NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 1 — Business and Basis of Presentation
Business. 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 an objective resource for more than 14,000 enterprises in more than 100 countries — across all major functions, in every industry and enterprise size.
Segments. Gartner delivers its products and services globally through three business segments: Research, Conferences and Consulting. Revenues and other financial information for our segments are discussed in Note 5 — Segment Information.
Basis of presentation. The accompanying interim Condensed Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”), as defined in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 270 for interim financial information and with the applicable instructions of U.S. Securities and Exchange Commission (“SEC”) 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 the Company in its Annual Report on Form 10-K for the year ended December 31, 2020.
The fiscal year of Gartner is the twelve-month period from January 1 through December 31. In the opinion of management, all normal recurring accruals and adjustments 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 months ended March 31, 2021 may not be indicative of the results of operations for the remainder of 2021 or beyond. When used in these notes, the terms “Gartner,” the “Company,” “we,” “us,” or “our” refer to Gartner, Inc. and its consolidated subsidiaries.
Principles of consolidation. The accompanying interim Condensed Consolidated Financial Statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated.
Use of estimates. The preparation of the accompanying interim Condensed Consolidated Financial Statements 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 fees receivable, goodwill, intangible assets and other long-lived assets, as well as tax accruals and other liabilities. In addition, estimates are used in revenue recognition, income tax expense or benefit, performance-based compensation charges, depreciation and amortization. Management believes its use of estimates in these interim Condensed Consolidated Financial Statements to be reasonable.
Management continually evaluates and revises its estimates using historical experience and other factors, including the general economic environment and actions it may take in the future. Management adjusts these 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 management’s best judgment at a point in time. As a result, differences between estimates and actual results could be material and would be reflected in the Company’s consolidated financial statements in future periods.
Revenue recognition. Revenue is recognized in accordance with the requirements of FASB ASC Topic 606, Revenue from Contracts with Customers (“ASC Topic 606”). Revenue is only recognized when all of the required criteria for revenue recognition have been met. The accompanying Condensed Consolidated Statements of Operations present revenue net of any sales or value-added taxes that we collect from customers and remit to government authorities. ASC Topic 270 requires certain disclosures in interim financial statements around the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. Note 2 — Revenue and Related Matters provides additional information regarding the Company’s revenues.
Adoption of new accounting standards. The Company adopted the accounting standard described below during the three months ended March 31, 2021.
Simplifying the Accounting for Income Taxes — In December 2019, the FASB issued ASU No. 2019-12, Income Taxes—Simplifying the Accounting for Income Taxes (“ASU No. 2019-12”). ASU No. 2019-12 provides new guidance to simplify the accounting for income taxes in certain areas, changes the accounting for select income tax transactions and makes minor ASC improvements. Gartner adopted ASU No. 2019-12 on January 1, 2021. The adoption of ASU No. 2019-12 did not have a material impact on the Company’s Condensed Consolidated Financial Statements.
Accounting standards issued but not yet adopted. The FASB has issued accounting standards that have not yet become effective and may impact the Company’s consolidated financial statements or related disclosures in future periods. Those standards and their potential impact are discussed below.
Accounting standard effective immediately upon voluntary election by Gartner
Reference Rate Reform — In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform—Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU No. 2020-04”). ASU No. 2020-04 provides that an entity can elect not to apply certain required modification accounting in U.S. GAAP to contracts where all changes to the critical terms relate to reference rate reform (e.g., the expected discontinuance of LIBOR and the transition to an alternative reference interest rate, etc.). In addition, the rule provides optional expedients and exceptions that enable entities to continue to apply hedge accounting for hedging relationships where one or more of the critical terms change due to reference rate reform. The rule became effective for all entities as of March 12, 2020 and will generally no longer be available to apply after December 31, 2022. The Company is currently evaluating the potential impact of ASU No. 2020-04 on its consolidated financial statements, including the rule’s potential impact on any debt modifications or other contractual changes in the future that may result from reference rate reform.
Note 2 — Revenue and Related Matters
Disaggregated Revenue — The Company’s disaggregated revenue by reportable segment is presented in the tables below for the periods indicated (in thousands).
By Primary Geographic Market (1)
Three Months Ended March 31, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary Geographic Market
|
Research
|
Conferences
|
Consulting
|
Total
|
United States and Canada
|
$
|
631,333
|
|
$
|
19,599
|
|
$
|
57,486
|
|
$
|
708,418
|
|
Europe, Middle East and Africa
|
230,201
|
|
2,713
|
|
30,362
|
|
263,276
|
|
Other International
|
118,198
|
|
2,490
|
|
11,656
|
|
132,344
|
|
Total revenues
|
$
|
979,732
|
|
$
|
24,802
|
|
$
|
99,504
|
|
$
|
1,104,038
|
|
Three Months Ended March 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary Geographic Market
|
Research
|
Conferences
|
Consulting
|
Total
|
United States and Canada
|
$
|
590,156
|
|
$
|
5,980
|
|
$
|
54,163
|
|
$
|
650,299
|
|
Europe, Middle East and Africa
|
205,939
|
|
2,147
|
|
30,082
|
|
238,168
|
|
Other International
|
113,196
|
|
5,743
|
|
11,485
|
|
130,424
|
|
Total revenues
|
$
|
909,291
|
|
$
|
13,870
|
|
$
|
95,730
|
|
$
|
1,018,891
|
|
(1)Revenue is reported based on where the sale is fulfilled.
The Company’s revenue is generated primarily through direct sales to clients by domestic and international sales forces and a network of independent international sales agents. Most of the Company’s products and services are provided on an integrated worldwide basis and, because of this integrated delivery approach, it is not practical to precisely separate the Company's
revenue by geographic location. Accordingly, revenue information presented in the above tables is based on internal allocations, which involve certain management estimates and judgments.
By Timing of Revenue Recognition
Three Months Ended March 31, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timing of Revenue Recognition
|
Research
|
Conferences
|
Consulting
|
Total
|
Transferred over time (1)
|
$
|
894,087
|
|
$
|
—
|
|
$
|
84,342
|
|
$
|
978,429
|
|
Transferred at a point in time (2)
|
85,645
|
|
24,802
|
|
15,162
|
|
125,609
|
|
Total revenues
|
$
|
979,732
|
|
$
|
24,802
|
|
$
|
99,504
|
|
$
|
1,104,038
|
|
Three Months Ended March 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timing of Revenue Recognition
|
Research
|
Conferences
|
Consulting
|
Total
|
Transferred over time (1)
|
$
|
829,212
|
|
$
|
—
|
|
$
|
81,408
|
|
$
|
910,620
|
|
Transferred at a point in time (2)
|
80,079
|
|
13,870
|
|
14,322
|
|
108,271
|
|
Total revenues
|
$
|
909,291
|
|
$
|
13,870
|
|
$
|
95,730
|
|
$
|
1,018,891
|
|
(1)Research revenues were recognized in connection with performance obligations that were satisfied over time using a time-elapsed output method to measure progress. Consulting revenues were recognized over time using labor hours as an input measurement basis.
(2)The revenues in this category were recognized in connection with performance obligations that were satisfied at the point in time that the contractual deliverables were provided to the customer.
Performance Obligations — For customer contracts that are greater than one year in duration, the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied (or partially unsatisfied) as of March 31, 2021 was approximately $3.6 billion. The Company expects to recognize $1,705.5 million, $1,443.1 million and $424.5 million of this revenue (most of which pertains to Research) during the remainder of 2021, the year ending December 31, 2022 and thereafter, respectively. The Company applies a practical expedient that is permitted under ASC Topic 606 and, accordingly, it does not disclose such performance obligation information for customer contracts that have original durations of one year or less. The Company’s performance obligations for contracts meeting this ASC Topic 606 disclosure exclusion primarily include: (i) stand-ready services under Research subscription contracts; (ii) holding conferences and meetings where attendees and exhibitors can participate; and (iii) providing customized Consulting solutions for clients under fixed fee and time and materials engagements. The remaining duration of these performance obligations is generally less than one year, which aligns with the period that the parties have enforceable rights and obligations under the affected contracts.
Customer Contract Assets and Liabilities — The timing of the recognition of revenue and the amount and timing of the Company’s billings and cash collections, including upfront customer payments, result in the recognition of both assets and liabilities on the Company’s consolidated balance sheet. The table below provides information regarding certain of the Company’s balance sheet accounts that pertain to its contracts with customers (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
|
2021
|
|
2020
|
Assets:
|
|
|
|
Fees receivable, gross (1)
|
$
|
1,184,426
|
|
|
$
|
1,251,508
|
|
Contract assets recorded in Prepaid expenses and other current assets (2)
|
$
|
19,883
|
|
|
$
|
14,440
|
|
Contract liabilities:
|
|
|
|
Deferred revenues (current liability) (3)
|
$
|
2,088,463
|
|
|
$
|
1,974,548
|
|
Non-current deferred revenues recorded in Other liabilities (3)
|
25,852
|
|
|
26,754
|
|
Total contract liabilities
|
$
|
2,114,315
|
|
|
$
|
2,001,302
|
|
(1)Fees receivable represent an unconditional right to payment from the Company’s customers and include both billed and unbilled amounts.
(2)Contract assets represent recognized revenue for which the Company does not have an unconditional right to payment as of the balance sheet date because the project may be subject to a progress billing milestone or some other billing restriction.
(3)Deferred revenues represent amounts (i) for which the Company has received an upfront customer payment or (ii) that pertain to recognized fees receivable. Both situations occur before the completion of the Company’s performance obligation(s).
The Company recognized revenue of $726.7 million and $658.4 million during the three months ended March 31, 2021 and 2020, respectively, that was attributable to deferred revenues that were recorded at the beginning of each such period. Those amounts primarily consisted of (i) Research revenues that were recognized ratably as control of the goods or services passed to the customer and (ii) Conferences revenue pertaining to conferences and meetings that occurred during the reporting periods. During each of the three months ended March 31, 2021 and 2020, the Company did not record any material impairments related to its contract assets. The Company does not typically recognize revenue from performance obligations satisfied in prior periods.
Note 3 — Computation of Earnings Per Share
Basic earnings per share (“EPS”) is computed by dividing net income by the weighted average number of shares of Common Stock outstanding during the period. Diluted EPS reflects the potential dilution of securities that could share in earnings. Potential shares of common stock are excluded from the computation of diluted earnings per share when their effect would be anti-dilutive.
The table below sets forth the calculation of basic and diluted income per share for the periods indicated (in thousands, except per share data).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2021
|
|
2020
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
Net income used for calculating basic and diluted income per share
|
$
|
164,100
|
|
|
$
|
75,097
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
Weighted average common shares used in the calculation of basic income per share
|
88,352
|
|
|
89,219
|
|
|
|
|
|
Dilutive effect of outstanding awards associated with stock-based compensation plans (1)
|
787
|
|
|
847
|
|
|
|
|
|
Shares used in the calculation of diluted income per share
|
89,139
|
|
|
90,066
|
|
|
|
|
|
Basic income per share
|
$
|
1.86
|
|
|
$
|
0.84
|
|
|
|
|
|
Diluted income per share
|
$
|
1.84
|
|
|
$
|
0.83
|
|
|
|
|
|
(1)Certain potential shares of common stock were not included in the computation of diluted income per share because the effect would have been anti-dilutive. These potential shares of common stock totaled approximately 0.4 million and 0.7 million for the three months ended March 31, 2021, and 2020, respectively.
Note 4 — 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-based and performance-based restricted stock units, and common stock equivalents. As of March 31, 2021, the Company had 4.0 million shares of its common stock, par value $0.0005 per share, (the “Common Stock”) available for stock-based compensation awards under its current Long-Term Incentive Plan as amended and restated in January 2019 (the “Plan”).
The tables below summarize the Company’s stock-based compensation expense by award type and expense category line item during the periods indicated (in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
|
Award type
|
|
2021
|
|
2020
|
|
|
|
|
Stock appreciation rights
|
|
$
|
2.0
|
|
|
$
|
1.7
|
|
|
|
|
|
Restricted stock units (2)
|
|
33.9
|
|
|
23.2
|
|
|
|
|
|
Common stock equivalents
|
|
0.2
|
|
|
0.2
|
|
|
|
|
|
Total (1)
|
|
$
|
36.1
|
|
|
$
|
25.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
|
Expense category line item
|
|
2021
|
|
2020
|
|
|
|
|
Cost of services and product development
|
|
$
|
13.7
|
|
|
$
|
12.1
|
|
|
|
|
|
Selling, general and administrative
|
|
22.4
|
|
|
13.0
|
|
|
|
|
|
Total (1) (2)
|
|
$
|
36.1
|
|
|
$
|
25.1
|
|
|
|
|
|
(1) Includes charges of $21.5 million and $11.6 million during the three months ended March 31, 2021 and 2020, respectively, for awards to retirement-eligible employees. Those awards vest on an accelerated basis.
(2) On February 5, 2020, prior to the COVID-19 related shutdown in the U.S., the Compensation Committee (“Committee”) of the Board of Directors of the Company established performance measures for the performance-based restricted stock units (the “PSUs”) awarded to the Company’s executive officers in 2020 under the Plan. Based on preliminary corporate performance results for the 2020 performance measures, the 2020 PSUs would have been earned at 50% of target. However, on February 3, 2021, the Committee determined to use its discretion under the Plan to approve a payout at 95% of target. In deciding to exercise this discretion to adjust the performance-based RSU payout, the Committee considered the Company’s strong overall performance in 2020 despite the significant negative impact of the COVID-19 pandemic. As a result of the modification, the Company recognized $6.5 million of incremental compensation cost during the three months ended March 31, 2021.
Note 5 — Segment Information
The Company’s products and services are delivered through three segments – Research, Conferences and Consulting, as described below.
•Research provides trusted, objective insights and advice on the mission-critical priorities of leaders across all functional areas of an enterprise through reports, briefings, proprietary tools, access to our research experts, peer networking services and membership programs that enable our clients to drive organizational performance.
•Conferences provides business professionals across an organization the opportunity to learn, share and network. From our Gartner Symposium/Xpo series, to industry-leading conferences focused on specific business roles and topics, to peer-driven sessions, our offerings enable attendees to experience the best of Gartner insight and advice.
•Consulting combines the power of Gartner market-leading research with custom analysis and on-the-ground support to help chief information officers and other senior executives driving technology-related strategic initiatives move confidently from insight to action.
The Company evaluates segment performance and allocates resources based on gross contribution margin. Gross contribution, as presented in the tables below, is defined as operating income or loss excluding certain Cost of services and product development expenses, Selling, general and administrative expenses, Depreciation, Amortization of intangibles, and Acquisition and integration 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. There are no intersegment revenues. 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 by segment and is not reviewed in the evaluation of segment performance or in making decisions regarding the
allocation of resources.
The tables below present information about the Company’s reportable segments for the periods indicated (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2021
|
Research
|
|
Conferences
|
|
Consulting
|
|
|
Consolidated
|
Revenues
|
$
|
979,732
|
|
|
$
|
24,802
|
|
|
$
|
99,504
|
|
|
|
$
|
1,104,038
|
|
Gross contribution
|
724,372
|
|
|
13,896
|
|
|
39,098
|
|
|
|
777,366
|
|
Corporate and other expenses
|
|
|
|
|
|
|
|
(551,954)
|
|
Operating income
|
|
|
|
|
|
|
|
$
|
225,412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2020
|
Research
|
|
Conferences
|
|
Consulting
|
|
|
Consolidated
|
Revenues
|
$
|
909,291
|
|
|
$
|
13,870
|
|
|
$
|
95,730
|
|
|
|
$
|
1,018,891
|
|
Gross contribution
|
653,469
|
|
|
(6,060)
|
|
|
29,382
|
|
|
|
676,791
|
|
Corporate and other expenses
|
|
|
|
|
|
|
|
(552,073)
|
|
Operating income
|
|
|
|
|
|
|
|
$
|
124,718
|
|
The table below provides a reconciliation of total segment gross contribution to net income for the periods indicated (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2021
|
|
2020
|
|
|
|
|
Total segment gross contribution
|
$
|
777,366
|
|
|
$
|
676,791
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
Cost of services and product development - unallocated (1)
|
7,795
|
|
|
(822)
|
|
|
|
|
|
Selling, general and administrative
|
487,255
|
|
|
496,639
|
|
|
|
|
|
Depreciation and amortization
|
56,264
|
|
|
54,696
|
|
|
|
|
|
Acquisition and integration charges
|
640
|
|
|
1,560
|
|
|
|
|
|
Operating income
|
225,412
|
|
|
124,718
|
|
|
|
|
|
Interest expense and other, net
|
(10,659)
|
|
|
(27,864)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Provision for income taxes
|
50,653
|
|
|
21,757
|
|
|
|
|
|
Net income
|
$
|
164,100
|
|
|
$
|
75,097
|
|
|
|
|
|
(1)The unallocated amounts consist of certain bonus and fringe costs recorded in consolidated Cost of services and product development that are not allocated to segment expense. The Company’s policy is to allocate bonuses to segments at 100% of a segment employee’s target bonus. Amounts above or below 100% are absorbed by corporate.
Note 6 — Goodwill and Intangible Assets
Goodwill
Goodwill represents the excess of the purchase price of acquired businesses over the estimated fair values of the tangible and identifiable intangible net assets acquired. Evaluations of the recoverability of goodwill are performed in accordance with FASB ASC Topic 350, which requires an annual assessment of potential goodwill impairment at the reporting unit level and whenever events or changes in circumstances indicate that the carrying value of goodwill may not be recoverable.
When performing the annual assessment of the recoverability of goodwill, the Company initially performs a qualitative analysis evaluating whether any events or circumstances occurred or exist that provide evidence that it is more likely than not that the fair value of any of the Company’s reporting units is less than the related carrying amount. If the Company does not believe that it is more likely than not that the fair value of any of the Company’s reporting units is less than the related carrying amount, then no quantitative impairment test is performed. However, if the results of the qualitative assessment indicate that it is more likely than not that the fair value of a reporting unit is less than its respective carrying amount, then a quantitative impairment
test is performed. Evaluating the recoverability of goodwill requires judgments and assumptions regarding future trends and events. As a result, both the precision and reliability of the estimates are subject to uncertainty.
The Company’s most recent annual impairment test of goodwill was a qualitative analysis conducted during the quarter ended September 30, 2020 that indicated no impairment. Subsequent to completing the 2020 annual impairment test, there were no events or changes in circumstances noted that required an interim impairment test.
The table below presents changes to the carrying amount of goodwill by segment during the three months ended March 31, 2021 (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
|
|
Conferences
|
|
Consulting
|
|
|
Total
|
Balance at December 31, 2020 (1)
|
$
|
2,664,732
|
|
|
$
|
184,091
|
|
|
$
|
96,724
|
|
|
|
$
|
2,945,547
|
|
Foreign currency translation impact
|
(1,917)
|
|
|
(38)
|
|
|
(92)
|
|
|
|
(2,047)
|
|
Balance at March 31, 2021
|
$
|
2,662,815
|
|
|
$
|
184,053
|
|
|
$
|
96,632
|
|
|
|
$
|
2,943,500
|
|
(1)The Company does not have any accumulated goodwill impairment losses.
Finite-Lived Intangible Assets
The tables below present reconciliations of the carrying amounts of the Company’s finite-lived intangible assets as of the dates indicated (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
Customer
Relationships
|
|
Software
|
|
Content
|
|
Other
|
|
Total
|
Gross cost at December 31, 2020
|
|
$
|
1,154,210
|
|
|
$
|
110,597
|
|
|
$
|
3,965
|
|
|
$
|
10,614
|
|
|
$
|
1,279,386
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation impact
|
|
948
|
|
|
53
|
|
|
—
|
|
|
—
|
|
|
1,001
|
|
Gross cost
|
|
1,155,158
|
|
|
110,650
|
|
|
3,965
|
|
|
10,614
|
|
|
1,280,387
|
|
Accumulated amortization (1)
|
|
(406,074)
|
|
|
(88,933)
|
|
|
(3,965)
|
|
|
(3,974)
|
|
|
(502,946)
|
|
Balance at March 31, 2021
|
|
$
|
749,084
|
|
|
$
|
21,717
|
|
|
$
|
—
|
|
|
$
|
6,640
|
|
|
$
|
777,441
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
Customer
Relationships
|
|
Software
|
|
Content
|
|
Other
|
|
Total
|
Gross cost
|
|
$
|
1,154,210
|
|
|
$
|
110,597
|
|
|
$
|
3,965
|
|
|
$
|
10,614
|
|
|
$
|
1,279,386
|
|
Accumulated amortization (1)
|
|
(381,776)
|
|
|
(83,320)
|
|
|
(3,595)
|
|
|
(3,697)
|
|
|
(472,388)
|
|
Balance at December 31, 2020
|
|
$
|
772,434
|
|
|
$
|
27,277
|
|
|
$
|
370
|
|
|
$
|
6,917
|
|
|
$
|
806,998
|
|
(1) Finite-lived intangible assets are amortized using the straight-line method over the following periods: Customer relationships—6 to 13 years; Software—3 to 7 years; Content—2 to 3 years; and Other—2 to 11 years.
Amortization expense related to finite-lived intangible assets was $30.5 million and $32.2 million during the three months ended March 31, 2021 and 2020, respectively. The estimated future amortization expense by year for finite-lived intangible assets is presented in the table below (in thousands).
|
|
|
|
|
|
2021 (remaining nine months)
|
$
|
75,546
|
|
2022
|
96,169
|
|
2023
|
96,154
|
|
2024
|
90,819
|
|
2025
|
82,150
|
|
Thereafter
|
336,603
|
|
|
$
|
777,441
|
|
Note 7 — Debt
The Company’s total outstanding borrowings are summarized in the table below (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
Description
|
|
2021
|
|
2020
|
2020 Credit Agreement - Term loan facility (1)
|
|
$
|
390,000
|
|
|
$
|
395,000
|
|
2020 Credit Agreement - Revolving credit facility (1), (2)
|
|
—
|
|
|
5,000
|
|
2028 Notes (3)
|
|
800,000
|
|
|
800,000
|
|
2030 Notes (4)
|
|
800,000
|
|
|
800,000
|
|
Other (5)
|
|
5,919
|
|
|
6,046
|
|
Principal amount outstanding (6)
|
|
1,995,919
|
|
|
2,006,046
|
|
Less: deferred financing fees (7)
|
|
(26,322)
|
|
|
(27,245)
|
|
Net balance sheet carrying amount
|
|
$
|
1,969,597
|
|
|
$
|
1,978,801
|
|
(1)The contractual annualized interest rate as of March 31, 2021 on the 2020 Credit Agreement Term loan facility and the revolving credit facility was 1.50%, which consisted of a floating Eurodollar base rate of 0.125% plus a margin of 1.375%. However, the Company has interest rate swap contracts that effectively convert the floating Eurodollar base rates on outstanding amounts to a fixed base rate.
(2)The Company had approximately $1.0 billion of available borrowing capacity on the 2020 Credit Agreement revolver (not including the expansion feature) as of March 31, 2021.
(3)Consists of $800.0 million principal amount of 2028 Notes outstanding. The 2028 Notes bear interest at a fixed rate of 4.50% and mature on July 1, 2028.
(4)Consists of $800.0 million principal amount of 2030 Notes outstanding. The 2030 Notes bear interest at a fixed rate of 3.75% and mature on October 1, 2030.
(5)Consists of two State of Connecticut economic development loans. One of the loans originated in 2012, has a 10-year maturity and the outstanding balance of $0.9 million as of March 31, 2021 bears interest at a fixed rate of 3.00%. The second loan, originated in 2019, has a 10-year maturity and bears interest at a fixed rate of 1.75%. Both of these loans may be repaid at any time by the Company without penalty.
(6)The weighted average annual effective rate on the Company’s outstanding debt for the three months ended March 31, 2021, including the effects of its interest rate swaps discussed below, was 5.02%.
(7)Deferred financing fees are being amortized to Interest expense, net over the term of the related debt obligation.
2030 Notes
On September 28, 2020, the Company issued $800.0 million aggregate principal amount of 3.75% Senior Notes due 2030 (the “2030 Notes”). The 2030 Notes were issued pursuant to an indenture, dated as of September 28, 2020 (the “2030 Note Indenture”), among the Company, the guarantors party thereto and U.S. Bank National Association, as trustee.
The 2030 Notes were issued at an issue price of 100.0% and bear interest at a rate of 3.75% per annum. Interest on the 2030 Notes is payable on April 1 and October 1 of each year, beginning on April 1, 2021. The 2030 Notes will mature on October 1, 2030.
The Company may redeem some or all of the 2030 Notes at any time on or after October 1, 2025 for cash at the redemption prices set forth in the 2030 Note Indenture, plus accrued and unpaid interest to, but excluding, the redemption date. Prior to October 1, 2025, the Company may redeem up to 40% of the aggregate principal amount of the 2030 Notes in connection with certain equity offerings, or some or all of the 2030 Notes with a “make-whole” premium, in each case subject to the terms set forth in the 2030 Indenture.
2028 Notes
On June 22, 2020, the Company issued $800.0 million aggregate principal amount of 4.50% Senior Notes due 2028 (the “2028 Notes”). The 2028 Notes were issued pursuant to an indenture, dated as of June 22, 2020 (the “2028 Note Indenture”), among the Company, the guarantors party thereto and U.S. Bank National Association, as trustee.
The 2028 Notes were issued at an issue price of 100.0% and bear interest at a rate of 4.50% per annum. Interest on the 2028 Notes is payable on January 1 and July 1 of each year, beginning on January 1, 2021. The Notes will mature on July 1, 2028.
The Company may redeem some or all of the 2028 Notes at any time on or after July 1, 2023 for cash at the redemption prices set forth in the 2028 Note Indenture, plus accrued and unpaid interest to, but excluding, the redemption date. Prior to July 1, 2023, the Company may redeem up to 40% of the aggregate principal amount of the 2028 Notes in connection with certain equity offerings, or some or all of the 2028 Notes with a “make-whole” premium, in each case subject to the terms set forth in the 2028 Indenture.
2020 Credit Agreement
On September 28, 2020, the Company entered into an agreement among the Company, as borrower, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent (the “Administrative Agent,” and such agreement, the “2020 Credit Agreement”), which amended and restated the Company’s existing credit facility, dated as of June 17, 2016 (as amended, supplemented or otherwise modified from time to time, the “2016 Credit Agreement”).
The 2020 Credit Agreement provides for a $400.0 million senior secured five-year term loan facility and a $1.0 billion senior secured five-year revolving facility. The term and revolving facilities may be increased, at the Company’s option and under certain conditions, by up to an additional $1.0 billion in the aggregate plus additional amounts subject to the satisfaction of certain conditions, including a maximum secured leverage ratio. The term loan will be repaid in consecutive quarterly installments commencing December 31, 2020, plus a final payment due on September 28, 2025, and may be prepaid at any time without penalty or premium (other than applicable breakage costs) at the option of the Company. The revolving credit facility may be used for loans, and up to $75.0 million may be used for letters of credit. The revolving loans may be borrowed, repaid and re-borrowed until September 28, 2025, at which time all amounts borrowed must be repaid.
On September 28, 2020, the Company drew down $400.0 million in term loans. The initial drawdown was used to refinance the outstanding amounts under the 2016 Credit Agreement. Additional amounts drawn down under the 2020 Credit Agreement will be used for general corporate purposes, including the funding of acquisitions, payment of capital expenditures and the repurchase of shares.
The Company’s obligations under the 2020 Credit Agreement are guaranteed, on a secured basis, by certain existing and future direct and indirect U.S. subsidiaries. The Company’s obligations under the 2020 Credit Agreement and the guarantees of the subsidiary guarantors are secured by first priority security interests in substantially all of the assets of the Company and the subsidiary guarantors. The security and pledges are subject to certain exceptions.
Loans under the 2020 Credit Agreement bear interest at a rate equal to, at the Company’s option, either (i) the greatest of: (x) the Wall Street Journal prime rate; (y) the average rate on Federal Reserve Board of New York rate plus 1/2 of 1%; and (z) and the adjusted LIBO rate (adjusted for statutory reserves) for a one-month interest period plus 1%, in each case plus a margin equal to between 0.125% and 1.25% depending on the Company’s consolidated leverage ratio as of the end of the four consecutive fiscal quarters most recently ended, or (ii) the adjusted LIBO rate (adjusted for statutory reserves) plus a margin equal to between 1.125% and 2.25%, depending on the Company’s leverage ratio as of the end of the four consecutive fiscal quarters most recently ended. The commitment fee payable on the unused portion of the revolving credit facility is equal to between 0.175% and 0.40% based on utilization of the revolving credit facility. The Company has also agreed to pay customary letter of credit fees.
Interest Rate Swaps
As of March 31, 2021, the Company had four fixed-for-floating interest rate swap contracts with a total notional value of $1.4 billion that mature through 2025. The Company pays base fixed rates on these swaps ranging from 2.13% to 3.04% and in return receives a floating Eurodollar base rate on 30-day notional borrowings.
As a result of the payment under the then outstanding 2016 Credit Agreement term loan and revolving credit facility, the Company de-designated all of its interest rate swaps effective June 30, 2020. Accordingly, hedge accounting is not applicable, and subsequent changes to the fair value of the interest rate swaps are recorded in Other income (expense), net. The amounts previously recorded in Accumulated other comprehensive loss are amortized into Interest expense, net over the terms of the hedged forecasted interest payments. As of March 31, 2021, $97.0 million is remaining in Accumulated other comprehensive loss, net. The interest rate swaps had negative unrealized fair values (liabilities) of $84.8 million and $109.2 million as of March 31, 2021 and December 31, 2020, respectively, of which $72.8 million and $78.1 million were recorded in Accumulated other comprehensive loss, net of tax effect, as of March 31, 2021 and December 31, 2020, respectively. See Note 11 — Fair Value Disclosures for the determination of the fair values of Company’s interest rate swaps.
Note 8 — Equity
Share Repurchase Authorization
In 2015, the Company’s Board of Directors (the “Board”) authorized a share repurchase program to repurchase up to $1.2 billion of the Company’s common stock. On February 4, 2021, the Board authorized incremental share repurchases of up to an additional $300 million of the Company’s common stock. $0.5 billion remained available under the share repurchase program as of March 31, 2021. The Company may repurchase its common stock from time-to-time in amounts, at prices and in the manner that the Company deems appropriate, 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 be made through open market purchases (which may include repurchase plans designed to comply with Rule 10b5-1 of the Securities Exchange Act of 1934, as amended), accelerated share repurchases, private transactions or other transactions and will be funded by cash on hand and borrowings. Repurchases may also be made from time-to-time in connection with the settlement of the Company’s stock-based compensation awards. See Note 14 — Subsequent Event for a discussion regarding an increase in the Company’s share repurchase authorization.
The Company’s share repurchase activity is presented in the table below for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2021
|
|
2020
|
|
|
|
|
Number of shares repurchased (1)
|
2,274,710
|
|
|
417,707
|
|
|
|
|
|
Cash paid for repurchased shares (in thousands) (2)
|
$
|
398,450
|
|
|
$
|
73,164
|
|
|
|
|
|
(1) The average purchase price for repurchased shares was $180.44 and $151.22 for the three months ended March 31, 2021 and 2020, respectively. The repurchased shares during the three months ended March 31, 2021 and 2020 included purchases for both stock-based compensation awards and open market purchases.
(2) The cash paid for repurchased shares during the three months ended March 31, 2021 included $8.0 million of open market purchases with trade dates in December 2020 that settled in January 2021. There were $20.0 million of open market purchases with trade dates in March 2021 that settled in April 2021. The cash paid for repurchased shares during the three months ended March 31, 2020 included open market purchases with trade dates in December 2019 that settled in January 2020.
Accumulated Other Comprehensive Income (Loss), net (“AOCI/L”)
The tables below provide information about the changes in AOCI/L by component and the related amounts reclassified out of AOCI/L to income during the periods indicated (net of tax, in thousands) (1).
Three Months Ended March 31, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate
Swaps
|
|
Defined
Benefit
Pension Plans
|
|
Foreign
Currency
Translation
Adjustments
|
|
Total
|
Balance – December 31, 2020
|
$
|
(78,104)
|
|
|
$
|
(9,309)
|
|
|
$
|
(11,815)
|
|
|
$
|
(99,228)
|
|
Other comprehensive income (loss) activity during the period:
|
|
|
|
|
|
|
|
Change in AOCI/L before reclassifications to income
|
—
|
|
|
—
|
|
|
677
|
|
|
677
|
|
Reclassifications from AOCI/L to income (2), (3)
|
5,270
|
|
|
103
|
|
|
—
|
|
|
5,373
|
|
Other comprehensive income (loss) for the period
|
5,270
|
|
|
103
|
|
|
677
|
|
|
6,050
|
|
Balance – March 31, 2021
|
$
|
(72,834)
|
|
|
$
|
(9,206)
|
|
|
$
|
(11,138)
|
|
|
$
|
(93,178)
|
|
Three Months Ended March 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate
Swaps
|
|
Defined
Benefit
Pension Plans
|
|
Foreign
Currency
Translation
Adjustments
|
|
Total
|
Balance – December 31, 2019
|
$
|
(47,164)
|
|
|
$
|
(8,584)
|
|
|
$
|
(22,190)
|
|
|
$
|
(77,938)
|
|
Other comprehensive income (loss) activity during the period:
|
|
|
|
|
|
|
|
Change in AOCI/L before reclassifications to income
|
(47,054)
|
|
|
—
|
|
|
(46,381)
|
|
|
(93,435)
|
|
Reclassifications from AOCI/L to income (2), (3)
|
2,322
|
|
|
79
|
|
|
—
|
|
|
2,401
|
|
Other comprehensive income (loss) for the period
|
(44,732)
|
|
|
79
|
|
|
(46,381)
|
|
|
(91,034)
|
|
Balance – March 31, 2020
|
$
|
(91,896)
|
|
|
$
|
(8,505)
|
|
|
$
|
(68,571)
|
|
|
$
|
(168,972)
|
|
(1)Amounts in parentheses represent debits (deferred losses).
(2)$7.0 million and $3.2 million of the reclassifications related to interest rate swaps (cash flow hedges) were recorded in Interest expense, net, for the three months ended March 31, 2021 and 2020, respectively. See Note 7 — Debt and Note 10 — Derivatives and Hedging for information regarding the cash flow hedges.
(3)The reclassifications related to defined benefit pension plans were recorded in Other income (expense), net.
The estimated net amount of the existing losses on the Company’s interest rate swaps that are reported in Accumulated other comprehensive loss, net at March 31, 2021 that is expected to be reclassified into earnings within the next 12 months is $29.2 million.
Note 9 — Income Taxes
The provision for income taxes for the three months ended March 31, 2021 and 2020 was an expense of $50.7 million and $21.8 million, respectively. The effective income tax rate was 23.6% and of 22.5% for the three months ended March 31, 2021 and 2020, respectively. The quarter-over-quarter increase in the effective income tax rate was primarily due to the shifts in estimated geographical mix of earnings as well as the relative impact of tax benefits from stock-based compensation.
The Company had gross unrecognized tax benefits of $125.0 million on March 31, 2021 and $127.1 million on December 31, 2020. It is reasonably possible that gross unrecognized tax benefits will decrease by approximately $8.9 million within the next twelve months due to the anticipated closure of audits and the expiration of certain statutes of limitation.
Note 10 — Derivatives and Hedging
The Company enters into a limited number of derivative contracts to mitigate the cash flow risk associated with changes in interest rates on variable-rate debt and changes in foreign exchange rates on forecasted foreign currency transactions. The Company accounts for its outstanding derivative contracts in accordance with FASB ASC Topic 815, which requires all derivatives, including derivatives designated as accounting hedges, to be recorded on the balance sheet at fair value. The tables below provide information regarding the Company’s outstanding derivative contracts as of the dates indicated (in thousands, except for number of contracts).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
|
|
|
|
|
|
|
|
|
Derivative Contract Type
|
|
Number of
Contracts
|
|
Notional
Amounts
|
|
Fair Value
Asset
(Liability), Net (3)
|
|
Balance
Sheet
Line Item
|
|
Unrealized
Loss Recorded
in AOCI/L, net of tax
|
Interest rate swaps (1)
|
|
4
|
|
|
$
|
1,400,000
|
|
|
$
|
(50,096)
|
|
|
Other liabilities
|
|
$
|
(72,834)
|
|
|
|
|
|
|
|
(34,710)
|
|
|
Accrued liabilities
|
|
|
Foreign currency forwards (2)
|
|
33
|
|
|
196,038
|
|
|
(220)
|
|
|
Accrued liabilities
|
|
—
|
|
Total
|
|
37
|
|
|
$
|
1,596,038
|
|
|
$
|
(85,026)
|
|
|
|
|
$
|
(72,834)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
Derivative Contract Type
|
|
Number of Contracts
|
|
Notional
Amounts
|
|
Fair Value
Asset
(Liability), Net (3)
|
|
Balance
Sheet
Line Item
|
|
Unrealized
Loss Recorded
in AOCI/L, net of tax
|
Interest rate swaps (1)
|
|
4
|
|
|
$
|
1,400,000
|
|
|
$
|
(74,289)
|
|
|
Other liabilities
|
|
$
|
(78,104)
|
|
|
|
|
|
|
|
(34,886)
|
|
|
Accrued liabilities
|
|
|
Foreign currency forwards (2)
|
|
163
|
|
|
430,063
|
|
|
(1,514)
|
|
|
Accrued liabilities
|
|
—
|
|
Total
|
|
167
|
|
|
$
|
1,830,063
|
|
|
$
|
(110,689)
|
|
|
|
|
$
|
(78,104)
|
|
(1)As a result of the payment under the then outstanding 2016 Credit Agreement term loan and revolving credit facility, the Company de-designated all of its interest rate swaps effective June 30, 2020. Accordingly, hedge accounting is not applicable, and subsequent changes to fair value of the interest rate swaps are recorded in Other income (expense), net. The amounts previously recorded in Accumulated other comprehensive loss are amortized into Interest expense, net over the terms of the hedged forecasted interest payments. See Note 7 — Debt provides additional information regarding the Company’s interest rate swap contracts.
(2)The Company has foreign exchange transaction risk because it typically enters into transactions in the normal course of business that are denominated in foreign currencies that differ from the local functional currency. The Company enters into short-term foreign currency forward exchange contracts to mitigate the cash flow risk associated with changes in foreign currency rates on forecasted foreign currency transactions. These contracts are accounted for at fair value with realized and unrealized gains and losses recognized in Other income (expense), net because the Company does not designate these contracts as hedges for accounting purposes. All of the outstanding foreign currency forward exchange contracts at March 31, 2021 matured before April 30, 2021.
(3)See Note 11 — Fair Value Disclosures for the determination of the fair values of these instruments.
At March 31, 2021, all of the Company’s derivative counterparties were 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 table below provides information regarding amounts recognized in the accompanying Condensed Consolidated Statements of Operations for derivative contracts for the periods indicated (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
|
Amount recorded in:
|
|
2021
|
|
2020
|
|
|
|
|
Interest expense, net (1)
|
|
$
|
7,032
|
|
|
$
|
3,192
|
|
|
|
|
|
Other (income) expense, net (2)
|
|
(15,823)
|
|
|
12,599
|
|
|
|
|
|
Total (income) expense, net
|
|
$
|
(8,791)
|
|
|
$
|
15,791
|
|
|
|
|
|
(1)Consists of interest expense from interest rate swap contracts.
(2)Consists of net realized and unrealized gains and losses on foreign currency forward contracts, and gains and losses on de-designated interest rate swaps.
Note 11 — Fair Value Disclosures
The Company’s financial instruments include cash equivalents, fees receivable from customers, accounts payable and accrued liabilities, all of which are normally short-term in nature. The Company believes that the carrying amounts of these financial instruments reasonably approximate their fair values due to their short-term nature. The Company’s financial instruments also include its outstanding variable-rate borrowings under the 2020 Credit Agreement. The Company believes that the carrying amounts of its variable-rate borrowings reasonably approximate their fair values because the rates of interest on those borrowings reflect current market rates of interest for similar instruments with comparable maturities.
The Company enters into a limited number of derivatives transactions but does not enter into repurchase agreements, securities lending transactions or master netting arrangements. Receivables or payables that result from derivatives transactions are recorded gross in the Company’s consolidated balance sheets.
FASB ASC Topic 820 provides a framework for the measurement of fair value and a valuation hierarchy based on the transparency of inputs used in the valuation of assets and liabilities. Classification within the valuation hierarchy is based on the lowest level of input that is significant to the resulting fair value measurement. The valuation hierarchy contains three levels. Level 1 measurements consist of quoted prices in active markets for identical assets or liabilities. Level 2 measurements include significant other observable inputs such as quoted prices for similar assets or liabilities in active markets; identical assets or liabilities in inactive markets; observable inputs such as interest rates and yield curves; and other market-corroborated inputs. Level 3 measurements include significant unobservable inputs such as internally-created valuation models. The Company does not currently utilize Level 3 valuation inputs to remeasure any of its assets or liabilities. However, Level 3 inputs may be used by the Company in its required annual impairment review of goodwill. Information regarding the periodic assessment of the Company’s goodwill is included in Note 6 — Goodwill and Intangible Assets. The Company does not typically transfer assets or liabilities between different levels of the valuation hierarchy.
The table below presents the fair values of certain financial assets and liabilities (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
March 31,
2021
|
|
December 31,
2020
|
Assets:
|
|
|
|
Values based on Level 1 inputs:
|
|
|
|
Deferred compensation plan assets (1)
|
$
|
6,980
|
|
|
$
|
2,589
|
|
Total Level 1 inputs
|
6,980
|
|
|
2,589
|
|
Values based on Level 2 inputs:
|
|
|
|
Deferred compensation plan assets (1)
|
89,059
|
|
|
85,932
|
|
Foreign currency forward contracts (2)
|
41
|
|
|
885
|
|
|
|
|
|
Total Level 2 inputs
|
89,100
|
|
|
86,817
|
|
Total Assets
|
$
|
96,080
|
|
|
$
|
89,406
|
|
Liabilities:
|
|
|
|
Values based on Level 2 inputs:
|
|
|
|
Deferred compensation plan liabilities (1)
|
$
|
99,397
|
|
|
$
|
94,538
|
|
Foreign currency forward contracts (2)
|
261
|
|
|
2,399
|
|
Interest rate swap contracts (3)
|
84,806
|
|
|
109,175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Level 2 inputs
|
184,464
|
|
|
206,112
|
|
Total Liabilities
|
$
|
184,464
|
|
|
$
|
206,112
|
|
(1)The Company has a deferred compensation plan for the benefit of certain highly compensated officers, managers and other key employees. The assets consist of investments in money market funds, mutual funds and company-owned life insurance contracts, which are valued based on Level 1 or Level 2 inputs. The related deferred compensation plan liabilities are recorded at fair value, or the estimated amount needed to settle the liability, which the Company considers to be a Level 2 input.
(2)The Company enters into foreign currency forward exchange contracts to hedge the effects of adverse fluctuations in foreign currency exchange rates (see Note 10 — Derivatives and Hedging). Valuation of these contracts is based on observable foreign currency exchange rates in active markets, which the Company considers to be a Level 2 input.
(3)The Company has interest rate swap contracts that hedge the risk of variability from interest payments on its borrowings (see Note 7 — Debt). The fair values of interest rate swaps are based on mark-to-market valuations prepared by a third-party broker. Those valuations are based on observable interest rates from recently executed market transactions and other observable market data, which the Company considers to be Level 2 inputs. The Company independently corroborates the reasonableness of the valuations prepared by the third-party broker by using an electronic quotation service.
The table below presents the carrying amounts and fair values of financial instruments that are not recorded at fair value in the Company’s Condensed Consolidated Balance Sheets (in thousands). The estimated fair value of the financial instruments was derived from quoted market prices provided by an independent dealer, which the Company considers to be a Level 2 input.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Amount
|
|
Fair Value
|
|
|
March 31,
|
|
December 31,
|
|
March 31,
|
|
December 31,
|
Description
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
2028 Senior Notes
|
|
$
|
791,041
|
|
|
$
|
790,783
|
|
|
$
|
823,208
|
|
|
$
|
846,296
|
|
2030 Senior Notes
|
|
790,888
|
|
|
790,690
|
|
|
792,624
|
|
|
843,800
|
|
Total
|
|
$
|
1,581,929
|
|
|
$
|
1,581,473
|
|
|
$
|
1,615,832
|
|
|
$
|
1,690,096
|
|
|
|
|
|
|
|
|
|
|
Note 12 — Contingencies
Legal Matters. The Company is involved in legal proceedings and litigation arising in the ordinary course of business. A provision is recorded for pending litigation in the Company’s consolidated financial statements when it is determined that an unfavorable outcome is probable and the amount of the loss can be reasonably estimated. The Company believes 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 the its financial position, cash flows or results of operations when resolved in a future period.
Indemnifications. The Company has various agreements that may obligate it 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 the Company customarily agrees to hold the other party harmless against losses arising from a breach of representations related to matters such 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 the Company under these agreements have not been material. As of March 31, 2021, the Company did not have any material payment obligations under any such indemnification agreements.
Note 13 — Leases
The Company’s leasing activities are primarily for facilities under cancelable and non-cancelable lease agreements expiring during 2021 and through 2038. These facilities support our executive and administrative activities, sales, systems support, operations, and other functions. The Company also has leases for office equipment and other assets, which are not significant. Certain of these lease agreements include (i) renewal options to extend the lease term for up to five years and/or (ii) options to terminate the agreement within one year. Additionally, certain of the Company’s lease agreements provide standard recurring escalations of lease payments for, among other things, increases in a lessor’s maintenance costs and taxes. Under some lease agreements, the Company may be entitled to allowances, free rent, lessor-financed tenant improvements and other incentives. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
The Company subleases certain office space that it does not intend to occupy. Such sublease arrangements expire during 2021 and through 2032 and primarily relate to facilities in Arlington, Virginia. Certain of the Company’s sublease agreements: (i) include renewal and termination options; (ii) provide for customary escalations of lease payments in the normal course of business; and (iii) grant the subtenant certain allowances, free rent, Gartner-financed tenant improvements and other incentives.
All of the Company’s leasing and subleasing activity is recognized in Selling, general and administrative expense in the accompanying Condensed Consolidated Statements of Operations. The table below presents the Company’s net lease cost and certain other information related to the Company’s leasing activities as of and for the periods indicated (dollars in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
Description:
|
|
2021
|
|
2020
|
|
|
|
|
Operating lease cost (1)
|
|
$
|
32,865
|
|
|
$
|
37,961
|
|
|
|
|
|
Variable lease cost (2)
|
|
4,302
|
|
|
4,403
|
|
|
|
|
|
Sublease income
|
|
(10,339)
|
|
|
(11,090)
|
|
|
|
|
|
Total lease cost, net (3)
|
|
$
|
26,828
|
|
|
$
|
31,274
|
|
|
|
|
|
Cash paid for amounts included in the measurement of operating lease
liabilities
|
|
$
|
34,927
|
|
|
$
|
34,936
|
|
|
|
|
|
Cash receipts from sublease arrangements
|
|
$
|
10,095
|
|
|
$
|
9,417
|
|
|
|
|
|
Right-of-use assets obtained in exchange for new operating lease
liabilities
|
|
$
|
7,046
|
|
|
$
|
14,919
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)Included in operating lease cost was $10.4 million and $10.6 million for the three months ended March 31, 2021 and 2020, respectively, for costs related to subleasing activities.
(2)These amounts are primarily variable lease and nonlease costs that were not fixed at the lease commencement date or are dependent on something other than an index or a rate.
(3)The Company did not capitalize any operating lease costs during each of the three months ended March 31, 2021 and 2020.
The table below indicates where the discounted operating lease payments from the above table are classified in the accompanying Condensed Consolidated Balance Sheets (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
Description:
|
|
2021
|
|
2020
|
Accounts payable and accrued liabilities
|
|
$
|
85,150
|
|
|
$
|
83,995
|
|
Operating leases - liabilities
|
|
765,125
|
|
|
780,166
|
|
Total operating lease liabilities per the Condensed Consolidated Balance Sheets
|
|
$
|
850,275
|
|
|
$
|
864,161
|
|
Note 14 — Subsequent Event
On April 29, 2021, the Company’s Board of Directors authorized incremental share repurchases of up to an additional $500 million of Gartner’s common stock. This authorization is in addition to the previously authorized repurchases of up to $1.5 billion, which as of the end of April 2021 had approximately $290 million remaining.