| GARTNER INC ITEM 1A RISK FACTORS We operate in a very competitive and rapidly changing environment that involves numerous risks and uncertainties, some of which are beyond our control |
| In addition, we and our clients are affected by the economy |
| The following section discusses many, but not all, of these risks and uncertainties |
| Our Operating Results Could be Negatively Impacted if the IT Industry Experiences an Economic Down Cycle |
| Our revenues and results of operations are influenced by economic conditions in general and more particularly by business conditions in the IT industry |
| A general economic downturn or recession, anywhere in the world, could negatively affect demand for our products and services and may substantially reduce existing and potential client information technology-related budgets |
| Such a downturn could materially and adversely affect our business, financial condition and results of operations, including the ability to: maintain client retention, wallet retention and consulting utilization rates, and achieve contract value and consulting backlog |
| We have made and may continue to make acquisitions of, or significant investments in, businesses that offer complementary products and services, including our acquisition of META that we completed on April 1, 2005 |
| The risks involved in each acquisition or investment include the possibility of paying more than the value we derive from the acquisition, dilution of the interests of our current stockholders or decreased working capital, increased indebtedness, the assumption of undisclosed liabilities and unknown and unforeseen risks, the ability to retain key personnel of the acquired company, the time to train the sales force to market and sell the products of the acquired business, the potential disruption of our ongoing business and the distraction of management from our business |
| The realization of any of these risks could adversely affect our business |
| We face direct competition from a significant number of independent providers of information products and services, including information that can be found on the Internet free of charge |
| We also compete indirectly against consulting firms and other information providers, including electronic and print media companies, some of which may have greater financial, information gathering and marketing resources than we do |
| These indirect competitors could also choose to compete directly with us in the future |
| As a result, additional new competitors may emerge and existing competitors may start to provide additional or complementary services |
| Additionally, technological advances may provide increased competition from a variety of sources |
| However, we believe the breadth and depth of our research assets position us well versus our competition |
| There can be no assurance that we will be able to successfully compete against current and future competitors and our failure to do so could result in loss of market share, diminished value in our products and services, reduced pricing and increased marketing expenditures |
| Furthermore, we may not be successful if we cannot compete effectively on quality of research and analysis, timely delivery of information, customer service, and the ability to offer products to meet changing market needs for information and analysis, or price |
| Some of our success depends on renewals of our subscription-based research products and services, which constituted 53prca and 54prca of our revenues for Calendar 2005 and Calendar 2004, respectively |
| These research subscription agreements have terms that generally range from twelve to thirty months |
| Our ability to maintain contract renewals is subject to numerous factors, including the following: 6 _________________________________________________________________ [64]Table of Contents • delivering high-quality and timely analysis and advice to our clients; • understanding and anticipating market trends and the changing needs of our clients; and • delivering products and services of the quality and timeliness necessary to withstand competition |
| Additionally, as we implement our strategy to realign our business to client needs, we may shift the type and pricing of our products which may impact client renewal rates |
| While research client retention rates were 81prca and 80prca at December 31, 2005 and 2004, respectively, there can be no guarantee that we will continue to maintain this rate of client renewals |
| Any material decline in renewal rates could have an adverse impact on our revenues and our financial condition |
| Consulting segment revenues constituted 30prca of our revenues for Calendar 2005 and 29prca for Calendar 2004 |
| These consulting engagements typically are project-based and non-recurring |
| Our ability to replace consulting engagements is subject to numerous factors, including the following: • delivering consistent, high-quality consulting services to our clients; • tailoring our consulting services to the changing needs of our clients; and • our ability to match the skills and competencies of our consulting staff to the skills required for the fulfillment of existing or potential consulting engagements |
| Any material decline in our ability to replace consulting arrangements could have an adverse impact on our revenues and our financial condition |
| We May Not be Able to Attract and Retain Qualified Personnel Which Could Jeopardize the Quality of Our Products and Services Our success depends heavily upon the quality of our senior management, research analysts, consultants, sales and other key personnel |
| We face competition for the limited pool of these qualified professionals from, among others, technology companies, market research firms, consulting firms, financial services companies and electronic and print media companies, some of which have a greater ability to attract and compensate these professionals |
| Some of the personnel that we attempt to hire are subject to non-compete agreements that could impede our short-term recruitment efforts |
| Any failure to retain key personnel or hire and train additional qualified personnel as required to support the evolving needs of clients or growth in our business, could adversely affect the quality of our products and services, and our future business and operating results |
| We May Not be Able to Maintain Our Existing Products and Services |
| We operate in a rapidly evolving market, and our success depends upon our ability to deliver high quality and timely research and analysis to our clients |
| Any failure to continue to provide credible and reliable information that is useful to our clients could have a material adverse effect on future business and operating results |
| Further, if our predictions prove to be wrong or are not substantiated by appropriate research, our reputation may suffer and demand for our products and services may decline |
| In addition, we must continue to improve our methods for delivering our products and services in a cost-effective manner |
| Failure to increase and improve our electronic delivery capabilities could adversely affect our future business and operating results |
| We May Not be Able to Introduce the New Products and Services that We Need to Remain Competitive |
| The market for our products and services is characterized by rapidly changing needs for information and analysis |
| To maintain our competitive position, we must continue to enhance and improve our products and services, develop or acquire new products and services in a timely manner, and appropriately position and price new products and services relative to the marketplace and our costs of producing them |
| Any failure to achieve successful client acceptance of new products and services could have a material adverse effect on our business, results of operations or financial position |
| Approximately 38prca of our revenues for Calendar 2005 were derived from sales outside of North America |
| As a result, our operating results are subject to the risks inherent in international business activities, including general political and economic conditions in each country, changes in foreign currency exchange rates, changes in market demand as a result of tariffs and other trade barriers, challenges in staffing and managing foreign operations, changes in regulatory requirements, compliance with numerous foreign laws and regulations, different or overlapping tax structures, higher levels of United States taxation on foreign income, and the difficulty of enforcing client agreements, collecting accounts receivable and protecting intellectual property rights in international jurisdictions |
| Furthermore, we rely on local distributors or sales agents in some international locations |
| If any of these arrangements are terminated by our agent or us, we may not be able to replace the arrangement on beneficial terms or on a timely basis, or clients of the local distributor or sales agent may not want to continue to do business with us or our new agent |
| 7 _________________________________________________________________ [65]Table of Contents We May Not be Able to Maintain the Equity in Our Brand Name |
| We believe that our “Gartner” brand, including our independence, is critical to our efforts to attract and retain clients and that the importance of brand recognition will increase as competition increases |
| We may expand our marketing activities to promote and strengthen the Gartner brand and may need to increase our marketing budget, hire additional marketing and public relations personnel, expend additional sums to protect the brand and otherwise increase expenditures to create and maintain client brand loyalty |
| If we fail to effectively promote and maintain the Gartner brand, or incur excessive expenses in doing so, our future business and operating results could be materially and adversely impacted |
| We have a dlra200dtta0 million term loan as well as a dlra125dtta0 million revolving credit facility |
| The affirmative, negative and financial covenants of the credit facility could limit our future financial flexibility |
| The associated debt service costs of these facilities could impair our future operating results |
| The outstanding debt may limit the amount of cash or additional credit available to us, which could restrain our ability to expand or enhance products and services, respond to competitive pressures or pursue future business opportunities requiring substantial investments of additional capital |
| We rely on a combination of copyright, patent, trademark, trade secret, confidentiality, non-compete and other contractual provisions to protect our intellectual property rights |
| Despite our efforts to protect our intellectual property rights, unauthorized third parties may obtain and use technology or other information that we regard as proprietary |
| Our intellectual property rights may not survive a legal challenge to their validity or provide significant protection for us |
| The laws of certain countries do not protect our proprietary rights to the same extent as the laws of the United States |
| Accordingly, we may not be able to protect our intellectual property against unauthorized third-party copying or use, which could adversely affect our competitive position |
| Our employees are subject to non-compete agreements |
| When the non-competition period expires, former employees may compete against us |
| If a former employee chooses to compete against us prior to the expiration of the non-competition period, there is no assurance that we will be successful in our efforts to enforce the non-compete provision |
| Third parties may assert infringement claims against us |
| Regardless of the merits, responding to any such claim could be time consuming, result in costly litigation and require us to enter into royalty and licensing agreements which may not be offered or available on reasonable terms |
| If a successful claim is made against us and we fail to develop or license a substitute technology, our business, results of operations or financial position could be materially adversely affected |
| Our Operating Results May Fluctuate From Period to Period and May Not Meet the Expectations of Securities Analysts or Investors, Which May Cause the Price of Our Common Stock to Decline |
| Our quarterly and annual operating results may fluctuate in the future as a result of many factors, including the timing of the execution of research contracts, which typically occurs in the fourth calendar quarter, the extent of completion of consulting engagements, the timing of symposia and other events, which also occur to a greater extent in the fourth calendar quarter, the amount of new business generated, the mix of domestic and international business, changes in market demand for our products and services, the timing of the development, introduction and marketing of new products and services, and competition in the industry |
| An inability to generate sufficient earnings and cash flow, and achieve our forecasts, may impact our operating and other activities |
| The potential fluctuations in our operating results could cause period-to-period comparisons of operating results not to be meaningful and may provide an unreliable indication of future operating results |
| Furthermore, our operating results may not meet the expectations of securities analysts or investors in the future |
| If this occurs, the price of our stock would likely decline |
| Silver Lake Partners, LP (“SLP”) and its affiliates own approximately 33dtta0prca of our common stock as of February 28, 2006 |
| SLP is restricted from purchasing additional stock without our consent pursuant to the terms of a Securityholders’ Agreement |
| This Securityholders’ Agreement also provides that we cannot take certain actions, including acquisitions and sales of stock and/or assets without SLP’s consent |
| Additionally, ValueAct Partners and its affiliates own approximately 16dtta3prca of our common stock as of February 28, 2006 |
| While neither SLP nor ValueAct holds a majority of our outstanding shares, they may be able, either individually or together, to exercise significant influence over matters requiring stockholder approval, including the election of directors and the approval of mergers, consolidations and sales of our assets |
| Their interests may differ from the interests of other stockholders |
| Our Anti-takeover Protections May Discourage or Prevent a Change of Control, Even if a Change in Control Would be Beneficial to Our Stockholders |
| Provisions of our certificate of incorporation and bylaws and Delaware law may make it difficult for any party to acquire control of us in a transaction not approved by our Board of Directors |
| These provisions include: • The ability of our Board of Directors to issue and determine the terms of preferred stock; • Advance notice requirements for inclusion of stockholder proposals at stockholder meetings; • A preferred shares rights agreement; and • The anti-takeover provisions of Delaware law |
| 8 _________________________________________________________________ [66]Table of Contents These provisions could discourage or prevent a change of control or change in management that might provide stockholders with a premium to the market price of their Common Stock |