Business and Basis of Presentation

Business. Gartner, Inc. is a global information technology research and advisory company 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, 2014. The fiscal year of Gartner is 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 nine months ended September 30, 2015 may not be indicative of the results of operations for the remainder of 2015.

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, performance-based compensation charges, depreciation and amortization, and the allowance for losses on fees receivable. 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 financial statements in future periods.

Adoption of new accounting standard. On January 1, 2015, the Company adopted FASB Accounting Standards Update No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity ("ASU 2014-08"), which changes the criteria for determining which disposal transactions can be presented as discontinued operations and modifies related disclosure requirements. Under the new guidance, a discontinued operation is defined as a disposal of a component or group of components that is disposed of or is classified as held for sale and represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. The adoption of the rule did not have an impact on the Company's condensed consolidated financial statements contained in this report.

Acquisitions. During the three months ended September 30, 2015, the Company acquired two businesses, Nubera eBusiness S.L., based in Barcelona, Spain ("Nubera"), and Capterra, Inc., based in Arlington, Virginia ("Capterra"). The Company acquired 100% of the outstanding capital stock of these businesses for an aggregate purchase price of $206.2 million in cash. Both the acquired businesses assist organizations in selecting the right business software for their needs.

The following table provides a reconciliation of the aggregate purchase price paid for these acquisitions (in millions):



	Total
Aggregate purchase price (1)	$	206.2
Less: cash acquired (2)	(10.7		)
Net cash paid (3), (4)	$	195.5


(1)	Aggregate cash paid for 100% of the outstanding capital stock of the acquired businesses.


(2)	Represents the amount of cash from the acquired businesses.


(3)	Includes $30.0 million placed in escrow to cover potential indemnification claims. Of this amount, $25.6 million is restricted cash and is reported in Other Assets on the Condensed Consolidated Balance Sheets.


(4)	The Company may also be required to pay up to an additional $32.0 million in cash in the future subject to the continuing employment of certain employees of these businesses. The $32.0 million will be recognized as compensation expense over the next three years and will be reported in Acquisition and Integration Charges in the Condensed Consolidated Statements of Operations.

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 determination of the fair value of intangible and other assets requires 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. Establishing the useful lives of the amortizable intangibles also requires management judgment and the evaluation of a number of factors, among them projected cash flows and the likelihood of competition.

The Company recorded $216.7 million of goodwill and amortizable intangible assets for these acquisitions (see Note 5 — Goodwill and Intangible Assets for additional information) and $23.1 million of other assets and $33.6 million of other liabilities. The Company considers the allocation of the purchase price to be preliminary with respect to the completion of the valuation of identified intangibles, certain tax and other contingencies, and the finalization of working capital adjustments, as well as the allocation of the resulting goodwill among reporting units. The Company believes the recorded goodwill is supported by the anticipated revenue synergies, customer retention, and cost savings resulting from the combined operations.

The operating results of the acquired businesses and the related goodwill are being reported in the Company's Research segment.

The Company's financial statements include the operating results of the acquired businesses beginning from their respective acquisition dates, which were not material to either the Company's consolidated operating results or Research segment results for the three and nine month periods ending September 30, 2015. 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 $6.5 million and $15.3 million of charges related to its acquisitions in the three and nine months ended September 30, 2015, respectively, which are classified in Acquisition and Integration charges in the Condensed Consolidated Statements of Operations. Included in these directly-related and incremental charges are legal, consulting, retention, severance, and accruals for cash payments subject to the continuing employment of certain key employees. During the nine months ended September 30, 2015, the Company paid $9.2 million in cash that was accrued for the achievement of certain employment conditions related to an acquisition completed in 2014.