we will not be able to realize all or part of our net deferred tax asset in the future, an adjustment to the valuation allowance is charged against income in the period such determination is made.

Accounting for stock-based compensation — The Company accounts for stock-based compensation in accordance with FASB ASC Topics 505 and 718, as interpreted by SEC Staff Accounting Bulletins No. 107 (“SAB No. 107”) and No. 110 (“SAB No. 110”). The Company recognizes stock-based compensation expense, which is based on the fair value of the award on the date of grant, over the related service period, net of estimated forfeitures (see Note 5 — Stock-Based Compensation in the Notes to the Condensed Consolidated Financial Statements).

Determining the appropriate fair value model and calculating the fair value of stock compensation awards requires the input of certain highly complex and subjective assumptions, including the expected life of the stock compensation awards and the Company’s Common Stock price volatility. In addition, determining the appropriate amount of associated periodic expense requires management to estimate the rate of employee forfeitures and the likelihood of achievement of certain performance targets. The assumptions used in calculating the fair value of stock compensation awards and the associated periodic expense represent management’s best estimates, but these estimates involve inherent uncertainties and the application of judgment. As a result, if factors change and the Company deems it necessary in the future to modify the assumptions it made or to use different assumptions, or if the quantity and nature of the Company’s stock-based compensation awards changes, then the amount of expense may need to be adjusted and future stock compensation expense could be materially different from what has been recorded in the current period.

Restructuring and other accruals — We may record accruals for severance costs, costs associated with excess facilities that we have leased, contract terminations, asset impairments, and other items as a result of on-going actions we undertake to streamline our organization, reposition certain businesses and reduce ongoing costs. Estimates of costs to be incurred to complete these actions, such as future lease payments, sublease income, the fair value of assets, and severance and related benefits, are based on assumptions at the time the actions are initiated. These accruals may need to be adjusted to the extent actual costs differ from such estimates. In addition, these actions may be revised due to changes in business conditions that we did not foresee at the time such plans were approved.

We also record accruals during the year for our various employee cash incentive programs. Amounts accrued at the end of each reporting period are based on our estimates and may require adjustment as the ultimate amount paid for these incentives are sometimes not known with certainty until after year end.

RESULTS OF OPERATIONS

Overall Results

The following tables summarize the changes in selected line items in our interim Condensed Consolidated Statements of Operation for the periods indicated (dollars in thousands):

For the three months ended September 30, 2010 and 2009:

		Three Months				Three Months				Income				Income
		Ended				Ended				Increase				Increase
		September 30,				September 30,				(Decrease)				(Decrease)
		2010 (1)				2009				$				%
Total revenues		$	296,122			$	267,469			$	28,653				11	%
Costs and expenses:
Cost of services & product development			125,897				118,120				(7,777	)			(7	)%
Selling, general and administrative			127,488				115,049				(12,439	)			(11	)%
Depreciation			6,194				6,363				169				3	%
Amortization of intangibles			2,531				416				(2,115	)			>(100	)%
Acquisition & integration charges			1,249				—				(1,249	)			(100	)%
Operating income			32,763				27,521				5,242				19	%
Interest expense, net			(3,005	)			(4,914	)			1,909				39	%
Other expense, net			(373	)			(127	)			(246	)			>(100	)%
Provision for income taxes			9,310				2,413				(6,897	)			>(100	)%
Net income		$	20,075			$	20,067			$	8				—	%

For the nine months ended September 30, 2010 and 2009:

		Nine Months				Nine Months				Income				Income
		Ended				Ended				Increase				Increase
		September 30,				September 30,				(Decrease)				(Decrease)
		2010 (1)				2009				$				%
Total revenues		$	906,150			$	810,973			$	95,177				12	%
Costs and expenses:
Cost of services & product development			387,279				351,864				(35,415	)			(10	)%
Selling, general and administrative			388,378				345,980				(42,398	)			(12	)%
Depreciation			19,218				19,176				(42	)			—	%
Amortization of intangibles			7,994				1,220				(6,774	)			>(100	)%
Acquisition & integration charges			7,090				—				(7,090	)			(100	)%
Operating income			96,191				92,733				3,458				4	%
Interest expense, net			(9,569	)			(13,105	)			3,536				27	%
Other income (expense), net			736				(2,505	)			3,241				>100	%
Provision for income taxes			27,767				19,875				(7,892	)			(40	)%
Net income		$	59,591			$	57,248			$	2,343				4	%

Total revenues for the three months ended September 30, 2010, increased $28.7 million, or 11%, compared to the same period in 2009. Revenues increased in our Research segment but were essentially flat in Consulting and Events. Excluding the unfavorable impact of foreign currency translation, total quarterly revenues would have increased about 12%. Approximately $14.0 million of the quarterly revenue increase was attributable to the AMR Research and Burton Group businesses.

For the nine month periods, revenues increased 12% in 2010, or about $95.2 million, with higher revenues in all three of our business segments. Excluding the favorable impact of foreign currency translation, revenues increased 11%. Approximately $40.0 million of the revenue increase was attributable to the AMR Research and Burton Group businesses.

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

Cost of services and product development was 7% higher quarter-over-quarter, or $7.8 million. The increase was primarily due to higher payroll and related benefits costs, which includes additional headcount charges attributable to the AMR Research and Burton Group businesses. Cost of services and product development as a percentage of sales decreased by 1 point, to 43% from 44%.

For the nine month periods, Cost of services and product development increased 10%, or $35.4 million, in 2010. We recognized $24.5 million in higher payroll and related benefits costs in 2010, primarily due to the impact of the increased headcount from the AMR Research and Burton Group businesses, and we had $7.8 million in higher conference and travel costs, due to additional events and increased attendees, as well as a general pickup in travel activity from a depressed level in 2009, when the Company had strict travel restrictions in place due to the economic downturn. We also had $3.1 million in other charges, including the unfavorable impact of foreign currency translation. Cost of services and product development as a percentage of sales was 43% for both the nine months ended September 30, 2010 and 2009.

Selling, general and administrative (“SG&A”) was $12.4 million higher quarter-over-quarter, or 11%. The increase was primarily due to higher sales commissions, payroll and benefits, and other personnel charges, which includes the additional headcount costs attributable to the AMR Research and Burton Group businesses.

SG&A expense increased 12%, or $42.4 million, in the nine months ended September 30, 2010 compared to the same period in the prior year. We had $34.3 million of higher sales commissions, payroll and benefits, and other personnel charges, which included the additional headcount costs attributable to the AMR Research and Burton Group businesses, as well as higher stock-based compensation expense due to a higher projected level of achievement on performance-based restricted stock units. We also had higher travel charges of $4.5 million, primarily due to additional sales headcount, and the unfavorable impact of foreign currency translation added $3.6 million of additional expense.

Depreciation expense declined 3% quarter-over-quarter but was flat when comparing the nine-month periods. Capital spending increased to $12.2 million in the nine months ended September 30, 2010 compared to $11.1 million in the same period in 2009.

Amortization of intangibles increased in both the three and nine month periods of 2010 by $2.1 million and $6.8 million, respectively, due to the amortization of the intangibles acquired from AMR Research and Burton Group in December 2009.

Acquisition and Integration Charges were $1.2 million and $7.1 million in the three and nine months ended September 30, 2010, respectively. These charges relate to the acquisitions of AMR Research and Burton Group, and include legal, consulting, severance, and other costs.

Operating Income increased $5.2 million, or 19% quarter-over-quarter, to $32.7 million in the three months ended September 30, 2010 compared to $27.5 million in 2009, with operating income as a percentage of revenues of 11% in 2010 and 10% in 2009. For the nine month periods, operating income increased 4% in 2010, to $96.2 million, while operating income as a percentage of revenues was 11% for both the nine months ended September 30, 2010 and 2009. Please refer to the section of this MD&A entitled “Segment Results” below for a further discussion of revenues and results by segment.

Interest Expense, Net declined 39% in the three months ended September 30, 2010 compared to the same period in 2009, primarily due to a $1.1 million charge recorded in the 2009 period related to the dedesignation of hedge accounting on an interest rate swap contract. Also, in the three months ended September 30, 2010, we had lower interest expense on our two interest rate swap contracts due to declining notional amounts and to a lesser extent, lower amortization charges on capitalized deferred financing costs and higher interest income.

Interest expense, net declined 27% in the nine months ended September 30, 2010 compared to the same period in 2009, due to a reduction in the weighted-average interest rate we paid on our debt in 2010 and the $1.1 million swap dedesignation charge recorded in the 2009 period discussed above. Similar to the quarter, we also had lower amortization charges on capitalized deferred financing costs and higher interest income in the 2010 period.

The Company’s existing Credit Agreement expires in January 2012. The Company is currently exploring refinancing options which may result in the accelerated payment of the amounts outstanding as of September 30, 2010. In addition, as of September 30, 2010 the Company had $2.8 million of deferred losses, net of tax, recorded in OCI related to our two dedesignated interest rate swaps. This amount is being amortized against earnings through the remaining maturity of the loans outstanding under the existing Credit

Agreement. In the event of a refinancing, some or all of this amount, in addition to approximately $0.8 million in unamortized deferred financing costs, may need to be recognized as expense in the period of the refinancing.

Other (Expense) Income, Net for the three and nine months ended September 30, 2010 and 2009 consisted of net foreign currency exchange gains and losses. In addition, the first nine months of 2010 included a $2.4 million gain due to an insurance recovery related to a prior period loss.

Provision For Income Taxes was $9.3 million for the three months ended September 30, 2010 compared to $2.4 million in the prior year quarter. The effective tax rate was 31.7% for the three months ended September 30, 2010 and 10.7% for the same period in 2009. The increase in the effective tax rate was primarily due to the impact of certain discrete items as well as a change in the estimated annual mix of pre-tax income by jurisdiction. Discrete items in the three months ended September 30, 2009 included the release of approximately $3.4 million of reserves and $0.5 million of related interest reserves due to the expiration of the relevant statutes of limitation.

The provision for income taxes was $27.8 million for the nine months ended September 30, 2010 compared to $19.9 million in the same period in 2009. The effective tax rate was 31.8% for the nine months ended September 30, 2010 and 25.8% for the same period in 2009. The increase in the effective tax rate was primarily due to the impact of certain discrete items as well as a change in the estimated annual mix of pre-tax income by jurisdiction. Discrete items in the nine months ended September 30, 2009 included the release of approximately $3.4 million of reserves and $0.5 million of related interest reserves due to the expiration of the relevant statutes of limitation.

Net Income was $20.1 million for both the three months ended September 30, 2010 and 2009, while basic earnings per share was $0.21 per share for both periods. Diluted earnings per share declined by $.01 per share, due to an increase in the number of diluted shares outstanding. For the nine month periods, both basic and diluted earnings per share increased by $.01 per share in 2010 due to higher net income.

SEGMENT RESULTS

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

The following sections present the results of our three segments:

Research

		As Of And				As Of And												As Of And				As Of And
		For The				For The												For The				For The
		Three Months				Three Months												Nine Months				Nine Months
		Ended				Ended								Percentage				Ended				Ended								Percentage
		September 30,				September 30,				Increase				Increase				September 30,				September 30,				Increase				Increase
		2010 (1)				2009				(Decrease)				(Decrease)				2010 (1)				2009				(Decrease)				(Decrease)
Financial Measurements:
Revenues (2)		$	214,680			$	185,718			$	28,962				16	%		$	634,448			$	557,325			$	77,123				14	%
Gross contribution (2)		$	140,605			$	122,611			$	17,994				15	%		$	415,311			$	366,807			$	48,504				13	%
Gross contribution margin			65	%			66	%			(1) point				—				65	%			66	%			(1) point				—
Business Measurements:
Contract value (2)		$	905,506			$	742,885			$	162,621				22	%
Client retention			82	%			77	%			5 points				—
Wallet retention			95	%			85	%			10 points				—
Exec. program members			3,969				3,469				500				14	%