Business and Basis of Presentation

Business. Gartner, Inc. is a global information technology research and advisory company founded in 1979 with its headquarters in Stamford, Connecticut. Gartner delivers its products and services globally through three business segments: Research, Consulting, and Events. When used in these notes, the terms “Gartner,” “Company,” “we,” “us,” or “our” refer to Gartner, Inc. and its consolidated subsidiaries.

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 the Financial Accounting Standards Board (FASB) Accounting Standards Codification (“ASC”) Topic 270 for interim financial information and with the applicable instructions of the U.S. Securities & 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 filed in its Annual Report on Form 10-K for the year ended December 31, 2013.

The fiscal year of Gartner represents the twelve-month calendar 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 and six months ended June 30, 2014 may not be indicative of the results of operations for the remainder of 2014.

Principles of consolidation. The accompanying interim condensed consolidated financial statements include the accounts of the Company and its wholly- and majority-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, performance-based compensation expenses, depreciation and amortization, and the allowance for losses. 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 our estimates and actual results could be material and would be reflected in the Company’s consolidated financial statements in future periods.

Adoption of new accounting rules. The Company adopted two new accounting rules issued by the FASB effective January 1, 2014, as follows:

The Company adopted ASU No. 2013-11, "Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists" ("ASU No. 2013-11"). ASU No. 2013-11 addresses the balance sheet presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. ASU No. 2013-11 requires that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. The balance sheet impact from the adoption of ASU No. 2013-11 was not material to the Company.

The Company adopted ASU No. 2013-05, Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity ("ASU No. 2013-05"). ASU No. 2013-05 provides updated guidance to resolve diversity in practice concerning the release of the cumulative foreign currency translation adjustment into net income when a parent sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets within a foreign entity. When a company ceases to have a controlling financial interest, the company should recognize any related cumulative translation adjustment into net income only if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary had resided. Upon a partial sale, the company should release into earnings a pro rata portion of the cumulative translation adjustment. The adoption of ASU No. 2013-05 did not impact the Company's financial statements and will only have an impact upon the occurrence of a transaction within its scope.

Acquisitions. The Company made three acquisitions during the six months ended June 30, 2014, which are discussed below.

In June 2014 the Company acquired SircleIT Inc., a developer of cloud-based knowledge automation software, for $5.7 million in cash for 100% of the outstanding shares. SircleIT Inc. is a U.S. company that conducts its operations principally through Senexx Israel Ltd., its subsidiary in Israel with 2 employees. Gartner paid $4.9 million in cash at close and an additional $0.8 million was placed in escrow as security for certain indemnity claims, which is payable 18 months from the date of close.

In May 2014 the Company acquired 100% of the outstanding shares of Market-Visio Oy ("Market-Visio"), a privately-owned company based in Finland with 68 employees. Market-Visio was previously an independent sales agent of Gartner research products, as well as locally-created research content, in Finland and Russia. Market-Visio conducts its operations in Russia through a separate operating subsidiary. The Company currently expects to pay approximately $6.6 million in cash for Market-Visio, which includes $4.1 million paid at close and an estimated additional payment of $2.5 million for working capital adjustments. The Company expects to finalize the working capital adjustments and make the final payment in cash in the third quarter of 2014.

In March 2014 the Company acquired Software Advice, Inc., (“Software Advice”), a privately-owned company based in Austin, Texas with 120 employees. Software Advice assists customers with software purchases. At closing, the Company paid $103.2 million in cash for 100% of the outstanding shares of Software Advice. The Company is also obligated to pay up to an additional $31.9 million in cash related to the acquisition. This includes $13.5 million placed in escrow as security for potential losses. Release of the escrowed funds is also subject to the achievement of certain employment conditions. The escrow amount is considered restricted cash and is recorded in Other Assets in the Condensed Consolidated Balance Sheets. An additional $18.4 million is also payable contingent on the achievement of certain employment conditions. This amount is also subject to any indemnified losses in excess of the escrowed funds. The $31.9 million is considered compensation expense and will be recorded ratably (adjusted for any indemnified losses) over the required two-year service period of the relevant employees in Acquisition and integration charges in the Condensed Consolidated Statements of Operations. If the employment conditions are not met, any expense previously accrued will be reversed in the period employment terminates.

The Company's financial statements include the operating results of these businesses beginning with the date of acquisition. The operating results of these businesses were not material to the Company's consolidated and segment operating results for the three and six month periods ending June 30, 2014. Had the Company acquired these businesses in prior periods the impact to the Company's operating results for prior periods would not have been material, and as a result pro forma financial information for prior periods has not been presented. The Company recorded $6.6 million and $10.0 million of pre-tax acquisition and integration charges in the three and six months ended June 30, 2014, respectively, which are classified in Acquisition and integration charges in the Condensed Consolidated Statements of Operations. Included in these charges are legal, consulting, retention, severance, and other direct acquisition and integration costs.

The Company accounts for acquisitions in accordance with the acquisition method of accounting as prescribed by FASB ASC Topic 805, Business Combinations. The acquisition method of accounting requires the consideration paid to be allocated to the net assets and liabilities acquired based on their estimated fair values as of the acquisition date, and any excess of the purchase price over the estimated fair value of the net assets acquired, including identifiable intangible assets, must be allocated to goodwill.

The following table summarizes the preliminary allocation of the purchase price to the fair value of the assets acquired and liabilities assumed in these acquisitions (in thousands):



	Software Advice		Other Acquisitions		Total
Assets:
Cash	$	1,450	$	3,202	$	4,652
Fees receivable and other current assets	3,612		3,645		7,257
Property, equipment, and leasehold improvements	235		170		405
Amortizable intangible assets (1), (2)	26,928		5,073		32,001
Goodwill (2)	73,663		5,012		78,675
Total assets	$	105,888	$	17,102	$	122,990

Liabilities:
Accounts payable and accrued liabilities	$	2,663	$	4,746	$	7,409
Total liabilities	$	2,663	$	4,746	$	7,409

Net assets acquired (3)	$	103,225	$	12,356	$	115,581


(1)	See Note 6 - Goodwill and Intangible Assets for additional information regarding the types and amounts of amortizable intangibles recorded from these acquisitions.

(2)

During the three months ended June 30, 2014, the recorded amount of an amortizable intangible asset resulting from the Software Advice acquisition was reduced by approximately $2.7 million and goodwill was increased by the same amount. This measurement period adjustment was based on a change in the underlying assumptions used to value the amortizable intangible asset and was due to the consideration of new information since the Company's filing of its Quarterly Report on Form 10-Q for the three months ended March 31, 2014.


(3)	The Company paid $112.2 million in cash on a gross basis for the net assets acquired through June 30, 2014. On a net basis, and for cash flow reporting, the Company paid $107.5 million through June 30, which represents the $112.2 million in cash paid on a gross basis minus the $4.7 million of cash acquired from the purchased companies.

The Company has also recorded a liability for an additional $3.4 million to be paid for the acquisitions, of which approximately $2.5 million is expected to be paid in the third quarter of 2014.

The determination of the fair value of the amortizable intangibles required management judgment and the consideration of a number of factors, significant among them the historical financial performance of the acquired businesses and projected performance, estimates surrounding customer turnover, as well as assumptions regarding the level of competition and the cost to reproduce certain assets. In determining the fair value of the intangibles, management primarily relied on income methodologies, in particular the discounted cash flow approach. Establishing the useful lives of the amortizable intangibles also required management judgment and the evaluation of a number of factors, among them projected cash flows and the likelihood of competition.

The Company considers the allocation of the purchase price for these three acquisitions to be preliminary with respect to certain tax and other contingencies, as well as the finalization of certain working capital and other adjustments. The majority of the recorded goodwill and intangibles from these transactions will be deductible for tax purposes over 15 years. All of the recorded goodwill from these acquisitions was included in the Company’s Research segment. The Company believes the recorded goodwill is supported by the anticipated revenue synergies, customer retention, and cost savings resulting from the combined operations.