<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
[X] THE SECURITIES EXCHANGE ACT OF 1934.
FOR THE QUARTER ENDED MARCH 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934.
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-015144
GARTNER GROUP, INC.
(Exact name of Registrant as specified in its charter)
Delaware 04-3099750
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
P.O. Box 10212 06904-2212
56 Top Gallant Road (Zip Code)
Stamford, CT
(Address of principal executive offices)
Registrant's telephone number, including area code: (203) 964-0096
Indicate by check mark whether the Registrant (1) has filed all reports to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO .
--- ---
The number of shares outstanding of the Registrant's capital stock as of
March 31, 1997 was 92,953,403 shares of Common Stock, Class A and 1,600,000
shares of Common Stock, Class B.
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TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
<TABLE>
<CAPTION>
ITEM 1: FINANCIAL STATEMENTS Page
<S> <C>
Consolidated Balance Sheets at March 31, 1997 and
September 30, 1996 3
Consolidated Statements of Operations for the Three and
Six Months ended March 31, 1997 and 1996 4
Condensed Consolidated Statements of Cash Flows for
the Six Months ended March 31, 1997 and 1996 5
Note to Consolidated Financial Statements 6
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 7
PART II OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K 12
</TABLE>
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PART I FINANCIAL INFORMATION
Item 1 Financial Statements
GARTNER GROUP, INC.
Consolidated Balance Sheets
(In thousands, except share data)
<TABLE>
<CAPTION>
March 31, September 30,
1997 1996
-------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $143,489 $ 96,755
Marketable securities 26,652 30,054
Fees receivable, net 167,238 143,762
Deferred commissions 16,002 17,539
Prepaid expenses and other current assets 25,391 22,040
-------- --------
Total current assets 378,772 310,150
Long-term marketable securities 3,093 3,047
Property and equipment, net 35,973 32,818
Goodwill, net 94,580 93,144
Other assets 11,592 4,949
-------- --------
Total assets $524,010 $444,108
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 73,298 $ 60,527
Commissions payable 10,937 15,148
Accrued bonuses payable 10,014 16,781
Deferred revenues 216,997 198,952
-------- --------
Total current liabilities 311,246 291,408
-------- --------
Deferred revenues 2,115 2,465
Commitments and contingencies
Stockholders' equity:
Preferred stock -- --
Common stock: $.0005 par value 52 52
Additional paid-in capital 158,196 134,711
Cumulative translation adjustment (3,454) (2,965)
Accumulated earnings 69,250 32,008
-------- --------
224,044 163,806
Less: Treasury stock, at cost (13,395) (13,571)
-------- --------
Total stockholders' equity 210,649 150,235
-------- --------
Total liabilities and stockholders' equity $524,010 $444,108
======== ========
</TABLE>
See accompanying notes.
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GARTNER GROUP, INC.
Consolidated Statements of Operations
(In thousands, except per share data)
<TABLE>
<CAPTION>
For the three months ended For the six months ended
March 31, March 31,
1997 1996 1997 1996
-------- ------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Research, advisory and benchmarking services $ 96,048 $75,006 $188,138 $147,013
Other, principally conferences, consulting and training 23,077 15,828 56,354 40,296
-------- ------- -------- --------
Total revenues 119,125 90,834 244,492 187,309
-------- ------- -------- --------
Costs and expenses:
Cost of services and product development 45,282 34,147 95,805 71,226
Selling, general and administrative 40,060 34,070 79,294 69,457
Acquisition-related charges -- -- -- 1,665
Depreciation 2,657 2,012 5,252 4,249
Amortization of intangibles 1,506 883 3,002 1,655
-------- ------- -------- --------
Total costs and expenses 89,505 71,112 183,353 148,252
-------- ------- -------- --------
Operating income 29,620 19,722 61,139 39,057
Interest income, net 1,754 827 3,070 1,629
-------- ------- -------- --------
Income before minority interest and income taxes 31,374 20,549 64,209 40,686
Minority interest -- -- -- (25)
-------- ------- -------- --------
Income before income taxes 31,374 20,549 64,209 40,711
Provision for income taxes 13,174 8,837 26,967 17,506
-------- ------- -------- --------
Net income $ 18,200 $11,712 $ 37,242 $ 23,205
======== ======= ======== ========
Net income per common share $ 0.18 $ 0.12 $ 0.37 $ 0.24
======== ======= ======== ========
Weighted average shares outstanding 101,823 99,294 101,750 98,412
======== ======= ======== ========
</TABLE>
See accompanying notes.
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GARTNER GROUP, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
For the six months ended
March 31,
------------------------
1997 1996
-------- --------
<S> <C> <C>
Operating activities:
Cash provided by operating activities $ 41,214 $ 27,017
-------- --------
Investing activities:
Payment for businesses acquired (excluding cash acquired)
(4,762) (18,292)
Additions of property and equipment, net
(8,452) (5,276)
Marketable securities sold (purchased), net
3,356 (18,501)
Investments in businesses
(6,486) --
Other investing
101 (60)
-------- --------
Cash used for investing activities
(16,243) (42,129)
-------- --------
Financing activities:
Principal payments on long-term debt and capital lease obligations
-- (4,450)
Issuance of common stock and warrants
10,902 6,450
Issuance of treasury stock
176 --
Distributions of capital between Dataquest and its former parent
-- (1,687)
Tax benefits of stock transactions with employees
12,582 13,538
-------- --------
Cash provided by financing activities
23,660 13,851
-------- --------
Net increase (decrease) in cash and cash equivalents
48,631 (1,261)
Effects of foreign exchange rates on cash and cash equivalents
(1,897) (155)
Cash and cash equivalents, beginning of period
96,755 66,581
-------- --------
Cash and cash equivalents, end of period $143,489 $ 65,165
======== ========
</TABLE>
See accompanying notes.
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GARTNER GROUP, INC.
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Interim Consolidated Financial Statements
These interim consolidated financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and should be read in conjunction with
the consolidated financial statements and related notes of Gartner Group, Inc.
(the "Company") on Form 10-K for the fiscal year ended September 30, 1996. In
the opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation of financial position,
results of operations and cash flows at the dates and for the periods presented
have been included. The results of operations for the three and six month
periods ended March 31, 1997 may not be indicative of the results of operations
for the remainder of fiscal 1997.
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ITEM 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations
The discussion and analysis below contains trend analysis and other
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. Actual results could differ materially from those projected in the
forward-looking statements as a result of the risk factors set forth below under
"Quarterly Operating Income Trends," "Other Factors that May Affect Future
Performance" and elsewhere in this report.
RESULTS OF OPERATIONS
The following table sets forth certain results of operations as a percentage of
total revenues:
<TABLE>
<CAPTION>
For the three months ended For the six months ended
March 31, March 31,
-------------------------- ------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Research, advisory and benchmarking services 80.6% 82.6% 77.0% 78.5%
Other, principally conferences, consulting and training 19.4 17.4 23.0 21.5
----- ----- ----- -----
Total revenues 100.0 100.0 100.0 100.0
----- ----- ----- -----
Costs and expenses:
Cost of services and product development 38.0 37.6 39.2 38.0
Selling, general and administrative 33.6 37.5 32.4 37.1
Acquisition-related charges -- -- -- 0.9
Depreciation 2.2 2.2 2.2 2.3
Amortization of intangibles 1.3 1.0 1.2 0.9
----- ----- ----- -----
Total costs and expenses 75.1 78.3 75.0 79.2
----- ----- ----- -----
Operating income 24.9 21.7 25.0 20.8
Interest income, net 1.5 0.9 1.2 0.9
----- ----- ----- -----
Income before minority interest and income taxes 26.4 22.6 26.2 21.7
Minority interest -- -- -- --
----- ----- ----- -----
Income before income taxes 26.4 22.6 26.2 21.7
Provision for income taxes 11.1 9.7 11.0 9.3
----- ----- ----- -----
Net income 15.3% 12.9% 15.2% 12.4%
===== ===== ===== =====
</TABLE>
TOTAL REVENUES increased 31% to $119.1 million for the second quarter of fiscal
1997 from $90.8 million for the second quarter of fiscal 1996. For the six
months ended March 31, 1997, total revenues were $244.5 million, up 31% from
$187.3 million for the same period last fiscal year. Revenues from research,
advisory and benchmarking services ("RABS") increased by 28% to $96.0 million
from $75.0 million for the second quarter of fiscal 1996. RABS revenues
increased 28% to $188.1 million for the six months ended March 31, 1997,
compared with $147.0 million for the same period last fiscal year. RABS
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encompass products which, on an ongoing basis, highlight industry developments,
review new products and technologies, provide quantitative market research,
analyze industry trends within a particular technology or market sector and
provide comparative analysis of the information technology operations of
organizations. The Company enters into annually renewable contracts for RABS.
Revenues from RABS are recognized as products and services are delivered, and as
the Company's obligation to the client is completed over the contract period.
The increase in revenues from RABS reflects primarily strong market acceptance
of new services introduced in fiscal 1996 and the first half of fiscal 1997,
volume increases as a result of increased geographic and client penetration,
expansion of electronic distribution within client companies, which was offset
partially by a volume pricing strategy that provides more value for the same
dollars each year.
Contract value increased 27% to $403.0 million at March 31, 1997 versus $316.9
million at March 31, 1996. The Company believes that contract value, which is
calculated as the annualized value of all RABS contracts in effect at a given
point in time, without regard to the duration of the RABS contracts outstanding
at such time, is a significant measure of the Company's volume of RABS business.
Historically, the Company has experienced that a substantial portion of client
companies renew contracts for an equal or higher level of total payments each
year, and annual RABS revenues in any fiscal year have approximated contract
value at the beginning of the fiscal year. As of March 31, 1997, 84% of the
Company's clients had renewed one or more RABS services in the last twelve
months. However, this renewal rate is not necessarily indicative of the rate of
retention of the Company's RABS revenue base, and contract value at any time may
not be indicative of future RABS revenues or cash flows if the rate of renewal
of contracts, or the timing of new business were to significantly change during
the following twelve months compared to historic patterns. Total deferred
revenues of $219.1 million and $201.4 million at March 31, 1997 and September
30, 1996, respectively, as presented in the Company's consolidated balance
sheets, represent unamortized revenues from RABS contracts plus unamortized
revenues of certain other products and services not included in RABS. Deferred
revenues do not directly correlate to contract value as of the same date, since
contract value represents an annualized value of all outstanding RABS contracts
without regard to the duration of such contracts, and deferred revenue
represents unamortized revenue remaining on all outstanding contracts including
RABS and certain other products and services not included in RABS.
Other revenues for the second quarter of fiscal 1997 increased 46% to $23.1
million compared to $15.8 million for the second quarter of fiscal 1996. For the
six months ended March 31, 1997, other revenues were $56.4 million, up 40% from
$40.3 million for the same period last fiscal year. Other revenues consist
principally of revenues from conferences, consulting engagements and
technology-based training products and publications. The increase of $7.3
million in the second quarter of fiscal 1997 over the second quarter of fiscal
1996 was primarily due to increased revenues from the Company's consulting and
technology-based training businesses. Year to date, the increase in other
revenues over the prior fiscal year is attributable to increased revenues from
the Company's Symposia conferences and ITxpo exhibition events held annually
during the first quarter of the fiscal year, and to increased revenues in the
consulting and technology-based training businesses.
OPERATING INCOME rose 50% to $29.6 million, or 24.9% of total revenues, for the
second quarter of fiscal 1997, from $19.7 million or 21.7% of total revenues in
the second quarter of fiscal 1996. Operating income was $61.1 million for the
six months ended March 31, 1997, an increase of 57% over the $39.1 million for
the same period in fiscal 1996. Excluding acquisition-related charges of $1.7
million in the first quarter of fiscal 1996, operating income for the six months
ended March 31, 1997 increased 50%. Operating income has increased as a result
of solid revenue growth coupled with controlled spending allowed the Company to
gain economies of scale through the leveraging of its resources (additional
revenues have been generated using essentially the same resources). The
Company's continued focus on margin improvement has favorably impacted operating
results.
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While costs and expenses increased to $89.5 million in the second quarter of
fiscal 1997 from $71.1 million in the second quarter of fiscal 1996, such costs
decreased to 75.1% of total revenues from 78.3% in the first quarter of fiscal
1996. Year to date total costs and expenses were $183.4 million, or 75.0% of
total revenues, compared to $148.3 million or 79.2% of total revenues (78.3%
excluding acquisition-related costs) for the same period last fiscal year. Cost
of services and product development expenses were $45.3 million and $34.1
million for the second quarter of fiscal 1997 and 1996, respectively, and $95.8
million and $71.2 million for the six months ended March 31, 1997 and 1996,
respectively. This increase over the prior fiscal year reflected primarily the
need to provide additional support to the growing client base, including
investment in strategic areas such as electronic and Internet distribution,
costs resulting from the Company's new client inquiry process (QuickPath) and
product development costs (particularly for technology-based training products).
As a result, cost of services and product development expenses, as a percentage
of total revenues increased slightly from 37.6% for the second quarter of fiscal
1996 to 38.0% for the second quarter of fiscal 1997. Selling, general and
administrative expenses, which were $40.1 million and $34.1 million for the
second quarter of fiscal 1997 and 1996, respectively, and $79.3 million and
$69.5 million for the six months ended March 31, 1997 and 1996, respectively,
increased as a result of the Company's continuing expansion of worldwide
distribution channels and resulting commissions earned on the revenue generated.
The increase in commission expense was offset partially by the elimination
and/or reduction of redundant general and administrative expenses, including
personnel reductions and facility rationalization relating to the acquisition of
Dataquest in December 1995, which had a favorable impact on general and
administrative expenses. The Company has benefited from economies of scale and
leveraging of its general and administrative staff and facilities expenses by
controlling the additional resources required to support the growing revenue
base. Consequently, selling, general and administrative expenses have decreased
to 33.6% of total revenues for the second quarter of fiscal 1997, versus 37.5%
of total revenues for the second quarter of fiscal 1996. For the six months
ended March 31, 1997, selling, general and administrative expenses are 32.4% of
total revenues compared to 37.1% of total revenues for the same period last
fiscal year.
Acquisition-related charges of $1.7 million in the first quarter of fiscal 1996
for the acquisition of Dataquest were not recurring in fiscal 1997.
Additionally, amortization of intangibles increased by $0.6 million in the
second quarter and $1.3 million year to date in fiscal 1997 as compared to the
same periods in fiscal 1996, reflecting primarily goodwill associated with
fiscal 1996 acquisitions.
INTEREST INCOME, NET was $1.8 million for the second quarter of fiscal 1997, up
from $0.8 million from the second quarter of fiscal 1996. For the six months
ended March 31, 1997 and 1996, interest income, net was $3.1 million and $1.6
million, respectively. These net increases resulted from interest income
accumulating on the Company's cash, cash equivalents and marketable securities
($173.2 million at March 31, 1997, versus $112.5 million at March 31, 1996 and
$129.9 million at September 30, 1996) and from reduced interest expense after
remaining debt related to fiscal 1993 and 1994 acquisitions was paid during
fiscal 1996. Interest rates were not a significant factor in the increase in
interest income earned in the second quarter or first six months of fiscal 1997
versus the same periods of fiscal 1996.
PROVISION FOR INCOME TAXES increased to $13.2 million in the second quarter of
fiscal 1997, compared to $8.8 million for the second quarter fiscal 1996. The
effective tax rate for the second quarter and year to date fiscal 1997 was 42%,
a decrease from 43% for the same periods last fiscal year. The decrease in the
effective tax rate is due on-going tax planning initiatives.
NET INCOME PER COMMON SHARE increased 50% to 18 cents per common share for the
second quarter of fiscal 1997, compared to 12 cents for the second quarter of
fiscal 1996. For the six months ended March 31, 1997 and 1996, net income per
common share was 37 cents and 24 cents, respectively, a 54% increase year over
year.
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QUARTERLY OPERATING INCOME TRENDS. Historically, the Company has realized
significant renewals and growth in contract value at the end of quarters. The
fourth quarter of the fiscal year typically is the fastest growth quarter for
contract value and the first quarter of the fiscal year typically represents the
slowest growth quarter as it is the quarter in which the largest amount of
contact renewals are due. As a result of the quarterly trends in contract value
and overall business volume, fees receivable, deferred revenues, deferred
commissions and commissions payable reflect this activity and typically show
substantial increases at quarter end, particularly at fiscal year end. All
contracts are billable upon signing, absent special terms granted on a limited
basis from time to time. All contracts are non-cancellable and non-refundable,
except for government contracts which have a 30-day cancellation clause, but
which have not produced material cancellations to date. The Company's policy is
to record at the time of signing of a RABS contract the entire amount of the
contract billable as deferred revenue and fees receivable. The Company also
records the related commission obligation upon the signing of the contract and
amortizes the corresponding deferred commission expense over the contract period
in which the related RABS revenues are earned and amortized to income.
Historically, RABS revenues have increased significantly in the first quarter of
the ensuing fiscal year over the immediately preceding quarter and other
revenues have increased similarly due to annual conferences and exhibition
events held in the first quarter. Additionally, operating income margin
(operating income as a percentage of total revenues) typically improves in the
first quarter of the fiscal year versus the immediately preceding quarter. The
operating income margin improvement in the first quarter of the fiscal year is
due to the increase in RABS revenue upon which the Company is able to further
leverage its selling, general and administrative expenses, plus operating income
generated on the first quarter Symposia and ITxpo exhibition events. While
favorable versus the prior fiscal year, operating income margin generally is not
as high in the second, third and fourth quarters of the fiscal year compared to
the first quarter of the fiscal year as the operating income margins on the
ITxpo conferences in the first fiscal quarter are higher than on conferences
held later in the fiscal year. Additionally, the Company historically does not
increase its level of spending until after the first quarter of the fiscal year,
when the rate of growth in contract value becomes known. As a result, growth in
operating expenses has typically lagged behind growth in revenues within a given
year, and operating income margin has generally been higher in the earlier
quarters of the fiscal year.
OTHER FACTORS THAT MAY AFFECT FUTURE PERFORMANCE. The Company's future operating
results will depend upon the Company's ability to continue to compete
successfully in the market for information products and services. The Company
faces competition from a significant number of independent providers of similar
services, as well as the internal marketing and planning organizations of the
Company's clients. The Company also competes indirectly against other
information providers, including electronic and print media companies and
consulting firms. In addition, there are limited barriers to entry into the
Company's market and additional new competitors could readily emerge. There can
be no assurance that the Company will be able to continue to provide the
products and services that meet client needs as the Information Technology
("IT") market rapidly evolves, or that the Company can otherwise continue to
compete successfully. In this regard, the Company's ability to compete is
largely dependent upon the quality of its staff of IT analysts. Competition for
qualified analysts is intense. There can be no assurance that the Company will
be able to hire additional qualified IT analysts as may be required to support
the evolving needs of customers or any growth in the Company's business. Any
failure to maintain a premier staff of IT analysts could adversely affect the
quality of the Company's products and services, and therefore its future
business and operating results. Additionally, there may be increased business
risk as the Company expands product and service offerings to smaller domestic
companies. The Company's operating results are also subject to risks inherent in
international sales, including changes in market demand as a result of exchange
rate fluctuations, tariffs and other barriers, challenges in staffing
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and managing foreign sales operations, and higher levels of taxation on foreign
income than domestic income. Further expansion would require additional
management attention and financial resources.
The Company has expanded its presence in the technology-based training industry
with the acquisition of J3 Learning Corporation in July 1996. The success of the
Company in the technology-based training industry will depend on its ability to
compete with vendors of IT products and services which include a range of
education and training specialists, hardware and system manufacturers, software
vendors, system integrators, dealers, value-added resellers and
network/communications vendors, certain of whom have significantly greater
product breadth and market presence in the technology-based training sector.
There can be no assurance that the Company will be able to provide products that
compare favorably with new competitive products or that competitive pressures
will not require the Company to reduce prices. Future success will also depend
on the Company's ability to develop new training products that are released
timely with the introductions of the underlying software products.
LIQUIDITY AND CAPITAL RESOURCES
The Company has primarily financed its operations to date through cash provided
by operating activities. The combination of revenue growth and operating income
margin improvements have contributed to positive cash provided by operating
activities for the six months ended March 31, 1997. In addition, cash flow has
been enhanced by the Company's continuing management of working capital
requirements to support increased sales volumes from growth in the pre-existing
businesses and growth due to acquisitions.
The Company's cash and cash equivalents balance at March 31, 1997 and September
30, 1996 was $143.5 million and $96.8 million, respectively, while the
marketable securities balance (including both current and long-term maturities)
decreased to $29.7 million at March 31, 1997 from $33.1 million at September 30,
1996. Cash provided by operating activities totaled $41.2 million for the first
six months of fiscal 1997 (compared with $27.0 million for the first six months
of fiscal 1996) reflecting primarily the impact of quarterly operating trends on
the balance sheet accounts, particularly fees receivable, deferred revenues,
deferred commissions, commissions payable and bonuses payable. Cash used for
investing activities was $16.2 million for the first six months of fiscal 1997
(compared to $42.1 million of cash used for the first six months of fiscal 1996)
and consisted primarily of the addition of property and equipment for $8.5
million, acquisition of businesses of $4.8 million and investments in other
companies of approximately $6.5 million, offset partially by cash provided by
net proceeds on the sale of marketable securities of $3.4 million. Cash provided
by financing activities totaled $23.7 million for the six months ended March 31,
1997 (compared to $13.9 million of cash provided for the six months ended March
31, 1996) and resulted primarily from $12.6 million in tax benefits of stock
transactions with employees and $10.9 million from the issuance of common stock
upon the exercise of employee stock options. The tax benefit of stock
transactions with employees is due to a reduction in the corporate income tax
liability based on an imputed compensation deduction equal to employees' gain
upon the exercise of stock options at an exercise price below fair market value.
The effect of exchange rates on cash and cash equivalents was a reduction of
$1.9 million for the six months ended March 31, 1997, and was due to a
strengthening of the U.S. dollar versus certain currencies during the second
quarter of the fiscal year. Last fiscal year, the foreign denominated cash
balances were significantly less and the exchange rate fluctuations were not as
significant as in the current fiscal year, thereby resulting in a reduction of
$0.2 million.
The Company has available two unsecured credit lines with The Bank of New York
and Chase Manhattan Bank for $5.0 million and $25.0 million, respectively. These
lines may be cancelled by the banks at any time without prior notice or penalty.
Additionally, the Company issues letters of credit in the ordinary course of
business. The Company had outstanding letters of credit with Chase Manhattan
Bank of $5.5 million and $2.0 million with The Bank of New York at March 31,
1997. The Company currently has no
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material capital commitments. The Company believes that its current cash
balances and marketable securities, together with cash anticipated to be
provided by operating activities and borrowings available under the existing
lines of credit, will be sufficient for the expected short-term and foreseeable
long-term cash needs of the Company, including possible acquisitions.
RECENTLY ISSUED ACCOUNTING STANDARD
In February 1997, Statement of Financial Accounting Standard No. 128, "Earnings
per Share" was issued. The statement sets forth guidance on the presentation of
earnings per share and requires dual presentation of basic and diluted earnings
per share on the face of the income statement. Basic earnings per share is
computed by dividing net income available to common stockholders by the weighted
average number of common shares outstanding for the period. Diluted earnings per
share reflects the potential dilution that could occur if all common stock
equivalents were exercised (similar to fully diluted earnings per share under
APB Opinion No. 15). If the new standard was in effect during fiscal 1997, basic
net income per share for the three months and six months ended March 31, 1997
would have been $0.19 and $0.40 per share, respectively. Diluted income per
share would have resulted in the identical income per share currently reported
by the Company, $0.18 and $0.37 per share for the three months and six months
ended March 31, 1997, respectively. The Company is required to adopt the new
standard in the first quarter of fiscal 1998.
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit Number Description of Document
11.1 Computation of Net Income per Common Share
27.1 Financial Data Schedule
(b) No reports on Form 8-K were filed by the Registrant during the six months
ended March 31, 1997.
Items 1, 2, 3, 4 and 5 are not applicable and have been omitted.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Gartner Group, Inc.
Date May 12, 1997 /s/ John F. Halligan
----------------------------
John F. Halligan
Executive Vice President
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
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Exhibit 11.1
Gartner Group, Inc.
Computation of Income per Common Share
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
For the three months ended, For the six months ended,
March 31, March 31,
--------------------------- -------------------------
1997 1996 1997 1996
-------- -------- -------- -------
<S> <C> <C> <C> <C>
Net income $ 18,200 $ 11,712 $ 37,242 $23,205
======== ======== ======== =======
Shares:
Weighted average number of common shares outstanding 94,260 90,204 93,793 89,530
Weighted average number of common shares under warrant outstanding
144 276 144 276
Weighted average number of option shares outstanding 7,419 8,814 7,813 8,606
-------- -------- -------- -------
Weighted average number of common shares outstanding as adjusted 101,823 99,294 101,750 98,412
======== ======== ======== =======
Net income per common share (1) $ 0.18 $ 0.12 $ 0.37 $ 0.24
======== ======== ======== =======
</TABLE>
(1) Fully diluted income per common share has not been presented because the
effects are not material.
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ACCOMPANYING FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 143,489
<SECURITIES> 26,652
<RECEIVABLES> 171,923
<ALLOWANCES> 4,685
<INVENTORY> 0
<CURRENT-ASSETS> 378,772
<PP&E> 76,095
<DEPRECIATION> 40,122
<TOTAL-ASSETS> 524,010
<CURRENT-LIABILITIES> 311,246
<BONDS> 0
0
0
<COMMON> 52
<OTHER-SE> 210,597
<TOTAL-LIABILITY-AND-EQUITY> 524,010
<SALES> 244,492
<TOTAL-REVENUES> 244,492
<CGS> 95,805
<TOTAL-COSTS> 95,805
<OTHER-EXPENSES> 87,548
<LOSS-PROVISION> 1,609
<INTEREST-EXPENSE> 37
<INCOME-PRETAX> 64,209
<INCOME-TAX> 26,967
<INCOME-CONTINUING> 37,242
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 37,242
<EPS-PRIMARY> 0.37
<EPS-DILUTED> 0.37
</TABLE>
