# Gartner Inc: Form 10-Q for the period ended Jun 30, 2019

- Company: [Gartner Inc](/companies/it.md) (CIK 749251)
- Form: 10-Q
- Filed: 2019-07-30
- Accepted by EDGAR: Jul 30, 2019, 10:12 ET
- Period: 2019-06-30
- Accession: 0000749251-19-000015
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/749251/000074925119000015/it-06302019x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/749251/000074925119000015/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2019-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2019-04-01 to 2019-06-30 | $1.07bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 6 months, 2019-01-01 to 2019-06-30 | $2.04bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2019-04-01 to 2019-06-30 | $388.0m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 6 months, 2019-01-01 to 2019-06-30 | $734.6m | us-gaap:CostOfGoodsAndServicesSold |
| Selling, general and administrative | 3 months, 2019-04-01 to 2019-06-30 | $515.0m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 6 months, 2019-01-01 to 2019-06-30 | $1.03bn | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2019-04-01 to 2019-06-30 | $116.0m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2019-01-01 to 2019-06-30 | $164.8m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2019-04-01 to 2019-06-30 | $24.7m | us-gaap:InterestExpense |
| Interest expense | 6 months, 2019-01-01 to 2019-06-30 | $49.6m | us-gaap:InterestExpense |
| Income tax | 3 months, 2019-04-01 to 2019-06-30 | −$12.4m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2019-01-01 to 2019-06-30 | −$12.1m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2019-04-01 to 2019-06-30 | $103.4m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2019-01-01 to 2019-06-30 | $124.2m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2019-04-01 to 2019-06-30 | $1.13 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2019-01-01 to 2019-06-30 | $1.36 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2019-04-01 to 2019-06-30 | $1.15 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2019-01-01 to 2019-06-30 | $1.38 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2019-04-01 to 2019-06-30 | 91,188,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2019-01-01 to 2019-06-30 | 91,146,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2019-01-01 to 2019-06-30 | $263.1m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Share repurchases | 3 months, 2019-04-01 to 2019-06-30 | $1.7m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Share repurchases | 6 months, 2019-01-01 to 2019-06-30 | $46.6m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2019-06-30 | $218.5m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2019-06-30 | $1.69bn | us-gaap:AssetsCurrent |
| Total assets | at 2019-06-30 | $6.73bn | us-gaap:Assets |
| Current liabilities | at 2019-06-30 | $2.48bn | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2019-06-30 | $5.77bn | us-gaap:Liabilities |
| Long-term debt | at 2019-06-30 | $2.06bn | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2019-06-30 | $121.1m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2019-06-30 | $963.8m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 54,725 characters.

The purpose of the following Management’s Discussion and Analysis (“MD&A”) is to facilitate an understanding of significant factors influencing the quarterly operating results, financial condition and cash flows of Gartner, Inc. Additionally, the MD&A 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 our Annual Report on Form 10-K for the year ended December 31, 2018 (the "2018 Form 10-K"). Historical results and percentage relationships are not necessarily indicative of operating results for future periods. References to “Gartner,” the "Company,” “we,” “our” and “us” in this MD&A are to Gartner, Inc. and its consolidated subsidiaries.

#### 2018 Business Divestitures

During 2018, the Company divested all of the non-core businesses that comprised its Other segment and, as a result, no operating activity has been recorded in the Other segment in 2019. The Other segment had $23.3 million and $94.0 million of revenue during the three and six months ended June 30, 2018, respectively, while gross contribution was $15.1 million and $58.1 million, respectively.

### FORWARD-LOOKING STATEMENTS

In addition to historical information, this Quarterly Report on Form 10-Q contains certain 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, projections or strategies regarding the future. In some cases, forward-looking statements can be identified by the use of words such as “may,” “will,” “expect,” “should,” “could,” “believe,” “plan,” “anticipate,” “estimate,” “predict,” “potential,” “continue” or other words of similar meaning.

We operate in a very competitive and rapidly changing environment that involves numerous risks and uncertainties, some of which are beyond our control. Although we believe that the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any of our forward-looking statements. Our future quarterly and annual revenues, operating income, results of operations and cash flows, as well as any forward-looking statement, are subject to change and to inherent risks and uncertainties, such as those disclosed or incorporated by reference in our filings with the Securities and Exchange Commission. Important factors that could cause our actual results, performance and achievements, or industry results to differ materially from estimates or projections contained in our forward-looking statements include, among others, the following: the timing of our Symposium/ITxpo series that normally occurs during the fourth quarter, as well as our other conferences and meetings; the amount of new business generated, including from acquisitions; the mix of domestic and international business; domestic and international economic conditions; changes in market demand for our products and services; changes in foreign currency rates; the timing of the development, introduction and marketing of new products and services; competition in the industry; the payment of performance compensation; uncertainty from the expected discontinuance of LIBOR and transition to any other interest rate benchmark; and other factors. The potential fluctuations in our operating income could cause period-to-period comparisons of operating results not to be meaningful and could provide an unreliable indication of future operating results. A description of the risk factors associated with our business is included under “Risk Factors” in Item 1A. of the 2018 Form 10-K, which is incorporated herein by reference.

Forward-looking statements are subject to risks, estimates 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 listed above or described under Risk Factors in our 2018 Form 10-K. 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. Forward-looking statements in this Quarterly Report on Form 10-Q speak only as of the date hereof, and forward-looking statements in documents attached that are incorporated by reference speak only as of the date of those documents. 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.

### BUSINESS OVERVIEW

Gartner, Inc. (NYSE: IT) is the world’s leading research and advisory company and a member of the S&P 500. We equip business leaders with indispensable insights, advice and tools to achieve their mission–critical priorities today and build the successful organizations of tomorrow. We believe our unmatched combination of expert-led, practitioner-sourced and data-driven research steers clients toward the right decisions on the issues that matter most. We are a trusted advisor and objective resource for more than 15,000 organizations in more than 100 countries — across all major functions, in every industry and enterprise size.

Gartner delivers its products and services globally through three business segments:

- ***Research*** provides trusted, objective insights and advice on the mission-critical priorities of leaders across all functional areas of the enterprise through research and other reports, briefings, proprietary tools, access to our analysts and advisors, peer networking services and membership programs that enable our clients to make better decisions. Our traditional strengths in IT, marketing and supply chain research are supplemented by best practice and talent management research insights across a range of business functions, including human resources, sales, legal and finance.
- ***Conferences*** provides business professionals across the organization the opportunity to learn, share and network. From our flagship CIO conference Gartner IT Symposium, to industry-leading conferences focused on specific business roles and topics, to member-driven sessions, our offerings enable attendees to experience the best of Gartner insight and advice live.
- ***Consulting*** provides customized solutions to unique client needs through on-site, day-to-day support, as well as proprietary tools for measuring and improving IT performance with a focus on cost, performance, efficiency and quality.

### BUSINESS MEASUREMENTS

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

| BUSINESS SEGMENT | BUSINESS MEASUREMENTS |
| --- | --- |
| Research | Total contract value represents the value attributable to all of our subscription-related contracts. It is calculated as the annualized value of all contracts in effect at a specific point in time, without regard to the duration of the contract. Total contract value primarily includes Research deliverables for which revenue is recognized on a ratable basis, as well as other deliverables (primarily Conferences tickets) for which revenue is recognized when the deliverable is utilized. Our total contract value consists of Global Technology Sales contract value, which includes sales to users and providers of technology, and Global Business Sales contract value, which includes sales to all other functional leaders. |
|  | 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. Client retention is calculated at an enterprise level, which represents a single company or customer. |
|  | 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 ago, by the total contract value from a year ago, 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. Wallet retention is calculated at an enterprise level, which represents a single company or customer. |
| Conferences | Number of destination conferences represents the total number of hosted destination conferences completed during the period. Single day, local meetings are excluded. |
|  | Number of destination conferences attendees represents the total number of people who attend destination conferences. Single day, local meetings are excluded. |
| Consulting | Consulting backlog represents future revenue to be derived from in-process consulting and measurement engagements. |
|  | Utilization rate represents 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. |

33

### EXECUTIVE SUMMARY OF OPERATIONS AND FINANCIAL POSITION

We have executed a consistent growth strategy since 2005 to drive revenue and earnings growth. The fundamentals of our strategy include a focus on creating extraordinary research insight, delivering innovative and highly differentiated product offerings, building a strong sales capability, providing world class client service with a focus on client engagement and retention, and continuously improving our operational effectiveness.

We had total revenues of $1.1 billion in the second quarter of 2019, an increase of 7% compared to the second quarter of 2018. Quarter-over-quarter revenues for Research, Conferences and Consulting increased 7%, 27% and 7%, respectively, during the second quarter of 2019. For a more complete discussion of our results by segment, see Segment Results below.

For the second quarter of 2019, we had net income of $103.4 million and diluted income per share of $1.13. Cash provided by operating activities was $263.1 million and $176.7 million during the six months ended June 30, 2019 and 2018, respectively. As of June 30, 2019, we had $218.5 million of cash and cash equivalents and approximately $1.1 billion of available borrowing capacity on our revolving credit facility. For a more complete discussion of our cash flows and financial position, see the Liquidity and Capital Resources section below.

### CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of our consolidated financial statements requires the application of appropriate accounting policies and the use of estimates. Our significant accounting policies are described in Note 1 — Business and Significant Accounting Policies in the Notes to Consolidated Financial Statements of Gartner, Inc. in the 2018 Form 10-K. Management considers the policies discussed below to be critical to an understanding of our financial statements because their application requires complex and subjective management judgments and estimates. Specific risks for these critical accounting policies are also described below.

The preparation of our consolidated financial statements requires us to make estimates and assumptions about future events. We develop our estimates using both current and historical experience, as well as other factors, including the general economic environment and actions we may take in the future. We adjust such estimates when facts and circumstances dictate. However, our 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, they may ultimately differ materially from actual results. Ongoing changes in our estimates could be material and would be reflected in the Company’s consolidated financial statements in future periods.

Our critical accounting policies are described below.

**Accounting for leases —** On January 1, 2019, the Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update No. 2016-02, "*Leases,*" as amended ("ASU No. 2016-02" or the “new lease standard”), which substantively modifies the accounting and disclosure requirements for lease arrangements. Prior to the issuance of ASU No. 2016-02, generally accepted accounting principles in the United States of America under FASB Accounting Standards Codification ("ASC") Topic 840, *Leases,* provided that lease arrangements meeting certain criteria were not recorded on an entity's balance sheet. ASU No. 2016-02 significantly changes the accounting for leases because a right-of-use model is now used whereby a lessee must record a right-of-use asset and a related lease liability on its balance sheet for most of its leases. Under ASU No. 2016-02, leases are classified as either operating or finance arrangements, with such classification affecting the pattern of expense recognition in an entity's income statement. ASU No. 2016-02 also requires significantly expanded disclosures to meet the objective of enabling users of financial statements to assess the amount, timing and uncertainty of cash flows related to leases.

The Company adopted ASU No. 2016-02 using a modified retrospective approach. We elected to use an optional transition method available under ASU No. 2016-02 to record the required cumulative effect adjustments to the opening balance sheet in the period of adoption rather than in the earliest comparative period presented. As such, the Company's historical consolidated financial statements have not been restated. Certain permitted practical expedients were used by the Company upon adoption of the new lease standard, including: (i) combining lease and nonlease components as a single lease component for purposes of the recognition and measurement requirements under ASU No. 2016-02; (ii) not reassessing a lease arrangement to determine if its classification should be changed under ASU No. 2016-02; and (iii) not reassessing initial direct costs for leases that were in existence on the date of adoption.

The adoption of ASU No. 2016-02 on January 1, 2019 had a material impact on our consolidated balance sheet because the right-of-use model significantly increased both our assets and liabilities from our lease arrangements (all of which are operating leases that were not previously recorded on the Company’s consolidated balance sheets). The adoption of the new lease standard resulted in the recognition of operating lease liabilities aggregating $851.3 million based on the present value of the Company’s remaining minimum lease payments, while the corresponding right-of-use assets totaled $651.9 million. Additionally, the Company’s adoption of ASU No. 2016-02 resulted in a net increase of $638.7 million in each of the Company’s Total Assets and Total Liabilities; however, there was no effect on the Company’s Total Stockholders’ Equity. The Company’s Condensed Consolidated Statements of Operations and its cash provided by operating activities in the Condensed Consolidated Statements of Cash Flows for the periods ended June 30, 2019 were not materially impacted by the adoption of the new lease standard. Note 1 — Business and Basis of Presentation in the Notes to Condensed Consolidated Financial Statements provides additional information regarding our leases and the adoption of ASU No. 2016-02.

**Revenue recognition —** Revenue is recognized in accordance with the requirements of FASB ASC Topic 606, “*Revenue from Contracts with Customers.”* Revenue is only recognized once all of the required criteria for revenue recognition have been met. Our revenue by significant source is accounted for as follows:

- Research revenues are mainly derived from subscription contracts for research products. The related revenues are deferred and recognized ratably over the applicable contract term. Fees derived from assisting organizations in selecting the right business software for their needs are recognized when the leads are provided to vendors.
- Conferences revenues are deferred and recognized upon the completion of the related conference or meeting.
- Consulting revenues are principally generated from fixed fee and time and material engagements. Revenues from fixed fee contracts are recognized as we work to satisfy our performance obligations. 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.

The majority of Research contracts are billable upon signing, absent special terms granted on a limited basis from time to time. Research contracts are generally non-cancelable and non-refundable, except for government contracts that may have cancellation or fiscal funding clauses. It is our policy to record the amount of a subscription contract that is billable as a fee receivable at the time the contract is signed with a corresponding amount as deferred revenue because the contract represents a legally enforceable claim.

Note 1 — Business and Basis of Presentation in the Notes to Condensed Consolidated Financial Statements provides additional information regarding our revenues.

**Uncollectible fees receivable —** The Company maintains an allowance for losses of uncollectible receivables that is classified in our consolidated balance sheets as an offset to the gross amount of fees receivable. Increases and decreases to the allowance are recognized in earnings.

The determination of the amount of the allowance is based on historical loss experience, an assessment of current economic conditions, the aging of outstanding receivables, the financial health of specific clients and probable losses. This evaluation is inherently judgmental and requires estimates. The allowance is periodically re-evaluated and adjusted as more information about the ultimate collectability of fees receivable becomes available. Circumstances that could cause the allowance 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 presents our gross fees receivable and the related allowance for losses as of the dates indicated (in thousands):

|  | June 30, 2019 | December 31, 2018 |
| --- | ---: | ---: |
| Gross fees receivable | $1,120,656 | $1,262,818 |
| Allowance for losses | (7,800) | (7,700) |
| Fees receivable, net | $1,112,856 | $1,255,118 |

**Goodwill and other intangible assets —** When we acquire a business, we determine the fair value of the assets acquired and liabilities assumed on the date of acquisition, which may include a significant amount of intangible assets such as customer relationships, software and content, as well as resulting goodwill. When determining the fair values of the acquired intangible assets, we consider, among other factors, analyses of historical financial performance and an estimate of the future performance of the acquired business. The fair values of the acquired intangible assets are primarily calculated using an income approach that relies on discounted cash flows. This method starts with a forecast of the expected future net cash flows for the asset and then adjusts the forecast to present value by applying an appropriate discount rate that reflects the risk factors associated with the cash flow streams. We consider this approach to be the most appropriate valuation technique because the inherent value of an acquired intangible asset is its ability to generate future income. In a typical acquisition, we engage a third-party valuation expert to assist us with the fair value analyses for acquired intangible assets.

Determining the fair values of acquired intangible assets requires us to exercise significant judgment. We select reasonable estimates and assumptions based on evaluating a number of factors, including, but not limited to, marketplace participants, consumer awareness and brand history. Additionally, there are significant judgments inherent in discounted cash flows such as estimating the amount and timing of projected future cash flows, the selection of appropriate discount rates, hypothetical royalty rates and contributory asset capital charges. Specifically, the selected discount rates are intended to reflect the risk inherent in the projected future cash flows generated by the underlying acquired intangible assets.

Determining an acquired intangible asset's useful life also requires significant judgment and is based on evaluating a number of factors, including, but not limited to, the expected use of the asset, historical client retention rates, consumer awareness and trade name history, as well as any contractual provisions that could limit or extend an asset's useful life.

The Company evaluates recorded goodwill in accordance with FASB 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 of goodwill may not be recoverable. In addition, an impairment evaluation of our amortizable intangible assets may also be performed if events or circumstances indicate potential impairment. Among the factors that could trigger an impairment review are current operating results that do not align with our annual plan or historical performance; changes in our strategic plan or the use of our assets; restructuring charges or other changes in our business segments; competitive pressures and changes in the general economy or in the markets in which we operate; and a significant decline in our stock price and our market capitalization relative to our net book value.

FASB ASC Topic 350 requires an annual assessment of the recoverability of recorded goodwill, which can be either quantitative or qualitative in nature, or a combination of the two approaches. Both methods utilize estimates which, in turn, require judgments and assumptions regarding future trends and events. As a result, both the precision and reliability of the resulting estimates are subject to uncertainty. If our goodwill impairment evaluation determines that the fair value of a reporting unit is less than its related carrying amount, we may recognize an impairment charge. Among the factors that we consider in a qualitative assessment are general economic conditions and the competitive environment; actual and projected reporting unit financial performance; forward-looking business measurements; and external market assessments. A quantitative analysis requires management to consider each of the factors relevant to a qualitative assessment, as well as the utilization of detailed financial projections, to include the rate of revenue growth, profitability and cash flows, as well as assumptions regarding discount rates, the Company's weighted average cost of capital and other data, in order to determine a fair value for our reporting units.

We conducted a quantitative assessment of the fair values of all of the Company's reporting units during the quarter ended September 30, 2018. Our assessment determined that the fair values of the Company's reporting units continue to exceed their respective carrying values and, as a result, no goodwill impairment was indicated. Subsequent to completing our 2018 annual impairment test, no events or changes in circumstances were noted that required an interim goodwill impairment test. Note 5 — Goodwill and Intangible Assets in the Notes to Condensed Consolidated Financial Statements provides additional information regarding goodwill and amortizable intangible assets.

**Accounting for income taxes —** The Company uses the asset and liability method of accounting for income taxes. We estimate our income taxes in each of the jurisdictions where we operate. This process involves estimating our current tax expense or benefit 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 in our consolidated balance sheets. When assessing the realizability of deferred tax assets, we consider if it is more likely than not that some or all of the deferred tax assets will not be realized. In making this assessment, we consider the availability of loss carryforwards, projected reversals of deferred tax liabilities, projected future taxable income, and ongoing prudent and feasible tax planning strategies. The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained based on the technical merits of the position.

**Accounting for stock-based compensation —** The Company accounts for stock-based compensation awards in accordance with FASB ASC Topics 505 and 718 and SEC Staff Accounting Bulletins No. 107 and 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. Note 3 — Stock-Based Compensation in the Notes to Condensed Consolidated Financial Statements provides additional information regarding stock-based compensation. Determining the appropriate fair value model and calculating the fair value of stock-based compensation awards requires the use of certain subjective assumptions, including the expected life of a stock-based compensation award and the Company’s common stock price volatility. In addition, determining the appropriate periodic stock-based compensation expense requires management to estimate the likelihood of the achievement of certain performance targets. The assumptions used in calculating the fair values of stock-based compensation awards and the related periodic expense represent management’s best estimates, which involve inherent uncertainties and the application of judgment. As a result, if circumstances 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-based 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, contract terminations, asset impairments and other costs as a result of ongoing 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 payments under contractual arrangements, 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 that 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 the end of our fiscal year.

### RESULTS OF OPERATIONS

### Consolidated Results

The table below presents an analysis of selected line items and period-over-period changes in our interim Condensed Consolidated Statements of Operations for the periods indicated (in thousands).

|  | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Effect on Net Income - Increase (Decrease) | Increase (Decrease) % |
| --- | ---: | ---: | ---: | ---: |
| Total revenues | $1,070,882 | $1,001,336 | $69,546 | 7% |
| Costs and expenses: |  |  |  |  |
| Cost of services and product development | 387,999 | 367,637 | (20,362) | (6) |
| Selling, general and administrative | 514,976 | 460,803 | (54,173) | (12) |
| Depreciation | 20,099 | 16,711 | (3,388) | (20) |
| Amortization of intangibles | 32,164 | 50,127 | 17,963 | 36 |
| Acquisition and integration charges (credits) | (358) | 19,962 | 20,320 | \>100 |
| Operating income | 116,002 | 86,096 | 29,906 | 35 |
| Interest expense, net | (24,749) | (37,604) | 12,855 | 34 |
| Gain from divested operations | — | 25,460 | (25,460) | \>(100) |
| Other (expense) income, net | (247) | 1,120 | (1,367) | \>(100) |
| (Benefit) provision for income taxes | (12,400) | 28,802 | 41,202 | \>100 |
| Net income | $103,406 | $46,270 | $57,136 | \>100 |

37

|  | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | Effect on Net Income - Increase (Decrease) | Increase (Decrease) % |
| --- | ---: | ---: | ---: | ---: |
| Total revenues | $2,041,326 | $1,964,901 | $76,425 | 4% |
| Costs and expenses: |  |  |  |  |
| Cost of services and product development | 734,644 | 724,846 | (9,798) | (1) |
| Selling, general and administrative | 1,033,746 | 948,548 | (85,198) | (9) |
| Depreciation | 39,874 | 33,121 | (6,753) | (20) |
| Amortization of intangibles | 65,847 | 101,773 | 35,926 | 35 |
| Acquisition and integration charges | 2,414 | 79,228 | 76,814 | 97 |
| Operating income | 164,801 | 77,385 | 87,416 | \>100 |
| Interest expense, net | (49,596) | (72,663) | 23,067 | 32 |
| (Loss) gain from divested operations | (2,075) | 25,460 | (27,535) | \>(100) |
| Other (expense) income, net | (1,071) | 2,019 | (3,090) | \>(100) |
| (Benefit) provision for income taxes | (12,142) | 5,518 | 17,660 | \>100 |
| Net income | $124,201 | $26,683 | $97,518 | \>100 |

Total revenues for the three months ended June 30, 2019 were $1.1 billion, an increase of $69.5 million, or 7% compared to the same period in 2018 on a reported basis and 9% excluding the foreign currency impact. Total revenues for the six months ended June 30, 2019 were $2.0 billion, an increase of $76.4 million, or 4% compared to the same period in 2018 on a reported basis and 7% excluding the foreign currency impact. The three and six months ended June 30, 2018 included $23.3 million and $94.0 million of revenue attributable to the Company's Other segment. During 2018, the Company divested all of the non-core businesses comprising that segment and, as a result, there are no revenues recorded in the Other segment in 2019. Refer to the section of this MD&A below entitled “Segment Results” for a discussion of revenues and results by segment.

Cost of services and product development was $388.0 million during the three months ended June 30, 2019, an increase of $20.4 million compared to the same period in 2018, or 6% on a reported basis and 7% excluding the foreign currency impact. The increase in Cost of services and product development on a reported basis was primarily due to higher payroll and related benefits costs resulting from increased headcount, partially offset by a reduction in expense from certain businesses that were divested during 2018. Cost of services and product development as a percent of revenues was 36% and 37% during the three months ended June 30, 2019 and 2018, respectively. For the six months ended June 30, 2019, Cost of services and product development was $734.6 million, an increase of $9.8 million compared to the same period in 2018, or 1% on a reported basis and 3% excluding the foreign currency impact. The increase in Cost of services and product development on a reported basis was primarily due to the same factors that caused the 2019 quarterly increase. Cost of services and product development as a percent of revenues was 36% and 37% during the six months ended June 30, 2019 and 2018, respectively.

Selling, general and administrative (“SG&A”) expense was $515.0 million during the three months ended June 30, 2019, an increase of $54.2 million compared to the same period in 2018, or 12% on a reported basis and 14% excluding the foreign currency impact. This increase was primarily due to (i) higher commissions from increased sales bookings and (ii) more payroll and related benefits costs, which were driven mostly by increased headcount. These items were partially offset by a reduction in SG&A expense resulting from certain businesses that were divested during 2018. The overall headcount growth includes increases in quota-bearing sales associates at Global Technology Sales and Global Business Sales to 3,207 and 919, respectively, at June 30, 2019. On a combined basis, the total number of quota-bearing sales associates increased by 16% when compared to June 30, 2018. SG&A expense as a percent of revenues was 48% and 46% during the three months ended June 30, 2019 and 2018, respectively. For the six months ended June 30, 2019, SG&A expense was $1.0 billion, an increase of $85.2 million compared to the same period in 2018, or 9% on a reported basis and 12% excluding the foreign currency impact. The increase in SG&A expense on a reported basis was primarily due to the same factors that caused the 2019 quarterly increase. SG&A expense as a percent of revenues was 51% and 48% during the six months ended June 30, 2019 and 2018, respectively.

Depreciation increased by 20% during each of the three and six months ended June 30, 2019 compared to the same periods in 2018. These increases were due to additional investments, including new leasehold improvements and capitalized software.

Amortization of intangibles decreased by 36% and 35% during the three and six months ended June 30, 2019, respectively, compared to the same periods in 2018 due to certain businesses that were divested during 2018, including the related intangible assets, as well as certain intangible assets that became fully amortized in 2018.

Acquisition and integration charges (credits) were $20.3 million and $76.8 million lower during the three and six months ended June 30, 2019, respectively, than the same periods in 2018. These decreases were the result of the Company having completed two acquisitions in 2017 and none in 2018 or 2019.

Operating income was $116.0 million and $86.1 million during the three months ended June 30, 2019 and 2018, respectively. The increase in operating income reflects several factors, including (i) reduced amortization of intangibles and acquisition and integration charges (credits) and (ii) higher segment contributions, primarily in our Research and Conferences segments and, to a lesser extent, in Consulting, which were partially offset by higher SG&A expense. Operating income was $164.8 million and $77.4 million during the six months ended June 30, 2019 and 2018, respectively. The increase in operating income was primarily due to the same factors that caused the 2019 quarterly increase.

Interest expense, net declined by $12.9 million and $23.1 million during the three and six months ended June 30, 2019, respectively, compared to the same periods in 2018. These decreases were primarily due to lower average outstanding borrowings during the 2019 periods and correspondingly lower weighted average annual effective rates on the Company's total debt outstanding.

Gain from divested operations of $25.5 million during both the three and six months ended June 30, 2018 was due to sales of certain business units and other miscellaneous assets. Loss from divested operations of $2.1 million during the six months ended June 30, 2019 was primarily due to the adjustment of certain working capital balances related to the Company's 2018 divestitures.

Other (expense) income, net for the periods presented herein primarily reflects the net impact of foreign currency gains and losses from our hedging activities, as well as sales of certain state tax credits and the recognition of other tax incentives.

The provision for income taxes for the three months ended June 30, 2019 was a benefit of $12.4 million compared to an expense of $28.8 million for the three months ended June 30, 2018. The provision for income taxes for the six months ended June 30, 2019 was a benefit of $12.1 million compared to an expense of $5.5 million for the six months ended June 30, 2018. The effective income tax rate was a benefit of 13.6% compared to an expense of 38.4% for the three months ended June 30, 2019 and 2018, respectively, and the effective income tax rate was a benefit of 10.8% compared to an expense of 17.1% for the six months ended June 30, 2019 and 2018, respectively. The 2019 effective income tax rates decreased primarily due to an intercompany sale of certain intellectual property that is discussed in Note 8 — Income Taxes in the Notes to Condensed Consolidated Financial Statements herein.

Net income for the three months ended June 30, 2019 and 2018 was $103.4 million and $46.3 million, respectively, while net income for the six months ended June 30, 2019 and 2018 was $124.2 million and $26.7 million, respectively. Additionally, our diluted net income per share during the three and six months ended June 30, 2019 increased by $0.63 and $1.07, respectively, compared to the same periods in 2018. These year-over-year changes reflect: (i) increases in our 2019 operating income; (ii) lower interest expense; and (iii) the income tax benefit from an intercompany sale of certain intellectual property. Partially offsetting these items was a loss from divested operations during the 2019 six-month period compared to a gain in each of the 2018 periods.

### SEGMENT RESULTS

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

#### 2018 Business Divestitures

During 2018, the Company divested all of the non-core businesses that comprised its Other segment and, as a result, no operating activity has been recorded in the Other segment in 2019. This segment had $23.3 million and $94.0 million of revenue during the three and six months ended June 30, 2018, respectively, while gross contribution was $15.1 million and $58.1 million, respectively.

#### Reportable Segments

The Company’s reportable segments are as follows:

- ***Research*** provides trusted, objective insights and advice on the mission-critical priorities of leaders across all functional areas of the enterprise through research and other reports, briefings, proprietary tools, access to our analysts and advisors, peer networking services and membership programs that enable our clients to make better decisions. Our traditional strengths in IT, marketing and supply chain research are supplemented by best practice and talent management research insights across a range of business functions, including human resources, sales, legal and finance.
- ***Conferences*** provides business professionals across the organization the opportunity to learn, share and network. From our flagship CIO conference Gartner IT Symposium, to industry-leading conferences focused on specific business roles and topics, to member-driven sessions, our offerings enable attendees to experience the best of Gartner insight and advice live.
- ***Consulting*** provides customized solutions to unique client needs through on-site, day-to-day support, as well as proprietary tools for measuring and improving IT performance with a focus on cost, performance, efficiency and quality.

The sections below present the results of the Company's three reportable business segments:

#### Research

| Financial Measurements: | As Of And For The Three Months Ended June 30, 2019 | As Of And For The Three Months Ended June 30, 2018 | Increase (Decrease) | Percentage Increase (Decrease) | As Of And For The Six Months Ended June 30, 2019 | As Of And For The Six Months Ended June 30, 2018 | Increase (Decrease) | Percentage Increase (Decrease) |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Revenues (1) | $826,055 | $770,314 | $55,741 | 7% | $1,651,429 | $1,534,238 | $117,191 | 8% |
| Gross contribution (1) | $572,297 | $532,910 | $39,387 | 7% | $1,147,465 | $1,064,367 | $83,098 | 8% |
| Gross contribution margin | 69% | 69% | — | — | 69% | 69% | — | — |
| Business Measurements: |  |  |  |  |  |  |  |  |
| Global Technology Sales (2): |  |  |  |  |  |  |  |  |
| Contract value (1), (3) | $2,580,000 | $2,272,000 | $308,000 | 14% |  |  |  |  |
| Client retention | 82% | 82% | — | — |  |  |  |  |
| Wallet retention | 105% | 105% | — | — |  |  |  |  |
| Global Business Sales (2): |  |  |  |  |  |  |  |  |
| Contract value (1), (3) | $602,000 | $597,000 | $5,000 | 1% |  |  |  |  |
| Client retention | 81% | 83% | (2) points | — |  |  |  |  |
| Wallet retention | 95% | 97% | (2) points | — |  |  |  |  |

(1) Dollars in thousands.

(2) Global Technology Sales includes sales to users and providers of technology. Global Business Sales includes sales to all other functional leaders.

(3) Contract values are on a foreign exchange neutral basis. Contract values as of June 30, 2018 have been calculated using the same foreign currency rates as 2019.

Research revenues increased by $55.7 million during the three months ended June 30, 2019 compared to the same period in 2018, or 7% on a reported basis and 10% excluding the foreign currency impact. The gross contribution margin was flat at 69% in the second quarter of 2019 compared to the second quarter of 2018. For the six months ended June 30, 2019, Research revenues increased by $117.2 million compared to the same period in 2018, or 8% on a reported basis and 10% excluding the foreign currency impact. The gross contribution margin was flat at 69% during the six months ended June 30, 2019 compared to the same period in 2018. The increase in revenues for both 2019 periods was primarily due to the same factors driving the trend in our Research contract value, which is discussed below.

Total contract value increased to $3.2 billion at June 30, 2019, or 11% compared to June 30, 2018 on a foreign exchange neutral basis. Total contract value at June 30, 2019 increased by double-digits across almost all of the Company’s client sizes and more than half of its industry segments when compared to June 30, 2018. Global Technology Sales ("GTS") contract value increased by 14% at June 30, 2019 when compared to June 30, 2018. The increase in GTS contract value reflects additional sales headcount and productivity improvements. Global Business Sales ("GBS") contract value increased by 1% year-over-year, primarily driven by the combined effect of improved retention and new business, with a substantial portion of the new business coming from newly launched products.

GTS client retention was 82% as of both June 30, 2019 and 2018, while wallet retention was 105% on both dates. GBS client retention was 81% and 83% as of June 30, 2019 and 2018, respectively, while wallet retention was 95% and 97%, respectively. The number of GTS client enterprises increased by 3% at June 30, 2019 when compared to June 30, 2018, while GBS client enterprises declined by 9%.

#### Conferences

| Financial Measurements: | As Of And For The Three Months Ended June 30, 2019 | As Of And For The Three Months Ended June 30, 2018 | Increase (Decrease) | Percentage Increase (Decrease) | As Of And For The Six Months Ended June 30, 2019 | As Of And For The Six Months Ended June 30, 2018 | Increase (Decrease) | Percentage Increase (Decrease) |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Revenues (1) | $141,174 | $111,253 | $29,921 | 27% | $193,106 | $157,340 | $35,766 | 23% |
| Gross contribution (1) | $80,570 | $63,461 | $17,109 | 27% | $99,446 | $79,651 | $19,795 | 25% |
| Gross contribution margin | 57% | 57% | — | — | 51% | 51% | — | — |
| **Business Measurements:** |  |  |  |  |  |  |  |  |
| Number of destination conferences (2) | 27 | 24 | 3 | 13% | 39 | 38 | 1 | 3% |
| Number of destination conferences attendees (2) | 26,416 | 20,896 | 5,520 | 26% | 37,946 | 32,539 | 5,407 | 17% |

(1) Dollars in thousands.

(2) Single day, local meetings are excluded.

Conferences revenues increased by $29.9 million during the three months ended June 30, 2019 compared to the same period in 2018, or 27% on a reported basis and 29% excluding the foreign currency impact. Revenues from both attendees and exhibitors at our destination conferences, as well as revenues from our single day local meetings, increased by double-digits during the second quarter of 2019 compared to the same period in 2018. We held 27 destination conferences during the three months ended June 30, 2019 with a 26% increase in the number of attendees and a 19% increase in exhibitors when compared to the same period in 2018, while the average revenue per attendee and exhibitor increased by 4% and 6%, respectively. The gross contribution margin was flat at 57% in the second quarter of 2019 compared to the same period in 2018.

For the six months ended June 30, 2019, Conferences revenues increased by $35.8 million compared to the same period in 2018, or 23% on a reported basis and 25% excluding the foreign currency impact. Revenues from both attendees and exhibitors at our destination conferences, as well as revenues from our single day local meetings, increased by double-digits during the six months ended June 30, 2019. We held 39 destination conferences during the 2019 six-month period with a 17% increase in the number of attendees and a 16% increase in exhibitors when compared to the same period in 2018, while the average revenue per attendee and exhibitor increased by 7% and 5%, respectively. The gross contribution margin was flat at 51% during the six months ended June 30, 2019 compared to the same period in 2018.

#### Consulting

| Financial Measurements: | As Of And For The Three Months Ended June 30, 2019 | As Of And For The Three Months Ended June 30, 2018 | Increase (Decrease) | Percentage Increase (Decrease) | As Of And For The Six Months Ended June 30, 2019 | As Of And For The Six Months Ended June 30, 2018 | Increase (Decrease) | Percentage Increase (Decrease) |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Revenues (1) | $103,653 | $96,458 | $7,195 | 7% | $196,791 | $179,354 | $17,437 | 10% |
| Gross contribution (1) | $34,236 | $33,693 | $543 | 2% | $62,954 | $57,817 | $5,137 | 9% |
| Gross contribution margin | 33% | 35% | (2) points | — | 32% | 32% | — | — |
| **Business Measurements:** |  |  |  |  |  |  |  |  |
| Backlog (1), (2) | $110,400 | $103,500 | $6,900 | 7% |  |  |  |  |
| Billable headcount | 773 | 710 | 63 | 9% |  |  |  |  |
| Consultant utilization | 63% | 67% | (4) points | — | 66% | 66% | — | — |
| Average annualized revenue per billable headcount (1) | $379 | $397 | $(18) | (5)% | $390 | $391 | $(1) | — |

(1) Dollars in thousands.

(2) Backlog is on a foreign exchange neutral basis. Backlog as of June 30, 2018 has been calculated using the same foreign currency rates as 2019.

Consulting revenues increased 7% during the three months ended June 30, 2019 compared to the same period in 2018 on a reported basis and 10% excluding the foreign currency impact, with revenue improvements in labor-based core consulting and contract optimization of 3% and 27%, respectively, on a reported basis. Contract optimization revenue may vary significantly and, as such, the second quarter of 2019 may not be indicative of results for the remainder of 2019 or beyond. The segment gross contribution margin was 33% and 35% for the three months ended June 30, 2019 and 2018, respectively. The lower gross contribution margin during the second quarter of 2019 was due to higher personnel costs, including costs associated with increased headcount in labor-based core consulting, partially offset by the increase in contract optimization revenue, which has a higher contribution margin than our labor-based core consulting.

For the six months ended June 30, 2019, Consulting revenues increased 10% compared to the same period in 2018 on a reported basis and 13% excluding the foreign currency impact, while the segment gross contribution margin was flat at 32%. The increase in revenues was due to the same factors that caused the increase during the second quarter of 2019.

Backlog increased by $6.9 million, or 7%, from June 30, 2018 to June 30, 2019. The $110.4 million of backlog at June 30, 2019 represented approximately four months of backlog, which is in line with the Company's operational target.

### LIQUIDITY AND CAPITAL RESOURCES

We finance our operations through cash generated from our operating activities and borrowings. Note 6 — Debt in the Notes to Condensed Consolidated Financial Statements herein provides additional information regarding the Company's outstanding debt obligations. At June 30, 2019, we had $218.5 million of cash and cash equivalents and approximately $1.1 billion of available borrowing capacity on the revolving credit facility under our 2016 Credit Agreement. We believe that the Company has adequate liquidity to meet its currently anticipated needs.

We have historically generated significant cash flows from our operating activities. Our operating cash flow has been continuously maintained by the leverage characteristics of our subscription-based business model in our Research segment, which is our largest business segment and historically has constituted the majority of our total revenues. The majority of our Research customer contracts are paid in advance and, combined with a strong customer retention rate and high incremental margins, has resulted in continuously strong operating cash flow. Cash flow generation has also benefited from our ongoing efforts to improve the operating efficiencies of our businesses as well as a focus on the optimal management of our working capital as we increase sales.

Our cash and cash equivalents are held in numerous locations throughout the world with 69% held overseas at June 30, 2019. The Company intends to reinvest substantially all of its accumulated undistributed foreign earnings, except in instances where repatriation would result in minimal additional tax. As a result of the U.S. Tax Cuts and Jobs Act of 2017, we believe that the income tax impact if such earnings were repatriated would be minimal.

The following table summarizes the changes in the Company’s cash balances for the periods indicated (in thousands):

|  | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | Increase (Decrease) |
| --- | ---: | ---: | ---: |
| Cash provided by operating activities | $263,078 | $176,747 | $86,331 |
| Cash (used in) provided by investing activities | (61,774) | 366,416 | (428,190) |
| Cash (used in) financing activities | (142,128) | (947,253) | 805,125 |
| Net increase (decrease) in cash and cash equivalents and restricted cash | 59,176 | (404,090) | 463,266 |
| Effects of exchange rates | 614 | (3,012) | 3,626 |
| Beginning cash and cash equivalents and restricted cash | 158,663 | 567,058 | (408,395) |
| Ending cash and cash equivalents and restricted cash | $218,453 | $159,956 | $58,497 |

#### Operating

Cash provided by operating activities was $263.1 million and $176.7 million during the six months ended June 30, 2019 and 2018, respectively. The year-over-year increase was primarily driven by higher net income in the 2019 period and lower cash payments in 2019 for interest on our borrowings, acquisition-related costs, and income taxes.

#### Investing

Cash used in investing activities was $61.8 million during the six months ended June 30, 2019 compared to cash provided by investing activities of $366.4 million in the 2018 period. The cash used in the 2019 period was primarily for capital expenditures. In the 2018 period, $406.5 million of net cash was realized from business unit divestitures and other miscellaneous asset sales, partially offset by $40.1 million of capital expenditures.

#### Financing

Cash used in financing activities was $142.1 million in the six months ended June 30, 2019 compared to cash used of $947.3 million during the same period in 2018. During the 2019 period, the Company borrowed an additional $5.0 million under a financial program offered by the State of Connecticut and we repaid $109.6 million of other borrowings. We also used $46.6 million in cash during the six months ended June 30, 2019 for share repurchases. During the 2018 period, the Company paid $858.6 million in debt principal repayments and $96.3 million for share repurchases.

### OBLIGATIONS AND COMMITMENTS

#### Debt

As of June 30, 2019, the Company had $2.2 billion of principal amount of debt outstanding. Note 6 — Debt in the Notes to Condensed Consolidated Financial Statements herein provides additional information regarding the Company's outstanding debt obligations.

#### Off-Balance Sheet Arrangements

Through June 30, 2019, we have not entered into any material off-balance sheet arrangements or transactions with unconsolidated entities or other persons.

### RECENTLY ISSUED ACCOUNTING STANDARDS

The FASB has issued accounting standards that have not yet become effective and that may impact the Company’s condensed consolidated financial statements and related disclosures in future periods. Note 1 — Business and Basis of Presentation in the Notes to Condensed Consolidated Financial Statements herein provides information regarding those accounting standards.

## Market risk

As filed, 4,018 characters.

### INTEREST RATE RISK

As of June 30, 2019, the Company had $2.2 billion in total debt principal outstanding. Note 6 — Debt in the Notes to Condensed Consolidated Financial Statements herein provides additional information regarding the Company's outstanding debt obligations.

Approximately $1.4 billion of the Company's total debt outstanding as of June 30, 2019 was based on a floating base rate of interest, which potentially exposes the Company to increases in interest rates. However, we reduce our overall exposure to interest rate increases through our interest rate swap contracts, which effectively convert the base floating base interest rate on the borrowings to fixed rates. Thus, we are exposed to base interest rate risk on floating rate borrowings only in excess of any amounts that are not hedged. At June 30, 2019, the Company was effectively fully hedged from the base interest rate risk on its floating rate borrowings.

### FOREIGN CURRENCY RISK

A significant portion of our revenues are typically derived from sales outside of the United States. Among the major foreign currencies in which we conduct business are the Euro, the British Pound, the Japanese Yen, the Australian dollar, and the Canadian dollar. The reporting currency of our consolidated financial statements is the U.S. dollar. As the values of the foreign currencies in which we operate fluctuate over time relative to the U.S. dollar, the Company is exposed to both foreign currency translation and transaction risk.

Translation risk arises as our foreign currency assets and liabilities are translated into U.S. dollars since the functional currencies of our foreign operations are generally denominated in the local currency. Adjustments resulting from the translation of these assets and liabilities are deferred and recorded as a component of stockholders’ equity. A measure of the potential impact of foreign currency translation can be determined through a sensitivity analysis of our cash and cash equivalents. At June 30, 2019, we had $218.5 million of cash and cash equivalents, with a substantial portion denominated in foreign currencies. If the exchange rates of the foreign currencies we hold all changed in comparison to the U.S. dollar by 10%, the amount of cash and cash equivalents we would have reported on June 30, 2019 could have increased or decreased by approximately $15.0 million. The translation of our foreign currency revenues and expenses historically has not had a material impact on our consolidated earnings since movements in and among the major currencies in which we operate tend to impact our revenues and expenses fairly equally. However, our earnings could be impacted during periods of significant exchange rate volatility, or when some or all of the major currencies in which we operate move in the same direction against the U.S. dollar.

Transaction risk arises when we enter into a transaction that is denominated in a currency that may differ from the local functional currency. As these transactions are translated into the local functional currency, a gain or loss may result, which is recorded in current period earnings. We typically enter into foreign currency forward exchange contracts to mitigate the effects of some of this foreign currency transaction risk. Our outstanding foreign currency contracts as of June 30, 2019 had an immaterial net unrealized loss.

### CREDIT RISK

Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of short-term, highly liquid investments classified as cash equivalents, accounts receivable, interest rate swap contracts and foreign exchange contracts. The majority of the Company’s cash and cash equivalents, interest rate swap contracts and foreign exchange contracts are with large investment grade commercial banks. Accounts receivable balances deemed to be collectible from customers have limited concentration of credit risk due to our diverse customer base and geographic dispersion.

## Controls and procedures

As filed, 1,391 characters.

We have established disclosure controls and procedures that are designed to ensure that the information we are required to disclose in our reports filed under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported in a timely manner. Specifically, these controls and procedures ensure that the information is accumulated and communicated to our executive management team, including our chief executive officer and our chief financial officer, to allow timely decisions regarding required disclosure.

Management conducted an evaluation, as of June 30, 2019, of the effectiveness of the design and operation of our disclosure controls and procedures, under the supervision and with the participation of our chief executive officer and chief financial officer. Based upon that evaluation, our chief executive officer and chief financial officer have concluded that the Company’s disclosure controls and procedures are effective in alerting them in a timely manner to material Company information required to be disclosed by us in reports filed under the Exchange Act.

There have been no changes in the Company’s internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

## Risk factors

As filed, 161 characters.

Risk factors associated with our business are included under “Risk Factors” in Item 1A. of the Company's 2018 Form 10-K and are incorporated herein by reference.

Filed Jul 30, 2019.
Source: SEC EDGAR, the filing index for accession 0000749251-19-000015. Last ingested by Listed: Nov 10, 2026, 01:53 ET. No prices; not investment advice.