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Interest Rate Swap Contracts the Company Has Two Interest Rate Swap Contracts That Hedge the Base Interest Rate Risk on Its Two Term Loans

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Interest Rate Swap Contracts the Company Has Two Interest Rate Swap Contracts That Hedge the Base Interest Rate Risk on Its Two Term Loans $400.0 million. However, the $100.0 million expansion feature may or may not be available to the Company depending upon prevailing credit market conditions. To date the Company has not sought to borrow under the expansion feature. Borrowings under the Credit Agreement carry interest rates that are either prime-based or Libor-based. Interest rates under these borrowings include a base rate plus a margin between 0.00% and 0.75% on Prime-based borrowings and between 0.625% and 1.75% on Libor-based borrowings. Generally, the Company’s borrowings are Libor-based. The revolving loans may be borrowed, repaid and reborrowed until January 31, 2012, at which time all amounts borrowed must be repaid. The revolver borrowing capacity is reduced for both amounts outstanding under the revolver and for letters of credit. The original term loan will be repaid in 18 consecutive quarterly installments which commenced on September 30, 2007, with the final payment due on January 31, 2012, and may be prepaid at any time without penalty or premium at the option of the Company. The 2008 term loan is co-terminus with the original 2007 term loan under the Credit Agreement and will be repaid in 16 consecutive quarterly installments which commenced June 30, 2008, plus a final payment due on January 31, 2012, and may be prepaid at any time without penalty or premium at the option of Gartner. The Credit Agreement contains certain customary restrictive loan covenants, including, among others, financial covenants requiring a maximum leverage ratio, a minimum fixed charge coverage ratio, and a minimum annualized contract value ratio and covenants limiting Gartner’s ability to incur indebtedness, grant liens, make acquisitions, be acquired, dispose of assets, pay dividends, repurchase stock, make capital expenditures, and make investments. The Company was in full compliance with its debt covenants as of December 31, 2008. A failure to comply with these covenants in the future could result in acceleration of all amounts outstanding under the Credit Agreement, which would materially impact our financial condition unless accommodations could be negotiated with our lenders. At December 31, 2008, the Company had $416.3 million in total debt outstanding under the Credit Agreement, which included $157.5 million outstanding under the original term loan, $138.8 million outstanding under the 2008 term loan, and $120.0 million outstanding under the revolver. The Company had approximately $178.3 million of available borrowing capacity under the $300.0 million revolving credit facility (not including the expansion feature) as of December 31, 2008. As of December 31, 2008, the annualized interest rates on the original term loan, 2008 term loan, and revolver were 2.46%, 2.96%, and 1.47%, respectively. The rates on the original term loan and 2008 term loan consisted of a three- month LIBOR base rate plus margins of 1.00% and 1.50%, respectively. The rate on the revolver consisted of a one-month LIBOR base rate plus a margin of 1.00%. For 2008, 2007, and 2006, the Company had $22.4 million, $25.1 million, and $19.1 million, respectively, in interest expense, which includes amounts related to debt outstanding and interest received/paid on the interest rate swaps discussed below. Interest rate swap contracts The Company has two interest rate swap contracts that hedge the base interest rate risk on its two term loans. The effect of the swaps is to convert the floating base rates on the term loans to fixed rates. Under the swap terms, the Company pays a fixed rate and in return receives a three-month LIBOR rate. The three-month LIBOR rate received on the swaps matches the base rate paid on the term loans since the Company optionally selects a three-month LIBOR rate on the term loans. Both of the interest rate swaps are amortizing swaps such that the notional value of the swaps declines over time and constantly matches the outstanding amounts of the term loans. Including the effect of the interest rate swaps, the annualized interest rates on the original term loan and 2008 term loan were 6.06% and 4.42%, respectively, as of December 31, 2008. The Company accounts for the swaps as cash flow hedges in accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS No. 133”). SFAS No. 133 requires all derivatives, whether designated as hedges or not, to be recorded on the balance sheet at fair value. Since the swaps qualify as cash flow hedges under SFAS No. 133, changes in the fair values of the swaps are recorded in Other comprehensive income as 47.
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