ITEM 1.
|
FINANCIAL STATEMENTS
|
IGATE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except per share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
Revenues
(1)
|
|
$
|
311,745
|
|
|
$
|
283,268
|
|
|
$
|
613,951
|
|
|
$
|
558,186
|
|
Cost of revenues (exclusive of depreciation and amortization)
|
|
|
197,733
|
|
|
|
175,771
|
|
|
|
386,513
|
|
|
|
346,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
114,012
|
|
|
|
107,497
|
|
|
|
227,438
|
|
|
|
212,176
|
|
Selling, general and administrative expense
|
|
|
47,508
|
|
|
|
49,350
|
|
|
|
90,169
|
|
|
|
92,142
|
|
Depreciation and amortization
|
|
|
8,718
|
|
|
|
8,595
|
|
|
|
18,276
|
|
|
|
17,866
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
57,786
|
|
|
|
49,552
|
|
|
|
118,993
|
|
|
|
102,168
|
|
Interest expense
|
|
|
(12,196
|
)
|
|
|
(24,112
|
)
|
|
|
(35,825
|
)
|
|
|
(46,769
|
)
|
Foreign exchange gain, net
|
|
|
2,717
|
|
|
|
1,983
|
|
|
|
2,921
|
|
|
|
4,464
|
|
Loss on extinguishment of debt
|
|
|
(51,760
|
)
|
|
|
0
|
|
|
|
(51,760
|
)
|
|
|
0
|
|
Other income, net
|
|
|
3,640
|
|
|
|
17,417
|
|
|
|
10,994
|
|
|
|
34,697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
187
|
|
|
|
44,840
|
|
|
|
45,323
|
|
|
|
94,560
|
|
Income tax (benefit) expense
|
|
|
(3,027
|
)
|
|
|
14,867
|
|
|
|
10,398
|
|
|
|
29,827
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
3,214
|
|
|
|
29,973
|
|
|
|
34,925
|
|
|
|
64,733
|
|
Non-controlling interest
|
|
|
98
|
|
|
|
0
|
|
|
|
193
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to IGATE Corporation
|
|
|
3,116
|
|
|
|
29,973
|
|
|
|
34,732
|
|
|
|
64,733
|
|
Accretion to preferred stock
|
|
|
145
|
|
|
|
120
|
|
|
|
284
|
|
|
|
235
|
|
Preferred dividend
|
|
|
8,390
|
|
|
|
7,752
|
|
|
|
16,529
|
|
|
|
15,252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to IGATE common shareholders
|
|
$
|
(5,419
|
)
|
|
$
|
22,101
|
|
|
$
|
17,919
|
|
|
$
|
49,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
$
|
(0.07
|
)
|
|
$
|
0.29
|
|
|
$
|
0.22
|
|
|
$
|
0.65
|
|
Unvested restricted stock
|
|
$
|
0.00
|
|
|
$
|
0.29
|
|
|
$
|
0.00
|
|
|
$
|
0.65
|
|
Series B Preferred Stock
|
|
$
|
0.33
|
|
|
$
|
0.69
|
|
|
$
|
1.00
|
|
|
$
|
1.44
|
|
Diluted earnings per share
|
|
$
|
(0.07
|
)
|
|
$
|
0.28
|
|
|
$
|
0.22
|
|
|
$
|
0.62
|
|
|
|
|
|
|
1. Includes the following related party amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
6,759
|
|
|
$
|
2,083
|
|
|
$
|
13,094
|
|
|
$
|
2,570
|
|
See accompanying notes.
3
IGATE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in thousands)
(Unaudited)
The following table summarizes comprehensive income (loss) for the three and six months ended June 30, 2014 and 2013, net
of tax (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
Net income (loss) attributable to IGATE common shareholders
|
|
$
|
(5,419
|
)
|
|
$
|
22,101
|
|
|
$
|
17,919
|
|
|
$
|
49,246
|
|
Add: Non-controlling interest
|
|
|
98
|
|
|
|
0
|
|
|
|
193
|
|
|
|
0
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of marketable securities, net of tax of $180 and $(1,483) for three months ended June 30, 2014 and 2013 and
$(163) and $(2,975) for six months ended June 30, 2014 and 2013, respectively
|
|
|
296
|
|
|
|
(4,040
|
)
|
|
|
(317
|
)
|
|
|
(6,750
|
)
|
Unrecognized actuarial gain (loss) on pension liability, net of tax of $(170) and $179 for three months ended June 30, 2014 and
2013 and $(8) and $295 for six months ended June 30, 2014 and 2013, respectively
|
|
|
(330
|
)
|
|
|
257
|
|
|
|
(14
|
)
|
|
|
570
|
|
Change in fair value of cash flow hedges net of tax of $(469) and $(2,952) for three months ended June 30, 2014 and 2013 and
$1,786 and $(1,681) for six months ended June 30, 2014 and 2013, respectively
|
|
|
(913
|
)
|
|
|
(6,974
|
)
|
|
|
3,469
|
|
|
|
(3,935
|
)
|
Gain (loss) on foreign currency translation
|
|
|
(2,932
|
)
|
|
|
(89,390
|
)
|
|
|
26,641
|
|
|
|
(72,007
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss)
|
|
|
(9,200
|
)
|
|
|
(78,046
|
)
|
|
|
47,891
|
|
|
|
(32,876
|
)
|
Less: Total comprehensive income attributable to non-controlling interest, net of tax of $5 and $0 for three months ended June 30,
2014 and 2013 and $7 and $0 for six months ended June 30, 2014 and 2013, respectively
|
|
|
71
|
|
|
|
0
|
|
|
|
339
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss) attributable to IGATE common shareholders
|
|
$
|
(9,271
|
)
|
|
$
|
(78,046
|
)
|
|
$
|
47,552
|
|
|
$
|
(32,876
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
4
IGATE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
June 30,
2014
(Unaudited)
|
|
|
December 31,
2013
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
128,507
|
|
|
$
|
204,836
|
|
Restricted cash
|
|
|
0
|
|
|
|
360,000
|
|
Short-term investments
|
|
|
150,864
|
|
|
|
181,401
|
|
Accounts receivable, net of allowances for doubtful accounts of $3,272 and $4,103, as of June 30, 2014 and December 31, 2013,
respectively
|
|
|
169,756
|
|
|
|
157,905
|
|
Unbilled revenues
|
|
|
78,660
|
|
|
|
61,424
|
|
Prepaid expenses and other current assets
|
|
|
39,554
|
|
|
|
44,492
|
|
Prepaid income taxes
|
|
|
20,544
|
|
|
|
838
|
|
Deferred tax assets
|
|
|
1,996
|
|
|
|
10,235
|
|
Foreign exchange derivative contracts
|
|
|
5,756
|
|
|
|
836
|
|
Receivable from related parties
|
|
|
7,331
|
|
|
|
4,046
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
602,968
|
|
|
|
1,026,013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits and other assets
|
|
|
22,480
|
|
|
|
24,930
|
|
Prepaid income taxes
|
|
|
32,552
|
|
|
|
32,160
|
|
Property and equipment, net of accumulated depreciation of $121,965 and $108,084, as of June 30, 2014 and December 31, 2013,
respectively
|
|
|
201,400
|
|
|
|
165,581
|
|
Leasehold land
|
|
|
77,798
|
|
|
|
76,732
|
|
Deferred tax assets
|
|
|
15,562
|
|
|
|
15,153
|
|
Goodwill
|
|
|
450,655
|
|
|
|
438,891
|
|
Intangible assets, net
|
|
|
117,153
|
|
|
|
119,262
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,520,568
|
|
|
$
|
1,898,722
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES, PREFERRED STOCK AND SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
10,276
|
|
|
$
|
9,268
|
|
Line of credit
|
|
|
52,000
|
|
|
|
52,000
|
|
Senior Notes
|
|
|
0
|
|
|
|
360,000
|
|
Term loans
|
|
|
90,000
|
|
|
|
90,000
|
|
Accrued payroll and related costs
|
|
|
48,301
|
|
|
|
57,093
|
|
Other accrued liabilities
|
|
|
76,499
|
|
|
|
79,785
|
|
Accrued income taxes
|
|
|
3,049
|
|
|
|
5,802
|
|
Foreign exchange derivative contracts
|
|
|
583
|
|
|
|
909
|
|
Deferred revenue
|
|
|
19,455
|
|
|
|
17,776
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
300,163
|
|
|
|
672,633
|
|
Other long-term liabilities
|
|
|
5,420
|
|
|
|
3,532
|
|
Senior Notes
|
|
|
325,000
|
|
|
|
410,000
|
|
Term loans
|
|
|
270,000
|
|
|
|
270,000
|
|
Accrued income taxes
|
|
|
20,084
|
|
|
|
13,936
|
|
Deferred tax liabilities
|
|
|
35,199
|
|
|
|
41,717
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
955,866
|
|
|
|
1,411,818
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies (Note 19)
|
|
|
|
|
|
|
|
|
Series B Preferred stock, without par value: 480,000 shares authorized; 330,000 shares issued and outstanding
|
|
|
427,184
|
|
|
|
410,371
|
|
IGATE Corporation shareholders equity:
|
|
|
|
|
|
|
|
|
Preferred shares, without par value: 19,520,000 shares authorized; 1 share held in treasury
|
|
|
0
|
|
|
|
0
|
|
Common shares, par value $0.01 per share:
|
|
|
|
|
|
|
|
|
700,000,000 shares authorized; 59,854,028 and 59,428,151 shares issued; 58,863,926 and 58,438,049 shares outstanding as of
June 30, 2014 and December 31, 2013, respectively
|
|
|
599
|
|
|
|
594
|
|
Common shares held in treasury, at cost, 990,102 shares
|
|
|
(14,714
|
)
|
|
|
(14,714
|
)
|
Additional paid-in capital
|
|
|
217,232
|
|
|
|
204,143
|
|
Retained earnings
|
|
|
286,669
|
|
|
|
268,750
|
|
Accumulated other comprehensive loss
|
|
|
(357,482
|
)
|
|
|
(387,115
|
)
|
|
|
|
|
|
|
|
|
|
Total IGATE Corporation shareholders equity
|
|
|
132,304
|
|
|
|
71,658
|
|
Non-controlling interest
|
|
|
5,214
|
|
|
|
4,875
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
137,518
|
|
|
|
76,533
|
|
|
|
|
|
|
|
|
|
|
Total liabilities, preferred stock and shareholders equity
|
|
$
|
1,520,568
|
|
|
$
|
1,898,722
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
5
IGATE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Six Months ended
June 30,
|
|
|
|
2014
|
|
|
2013
|
|
Cash Flows From Operating Activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
34,925
|
|
|
$
|
64,733
|
|
Adjustments to reconcile net income to cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
18,276
|
|
|
|
17,866
|
|
Stock-based compensation
|
|
|
7,816
|
|
|
|
3,360
|
|
Realized gain on investments
|
|
|
(7,540
|
)
|
|
|
(25,969
|
)
|
Deferred loss on settled derivatives
|
|
|
0
|
|
|
|
(816
|
)
|
Recovery of doubtful debts
|
|
|
(876
|
)
|
|
|
(155
|
)
|
Deferred income taxes
|
|
|
783
|
|
|
|
(168
|
)
|
Loss on extinguishment of debt
|
|
|
51,760
|
|
|
|
0
|
|
Amortization of debt issuance costs
|
|
|
3,544
|
|
|
|
7,442
|
|
Gain on sale of property and equipment
|
|
|
(18
|
)
|
|
|
(2,240
|
)
|
Deferred rent
|
|
|
543
|
|
|
|
23
|
|
Excess tax benefits related to stock option exercises
|
|
|
(2,707
|
)
|
|
|
(387
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivables and unbilled revenue
|
|
|
(29,636
|
)
|
|
|
(11,720
|
)
|
Prepaid expenses and other assets
|
|
|
(5,103
|
)
|
|
|
(9,137
|
)
|
Accounts payable
|
|
|
(545
|
)
|
|
|
16
|
|
Accrued and other liabilities
|
|
|
(29,319
|
)
|
|
|
3,518
|
|
Deferred revenue
|
|
|
1,461
|
|
|
|
(3,602
|
)
|
|
|
|
|
|
|
|
|
|
Net cash flows provided by operating activities
|
|
|
43,364
|
|
|
|
42,764
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities:
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(40,675
|
)
|
|
|
(17,163
|
)
|
Proceeds from sale of property and equipment
|
|
|
173
|
|
|
|
2,536
|
|
Purchase of available-for-sale investments
|
|
|
(332,350
|
)
|
|
|
(1,014,947
|
)
|
Proceeds from maturities and sale of available-for-sale investments
|
|
|
374,404
|
|
|
|
1,254,207
|
|
Restricted cash
|
|
|
0
|
|
|
|
3,072
|
|
Purchase of non-controlling interests
|
|
|
0
|
|
|
|
(23,651
|
)
|
|
|
|
|
|
|
|
|
|
Net cash flows provided by investing activities
|
|
|
1,552
|
|
|
|
204,054
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities:
|
|
|
|
|
|
|
|
|
Payments on capital lease obligations
|
|
|
(236
|
)
|
|
|
(364
|
)
|
Proceeds from line of credit and term loans
|
|
|
0
|
|
|
|
41,000
|
|
Payments of line of credit and term loans
|
|
|
0
|
|
|
|
(269,500
|
)
|
Payment of debt related costs
|
|
|
(41,385
|
)
|
|
|
(2,394
|
)
|
Payment of Senior Notes
|
|
|
(770,000
|
)
|
|
|
0
|
|
Proceeds from Senior Notes
|
|
|
325,000
|
|
|
|
0
|
|
Release of restricted cash towards debt retirement
|
|
|
360,000
|
|
|
|
0
|
|
Proceeds from exercise of stock options
|
|
|
2,571
|
|
|
|
704
|
|
Excess tax benefits related to stock option exercises
|
|
|
2,707
|
|
|
|
387
|
|
|
|
|
|
|
|
|
|
|
Net cash flows (used in) financing activities
|
|
|
(121,343
|
)
|
|
|
(230,167
|
)
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes
|
|
|
98
|
|
|
|
2,807
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
(76,329
|
)
|
|
|
19,458
|
|
Cash and cash equivalents, beginning of period
|
|
|
204,836
|
|
|
|
95,155
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
128,507
|
|
|
$
|
114,613
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
6
IGATE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2014
The accompanying unaudited Condensed Consolidated Financial
Statements of IGATE Corporation (IGATE or the Company) have been prepared by management in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and applicable
rules and regulations of the U.S. Securities and Exchange Commission (the SEC). Accordingly, they do not include all of the information and disclosures required by GAAP. The Consolidated Financial Statements reflect all adjustments of a
normal, recurring nature that are, in the opinion of management, necessary for a fair presentation of results for these interim periods.
The accompanying balance sheet and financial information as of December 31, 2013 is derived from audited financial statements but does
not include all of the information and footnotes required by GAAP for complete financial statements. The results of operations for the three and six months ended June 30, 2014 are not necessarily indicative of the results that may be expected
for the full year. These financial statements should be read in conjunction with the Companys audited financial statements and notes thereto included in its Annual Report on Form 10-K for the year ended December 31, 2013.
There have been no significant changes in our reported financial position or results of operations or cash flows or to our significant
accounting policies as a result of the adoption of new accounting pronouncements as compared to our Annual Report on Form 10-K for the fiscal year ended December 31, 2013.
Principles of Consolidation
The
Condensed Consolidated Financial Statements include the accounts of the Company and its subsidiaries. All intercompany accounts and transactions have been eliminated.
Use of Estimates
Preparing financial
statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Actual results may differ from these estimates. Interim results are not
necessarily indicative of results for a full year.
2.
|
Goodwill and Intangible Assets
|
The changes in the carrying value of goodwill for the
six months ended June 30, 2014 (in thousands) are as follows:
|
|
|
|
|
|
|
Amount
|
|
Goodwill as of December 31, 2013
|
|
$
|
438,891
|
|
Foreign currency translation effect
|
|
|
11,764
|
|
|
|
|
|
|
Goodwill as of June 30, 2014
|
|
$
|
450,655
|
|
|
|
|
|
|
The following describes changes in the carrying value of intangibles for the six months ended June 30,
2014 (in thousands):
|
|
|
|
|
|
|
Amount
|
|
Intangible assets as of December 31, 2013
|
|
$
|
119,262
|
|
Foreign currency translation effect
|
|
|
3,172
|
|
Amortization
|
|
|
(5,281
|
)
|
|
|
|
|
|
Intangible assets as of June 30, 2014
|
|
$
|
117,153
|
|
|
|
|
|
|
7
IGATE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2014
As of June 30, 2014, intangible assets were comprised of the following (in thousands):
|
|
|
|
|
|
|
Amount
|
|
Customer relationships
|
|
$
|
189,844
|
|
Intellectual property rights
|
|
|
9,400
|
|
Foreign currency translation adjustments
|
|
|
(45,977
|
)
|
Accumulated amortization
|
|
|
(36,114
|
)
|
|
|
|
|
|
Intangible assets as of June 30, 2014
|
|
$
|
117,153
|
|
|
|
|
|
|
As of June 30, 2014 and December 31, 2013, accumulated amortization expense related to Intellectual
property rights amounted to $4.9 million and $4.1 million, respectively, and Customer relationships amounted to $31.2 million and $26.7 million, respectively. Intangible assets are amortized over the remaining weighted average period of 11.5 years.
Intellectual property rights are amortized over a weighted average period of 3.0 years. Customer relationship is amortized over its remaining useful life of 11.9 years.
Amortization expenses related to identifiable intangible assets were $2.7 million and $2.6 million for the three months ended June 30,
2014 and 2013, respectively and $5.3 million and $5.4 million for the six months ended June 30, 2014 and 2013, respectively. Future estimated annual amortization is as follows (in thousands):
|
|
|
|
|
|
|
Amount
|
|
Remainder of 2014
|
|
$
|
5,466
|
|
2015
|
|
$
|
11,262
|
|
2016
|
|
$
|
11,644
|
|
2017
|
|
$
|
11,196
|
|
2018
|
|
$
|
10,333
|
|
3.
|
Series B Preferred Stock
|
On January 10, 2011, the Company entered into a
securities purchase agreement, with Viscaria Limited, to raise equity financing to pay a portion of the cash consideration for the acquisition of IGATE Computer Systems Limited (IGATE Computer). Under the securities purchase agreement,
the Company agreed to sell, in a private placement, up to 480,000 shares of newly designated 8.00% Series B Convertible Participating Preferred Stock, no par value per share (the Series B Preferred Stock), for an aggregate purchase price
of up to $480 million. On February 1, 2011 and May 9, 2011, the Company issued 210,000 shares and 120,000 shares, respectively, of the Series B Preferred Stock for a consideration of $330 million.
Significant economic terms of the Series B Preferred Stock are as follows:
|
|
|
accrues cumulative dividends at a rate of 8.00% per annum, which dividends will be added to the liquidation preference of the Series B Preferred Stock and compounded quarterly;
|
|
|
|
is entitled to participate in dividends and other distributions payable on the Companys common stock on an as-converted basis;
|
8
IGATE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2014
|
|
|
provides for a holder option to convert the outstanding principal plus accrued and unpaid dividends into the Companys common stock at any time and from time to time at an initial conversion price of $20.30 per
share (which conversion price is subject to adjustment in certain circumstances such as the Companys sale or issuance of shares of common stock for a price per share less than the current market price of its common stock on the date of sale or
issue (other than issuances under the stock option or stock ownership plans), subdivision or combination of the Companys common stock (
e.g
., by stock split or stock dividend), wherein the conversion price in effect will be
proportionately reduced or increased on or after such effective or record date and merger, reorganization, consolidation or sale of substantially all of the assets);
|
|
|
|
is subject to a Company option to convert the Series B Preferred Stock into common stock of the Company after 18 months from the applicable closing date if, among other things, the volume weighted average price of the
Companys common stock exceeds 205% of the then applicable conversion price for a specified period of time;
|
|
|
|
is redeemable for cash at an amount equal to the outstanding principal plus accrued and unpaid dividends upon the exercise of the holders put right at six years from the last occurring closing date;
|
|
|
|
provides that, if the Series B Preferred Stock is not sooner converted, such preferred stock is subject to a mandatory conversion into shares of the Companys common stock on the date that is six years from the
applicable closing date (subject to extension in limited circumstances) unless the holder exercises the put right described in the immediately preceding bullet point; and
|
|
|
|
provides the holder the right to receive, prior to any payment in respect of any junior equity securities, the greater of the outstanding principal plus accrued and unpaid dividends and the as-converted value upon
liquidation of the Company or upon certain changes of control.
|
The Company incurred issuance costs amounting to $3.4
million which have been netted against the proceeds received from the issuance of Series B Preferred Stock. The Series B Preferred Stock is being accreted over a period of six years. The amount accreted totaled $0.1 million each during the three
months ended June 30, 2014 and 2013 and $0.3 million and $0.2 million during the six months ended June 30, 2014 and 2013, respectively. As of June 30, 2014 and 2013, the remaining unamortized balance of issuance costs was $1.9 million
and $2.5 million, respectively.
The Company is accruing for cumulative dividends at a rate of 8.00% per annum, compounded quarterly.
The amount of dividends accrued was $8.4 million and $7.8 million during the three months ended June 30, 2014 and 2013, respectively, and $16.5 million and $15.3 million during the six months ended June 30, 2014 and 2013, respectively.
As of June 30, 2014 and 2013, the shares of Series B Preferred Stock are potentially convertible into 21.1 million and
19.5 million shares of common stock, respectively.
On February 21, 2011, the Company entered into an arrangement with
a bank for an unsecured revolving working credit facility of $70.0 million at an annual interest rate of LIBOR plus 195 basis points. On July 3, 2014, the interest rate was renegotiated to LIBOR plus 50 basis points. As of June 30, 2014,
the Company had $18.0 million of availability under this line of credit. Interest expense for each of the three months ended June 30, 2014 and 2013 was $0.2 million and interest expense for each of the six months ended June 30, 2014 and
2013 was $0.4 million.
On May 10, 2011, the Company entered into a credit agreement with a bank for revolving credit commitments in
an aggregate principal of $50.0 million, maturing on May 10, 2016. The proceeds are to be used for working capital and other general corporate purposes. This facility carries an interest rate of LIBOR plus 280 basis points. As of June 30,
2014, the Company had $50.0 million of availability under this revolving credit.
9
IGATE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2014
On November 22, 2013, Pan-Asia iGATE Solutions (Pan-Asia),
a 100% owned subsidiary of the Company, entered into a credit arrangement for a secured term loan facility with a consortium of banks, in an aggregate principal amount of $360 million, which was made available in two tranches. The first tranche
comprised of $270 million maturing 60 months from the utilization date of November 25, 2013, carrying an interest rate of LIBOR plus 325 basis points. The second tranche comprised of $90 million maturing 9 months from the utilization date of
November 25, 2013, carrying an interest rate of LIBOR plus 200 basis points. On July 18, 2014, Pan-Asia made a part payment of $29.0 million against the second tranche of the loan.
In connection with the term loan, the Company recorded an interest expense of $2.8 million and $5.6 million for the three months and six
months ended June 30, 2014, respectively The Company incurred debt issuance costs of $8.9 million of which the amount amortized was $0.6 million and $1.3 million for the three and six months ended June 30, 2014, respectively.
This facility was used to pay down a portion of the Companys Senior Notes in April 2014. IGATE Technologies Inc. (ITI), the
immediate parent company of Pan-Asia, pledged 65% of its equity investment amounting to $394.4 million in Pan-Asia. The loan documents contain customary representations and warranties, events of default, affirmative, negative covenants and financial
covenants and the loan was guaranteed by the Company and several of its 100% owned subsidiaries.
As of June 30, 2014, the Company
was in compliance with all covenants associated with the aforementioned borrowings.
On April 2, 2014, the Company completed the private placement of $325
million aggregate principal amount of 4.75% Senior Notes due April 15, 2019 (the Notes) to several initial purchasers. The initial purchasers subsequently sold the Notes to qualified institutional buyers pursuant to Rule 144A
under the Securities Act of 1933, as amended (the Securities Act), and to persons outside the United States under Regulation S of the Securities Act. The Notes were issued pursuant to an indenture (the Indenture), dated as of
April 2, 2014, by and among the Company, ITI, IGATE, Inc., IGATE Holding Corporation and Wilmington Trust, National Association (the trustee). The interest is payable semi-annually in cash in arrears on April 15 and
October 15 of each year, beginning on October 15, 2014. The Notes are senior unsecured obligations of the Company guaranteed by the Companys domestic 100% owned subsidiaries, as identified in Note 18, with exceptions considered
customary for such guarantees under which a subsidiarys guarantee would terminate.
The terms of the Indenture will, among other
things, limit the ability of the Company and its restricted subsidiaries to (i) incur additional indebtedness or issue certain preferred stock; (ii) pay dividends on, or make distributions in respect of, their capital stock or repurchase
their capital stock; (iii) make certain investments or other restricted payments; (iv) sell certain assets; (v) create liens or use assets as security in other transactions; (vi) merge, consolidate or transfer or dispose of
substantially all of their assets; and (vii) engage in certain transactions with affiliates. These covenants are subject to a number of important limitations and exceptions that are described in the Indenture. The Indenture also contains
certain financial covenants relating to Consolidated Total Leverage Ratio, Consolidated Total Secured Leverage Ratio and a Fixed Charge Coverage Ratio that the Company must comply with, when any of the above events occur. As of June 30, 2014,
no such events have occurred.
The Notes will be redeemable, in whole or in part, at any time on or after April 15, 2016, at the
redemption prices specified in the Indenture, together with accrued and unpaid interest, if any, to the redemption date At any time prior to April 15, 2016, the Company may redeem up to 40% of the aggregate principal amount of the Senior Notes
with the net cash proceeds from certain equity offerings at a redemption price equal to 104.75% of the principal amount of such Senior Notes and accrued and unpaid interest, if any, to the redemption date. At any time and from time to time on or
after April 15, 2016, the Company may redeem the Senior Notes, in whole or in part, at a redemption price equal to the percentage of principal amount set forth below plus accrued and unpaid interest to the redemption date:
|
|
|
|
|
12-Month period commencing
|
|
Percentage
|
|
|
|
On or after April 15, 2016
|
|
|
102.38
|
%
|
On or after April 15, 2017
|
|
|
101.19
|
%
|
On or after April 15, 2018 and thereafter
|
|
|
100.00
|
%
|
10
IGATE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2014
Upon the occurrence of a change of control triggering event specified in the Indenture, the
Company must offer to purchase the Senior Notes at a redemption price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of purchase.
As of June 30, 2014, the amortizable debt issuance cost was $5.4 million, of which $1.0 million is accounted for as part of prepaid
expenses and other current assets and $4.4 million as part of deposits and other assets. These costs are being amortized to interest expense over the balance period of approximately five years using the effective interest method. The amount
amortized was $0.2 million each for the three and six months ended June 30, 2014. Interest expense (including amortized debt issue costs) for the three and six months ended June 30, 2014 was $4.0 million each.
Pursuant to the Optional Redemption, as per the terms of the indenture, dated April 29, 2011, the Company redeemed all the
outstanding 9.00% Senior Notes of $770 million together with a make whole premium of $36.3 million on April 22, 2014 and charged the loss on extinguishment of $51.8 million (inclusive of unamortized debt issuance cost of $15.5 million) to
earnings during the quarter. Interest expense (including amortized debt issue costs) for the three and six months ended June 30, 2014 was $4.5 million and $23.5 million, respectively, as compared to $18.9 million and $37.8 million for the three and
six months ended June 30, 2013, respectively.
The provision for income taxes consists of provisions for federal, state and
foreign income taxes. The Company operates in an international environment with significant operations in various locations outside the U.S. Accordingly, the consolidated income tax rate is a composite rate reflecting the earnings in various
locations and the applicable tax rates. In the normal course of business, the Company is subject to examination by taxing authorities throughout the world, including such major jurisdictions as India, Canada and the United States.
The Company uses the estimated annual effective tax rate method in computing its interim tax provision. Certain items, including those deemed
to be unusual, infrequent or that cannot be reliably estimated, are excluded from the estimated annual effective tax rate. In these cases, the actual tax expense or benefit applicable to those items is recorded in the same period as the related
item. The Companys effective tax rate (ETR) was (1618.7)% and 22.9% for the three and six months ended June 30, 2014, respectively. For the three and six months ended June 30, 2013, the Companys ETR was 33.2% and
31.5%, respectively. Lower ETR for the three and six months ended June 30, 2014 is primarily due to the tax benefit of $19.7 million on account of extinguishment of the $770 million Senior Notes.
The difference in the effective tax rate as compared to the U.S. statutory rate of 35.0% is primarily attributable to the tax benefit on the
loss on extinguishment of debt in U.S. jurisdiction, tax holiday benefits enjoyed by the Companys subsidiary in India. During the first quarter of 2014, the Company also claimed certain additional tax benefits on account of filing the amended
tax returns for earlier years in India jurisdiction.
During the three months ended June 30, 2014, the Company released a valuation
allowance of $2.0 million pertaining to its subsidiary in U.K. jurisdiction. The Company weighed all evidences as of June 30, 2014 and determined that the positive evidences relating to the realizability of its deferred tax asset particularly
the evidences that were objectively verifiable outweighed the negative evidences. The positive evidences as of June 30, 2014 that outweighed the negative evidences includes (i) three years cumulative income position; (ii) the strong
positive trend in the subsidiarys financial performance over four consecutive quarters; (iii) the forecasted income for 2014 and future taxable income; (iv) indefinite carry forward period of the net operating losses; and
(v) improved trend in earnings and increased customer revenues from contracts entered in 2013 and new contracts entered in 2014. Accordingly, the Company concluded that it is more likely than not that the deferred tax assets will be realized
and released the valuation allowance.
11
IGATE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2014
Under the Indian Income-tax Act, 1961, IGATE Global Solutions Limited (IGATE
Global) is eligible to claim income tax holiday on profits derived from the export of software services from divisions registered under Special Economic Zone (SEZ) arrangements. Profits derived from the export of software services
from these divisions registered under the SEZ scheme are eligible for a 100% tax holiday during the initial five consecutive assessment years followed by 50% for the subsequent five years, and 50% for another five years subject to fulfillment of
certain conditions; from the date of commencement of operations by the respective SEZ. Effective April 1, 2014, two of the divisions registered under SEZ scheme has completed its first five years of 100% tax holiday. For the three months ended
June 30, 2014 and 2013, the tax holiday benefits were $2.7 million and $2.2 million, respectively. For the six months ended June 30, 2014 and 2013, the tax holiday benefits were $4.2 million and $4.5 million, respectively. This SEZ tax
holiday will begin to expire from March 2023 through 2029.
As of June 30, 2014 and December 31, 2013, total gross unrecognized
tax benefits, excluding related interest and penalties, were $21.6 million and $16.6 million respectively. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
|
|
|
|
|
|
|
Amount
|
|
Beginning balance as of January 01, 2014
|
|
$
|
16,569
|
|
Additions based on prior period tax positions
|
|
|
7,428
|
|
Reduction based on prior period tax positions
|
|
|
(2,511
|
)
|
Foreign currency translation effect
|
|
|
75
|
|
|
|
|
|
|
Ending balance as of June 30, 2014
|
|
$
|
21,561
|
|
|
|
|
|
|
The Company recognizes interest related to uncertain tax positions within the interest expense line in the
consolidated statements of income. During the six months ended June 30, 2014 and 2013, the Company has recorded interest expense of $1.1 million and $1.2 million, respectively, in relation to uncertain tax positions in the condensed
consolidated statements of income. The total amount of accrued interest in the condensed consolidated balance sheet amounted to $1.8 million as of June 30, 2014.
As of June 30, 2014, the Company had $19.1 million of net unrecognized tax benefits arising out of the tax positions which would affect
the effective tax rate, if recognized. The nature of the events that would cause the change to the reserves will be mainly due to the expiry of the statute of limitation in the U.S and completion of assessment by tax authorities for all open
assessment years in India jurisdiction. Although it is difficult to anticipate the final outcome on timing of resolution of any particular uncertain tax position, the Company believes that the total amount of net unrecognized tax benefits will be
decreased by approximately $6.2 million during the next twelve months due to the expiration of the statute of limitations.
The Company computes earnings per share in accordance with ASC Topic
260,
Earnings per share
and ASC Topic 260-10-45
Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities
. Basic earnings per share for different classes of
stock (common stock, unvested restricted stock and the Series B Preferred Stock) is calculated by dividing net income available to each class by the weighted average number of shares of each class. Diluted earnings per share is computed using the
weighted average number of common stock, unvested restricted stock plus the potentially dilutive effect of common stock and Series B Preferred Stock equivalents.
12
IGATE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2014
Earnings per share for the common stock, unvested restricted stock and Series B Preferred
Stock under the two class method are presented below (dollars and shares in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
Net income (loss) attributable to IGATE common shareholders
|
|
|
|
|
|
$
|
(5,419
|
)
|
|
$
|
22,101
|
|
|
$
|
17,919
|
|
|
$
|
49,246
|
|
Add: Dividend on Series B Preferred Stock
|
|
|
|
|
|
|
8,390
|
|
|
|
7,752
|
|
|
|
16,529
|
|
|
|
15,252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,971
|
|
|
|
29,853
|
|
|
|
34,448
|
|
|
|
64,498
|
|
Less: Dividends on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series B Preferred Stock
|
|
|
[A]
|
|
|
|
8,390
|
|
|
|
7,752
|
|
|
|
16,529
|
|
|
|
15,252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undistributed Income (loss)
|
|
|
|
|
|
$
|
(5,419
|
)
|
|
$
|
22,101
|
|
|
$
|
17,919
|
|
|
$
|
49,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocation of Undistributed Income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
[B]
|
|
|
$
|
(3,987
|
)
|
|
$
|
16,479
|
|
|
$
|
13,184
|
|
|
$
|
36,718
|
|
Unvested restricted stock
|
|
|
[C]
|
|
|
|
0
|
|
|
|
6
|
|
|
|
0
|
|
|
|
14
|
|
Series B Preferred Stock
|
|
|
[D]
|
|
|
|
(1,432
|
)
|
|
|
5,616
|
|
|
|
4,735
|
|
|
|
12,514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(5,419
|
)
|
|
$
|
22,101
|
|
|
$
|
17,919
|
|
|
$
|
49,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares outstanding for allocation of undistributed income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
|
|
|
|
58,864
|
|
|
|
57,301
|
|
|
|
58,864
|
|
|
|
57,301
|
|
Unvested restricted stock
|
|
|
|
|
|
|
0
|
|
|
|
23
|
|
|
|
0
|
|
|
|
23
|
|
Series B Preferred Stock
|
|
|
|
|
|
|
21,139
|
|
|
|
19,529
|
|
|
|
21,139
|
|
|
|
19,529
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80,003
|
|
|
|
76,853
|
|
|
|
80,003
|
|
|
|
76,853
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
[E]
|
|
|
|
58,836
|
|
|
|
57,288
|
|
|
|
58,762
|
|
|
|
57,403
|
|
Unvested restricted stock
|
|
|
[F]
|
|
|
|
0
|
|
|
|
23
|
|
|
|
0
|
|
|
|
23
|
|
Series B Preferred Stock
|
|
|
[G]
|
|
|
|
21,139
|
|
|
|
19,529
|
|
|
|
21,139
|
|
|
|
19,529
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79,975
|
|
|
|
76,840
|
|
|
|
79,901
|
|
|
|
76,955
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common stock outstanding
|
|
|
|
|
|
|
58,836
|
|
|
|
57,288
|
|
|
|
58,762
|
|
|
|
57,403
|
|
Dilutive effect of stock options and restricted shares outstanding
|
|
|
|
|
|
|
1,856
|
|
|
|
1,611
|
|
|
|
1,857
|
|
|
|
1,683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive weighted average shares outstanding
|
|
|
[H]
|
|
|
|
60,692
|
|
|
|
58,899
|
|
|
|
60,619
|
|
|
|
59,086
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributed earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series B Preferred Stock
|
|
|
[I=A/G]
|
|
|
$
|
0.40
|
|
|
$
|
0.40
|
|
|
$
|
0.78
|
|
|
$
|
0.79
|
|
Undistributed earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
[J=B/E]
|
|
|
$
|
(0.07
|
)
|
|
$
|
0.29
|
|
|
$
|
0.22
|
|
|
$
|
0.65
|
|
Unvested restricted stock
|
|
|
[K=C/F]
|
|
|
$
|
0.00
|
|
|
$
|
0.29
|
|
|
$
|
0.00
|
|
|
$
|
0.65
|
|
Series B Preferred Stock
|
|
|
[L=D/G]
|
|
|
$
|
(0.07
|
)
|
|
$
|
0.29
|
|
|
$
|
0.22
|
|
|
$
|
0.65
|
|
Earnings per share - Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
[J]
|
|
|
$
|
(0.07
|
)
|
|
$
|
0.29
|
|
|
$
|
0.22
|
|
|
$
|
0.65
|
|
Unvested restricted stock
|
|
|
[K]
|
|
|
$
|
0.00
|
|
|
$
|
0.29
|
|
|
$
|
0.00
|
|
|
$
|
0.65
|
|
Series B Preferred Stock
|
|
|
[I+L]
|
|
|
$
|
0.33
|
|
|
$
|
0.69
|
|
|
$
|
1.00
|
|
|
$
|
1.44
|
|
Earnings per share - Diluted
|
|
|
[[B+C]/H]
|
|
|
$
|
(0.07
|
)
|
|
$
|
0.28
|
|
|
$
|
0.22
|
|
|
$
|
0.62
|
|
13
IGATE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2014
The number of outstanding options to purchase common shares for which the option exercise
prices exceeded the average market price of the common shares aggregated 0.0 million and 1.1 million shares for the three months ended June 30, 2014 and 2013, respectively, and 0.1 million and 0.9 million shares for the six
months ended June 30, 2014 and 2013, respectively. These options were excluded from the computation of diluted earnings per share under the treasury stock method. The number of shares of outstanding Series B Preferred Stock for which the
earnings per share exceeded the earnings per share of common stock aggregated to 21.1 million and 19.5 million for the three and six months ended June 30, 2014 and 2013, respectively. These shares were excluded from the computation of
diluted earnings per share as they were anti-dilutive.
Short term investments comprise the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2014
|
|
|
|
Carrying Value
|
|
|
Unrealized Gain
|
|
|
Fair Value
|
|
Mutual Funds
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquid mutual funds
|
|
$
|
148,825
|
|
|
$
|
1,865
|
|
|
$
|
150,690
|
|
Fixed deposits with banks
|
|
|
174
|
|
|
|
0
|
|
|
|
174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
148,999
|
|
|
$
|
1,865
|
|
|
$
|
150,864
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2013
|
|
|
|
Carrying Value
|
|
|
Unrealized Gain
|
|
|
Fair Value
|
|
Mutual Funds
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquid mutual funds
|
|
$
|
178,886
|
|
|
$
|
2,345
|
|
|
$
|
181,231
|
|
Fixed deposits with banks
|
|
|
170
|
|
|
|
0
|
|
|
|
170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
179,056
|
|
|
$
|
2,345
|
|
|
$
|
181,401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual maturities of short-term and other investments in available for sale securities as of
June 30, 2014 was as follows (in thousands):
|
|
|
|
|
|
|
As of June 30, 2014
|
|
|
|
Due within one year
|
|
$
|
150,864
|
|
Realized gains and losses on the cost of securities sold or disposed is determined on First in First out
(FIFO) method.
Realized gains and proceeds from the sale of available for sale securities are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
Gross realized gains
|
|
$
|
2,432
|
|
|
$
|
10,692
|
|
|
$
|
7,540
|
|
|
$
|
25,969
|
|
Sale proceeds
|
|
|
161,351
|
|
|
|
626,820
|
|
|
|
374,404
|
|
|
|
1,254,207
|
|
14
IGATE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2014
The changes in the unrealized gain, net, on marketable securities carrying value for the
three and six months ended June 30, 2014 and 2013 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
Unrealized gain on marketable securities at the beginning of the period
|
|
$
|
1,389
|
|
|
$
|
7,509
|
|
|
$
|
2,345
|
|
|
$
|
11,711
|
|
Reclassification of gain into earnings on maturity
|
|
|
(2,432
|
)
|
|
|
(10,692
|
)
|
|
|
(7,540
|
)
|
|
|
(25,969
|
)
|
Net unrealized gain due to changes in the fair value
|
|
|
2,908
|
|
|
|
5,169
|
|
|
|
7,060
|
|
|
|
16,244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on marketable securities at the end of the period
|
|
$
|
1,865
|
|
|
$
|
1,986
|
|
|
$
|
1,865
|
|
|
$
|
1,986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.
|
Accumulated Other Comprehensive Income (Loss)
|
The changes in the balances of
accumulated other comprehensive income (loss), net of tax, by component for the three and six months ended June 30, 2014 and 2013 are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
Unrealized gain on Marketable securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance attributable to IGATE common shareholders
|
|
$
|
932
|
|
|
$
|
5,565
|
|
|
$
|
1,542
|
|
|
$
|
8,275
|
|
Amount of gain (loss) recognized in other comprehensive income
|
|
|
1,920
|
|
|
|
3,658
|
|
|
|
4,660
|
|
|
|
11,945
|
|
Amounts of (gain) loss reclassified from accumulated other comprehensive income
|
|
|
(1,624
|
)
|
|
|
(7,698
|
)
|
|
|
(4,977
|
)
|
|
|
(18,695
|
)
|
Portion attributable to non-controlling interests
|
|
|
0
|
|
|
|
0
|
|
|
|
3
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance attributable to IGATE common shareholders
|
|
$
|
1,228
|
|
|
$
|
1,525
|
|
|
$
|
1,228
|
|
|
$
|
1,525
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) on cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance attributable to IGATE common shareholders
|
|
$
|
4,313
|
|
|
$
|
3,484
|
|
|
$
|
(48
|
)
|
|
$
|
445
|
|
Amount of gain (loss) recognized in other comprehensive income
|
|
|
985
|
|
|
|
(6,605
|
)
|
|
|
5,500
|
|
|
|
(2,100
|
)
|
Amounts of (gain) loss reclassified from accumulated other comprehensive income
|
|
|
(1,898
|
)
|
|
|
(369
|
)
|
|
|
(2,031
|
)
|
|
|
(1,835
|
)
|
Portion attributable to non-controlling interests
|
|
|
4
|
|
|
|
0
|
|
|
|
(17
|
)
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance attributable to IGATE common shareholders
|
|
$
|
3,404
|
|
|
$
|
(3,490
|
)
|
|
$
|
3,404
|
|
|
$
|
(3,490
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial gain (loss) relating to defined benefit plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance attributable to IGATE common shareholders
|
|
$
|
1,394
|
|
|
$
|
190
|
|
|
$
|
1,079
|
|
|
$
|
(123
|
)
|
Amount of gain (loss) recognized in other comprehensive income
|
|
|
(290
|
)
|
|
|
280
|
|
|
|
65
|
|
|
|
574
|
|
Amounts of (gain) loss reclassified from accumulated other comprehensive income
|
|
|
(40
|
)
|
|
|
(23
|
)
|
|
|
(79
|
)
|
|
|
(4
|
)
|
Portion attributable to non-controlling interests
|
|
|
1
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance attributable to IGATE common shareholders
|
|
$
|
1,065
|
|
|
$
|
447
|
|
|
$
|
1,065
|
|
|
$
|
447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance attributable to IGATE common shareholders
|
|
$
|
(360,269
|
)
|
|
$
|
(265,797
|
)
|
|
$
|
(389,688
|
)
|
|
$
|
(283,180
|
)
|
Amount of gain (loss) recognized in other comprehensive income
|
|
|
(2,932
|
)
|
|
|
(89,390
|
)
|
|
|
26,641
|
|
|
|
(72,007
|
)
|
Amounts of (gain) loss reclassified from accumulated other comprehensive income
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Portion attributable to non-controlling interests
|
|
|
22
|
|
|
|
0
|
|
|
|
(132
|
)
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance attributable to IGATE common shareholders
|
|
$
|
(363,179
|
)
|
|
$
|
(355,187
|
)
|
|
$
|
(363,179
|
)
|
|
$
|
(355,187
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
IGATE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2014
The changes in the tax expense (benefit) of accumulated other comprehensive income (loss), by
component for the three and six months ended June 30, 2014 and 2013, are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
Unrealized gain on Marketable securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance attributable to IGATE common shareholders
|
|
$
|
452
|
|
|
$
|
1,944
|
|
|
$
|
793
|
|
|
$
|
3,436
|
|
Amount of gain (loss) recognized in other comprehensive income
|
|
|
988
|
|
|
|
1,511
|
|
|
|
2,400
|
|
|
|
4,299
|
|
Amounts of (gain) loss reclassified from accumulated other comprehensive income
|
|
|
(808
|
)
|
|
|
(2,994
|
)
|
|
|
(2,563
|
)
|
|
|
(7,274
|
)
|
Portion attributable to non-controlling interests
|
|
|
0
|
|
|
|
0
|
|
|
|
2
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance attributable to IGATE common shareholders
|
|
$
|
632
|
|
|
$
|
461
|
|
|
$
|
632
|
|
|
$
|
461
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) on cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance attributable to IGATE common shareholders
|
|
$
|
2,220
|
|
|
$
|
1,455
|
|
|
$
|
(23
|
)
|
|
$
|
184
|
|
Amount of gain (loss) recognized in other comprehensive income
|
|
|
507
|
|
|
|
(2,808
|
)
|
|
|
2,832
|
|
|
|
(966
|
)
|
Amounts of (gain) loss reclassified from accumulated other comprehensive income
|
|
|
(976
|
)
|
|
|
(144
|
)
|
|
|
(1,046
|
)
|
|
|
(715
|
)
|
Portion attributable to non-controlling interests
|
|
|
3
|
|
|
|
0
|
|
|
|
(9
|
)
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance attributable to IGATE common shareholders
|
|
$
|
1,754
|
|
|
$
|
(1,497
|
)
|
|
$
|
1,754
|
|
|
$
|
(1,497
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial gain (loss) relating to defined benefit plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance attributable to IGATE common shareholders
|
|
$
|
715
|
|
|
$
|
47
|
|
|
$
|
555
|
|
|
$
|
(69
|
)
|
Amount of gain (loss) recognized in other comprehensive income
|
|
|
(149
|
)
|
|
|
187
|
|
|
|
34
|
|
|
|
296
|
|
Amounts of (gain) loss reclassified from accumulated other comprehensive income
|
|
|
(21
|
)
|
|
|
(8
|
)
|
|
|
(42
|
)
|
|
|
(1
|
)
|
Portion attributable to non-controlling interests
|
|
|
2
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance attributable to IGATE common shareholders
|
|
$
|
547
|
|
|
$
|
226
|
|
|
$
|
547
|
|
|
$
|
226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance attributable to IGATE common shareholders
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
Amount of gain (loss) recognized in other comprehensive income
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Amounts of (gain) loss reclassified from accumulated other comprehensive income
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Portion attributable to non-controlling interests
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance attributable to IGATE common shareholders
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
IGATE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2014
The following table summarizes the reclassifications out of accumulated other comprehensive
income (loss) for the three and six months ended June 30, 2014 and 2013 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other Comprehensive
Income Components
|
|
Line item in Statement of Income
|
|
Amount reclassified from Accumulated Other Comprehensive Income
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of securities
|
|
Other income, net
|
|
$
|
2,432
|
|
|
$
|
10,692
|
|
|
$
|
7,540
|
|
|
$
|
25,969
|
|
|
|
Income tax expense
|
|
|
(808
|
)
|
|
|
(2,994
|
)
|
|
|
(2,563
|
)
|
|
|
(7,274
|
)
|
|
|
Non-controlling interest, net of tax
|
|
|
(8
|
)
|
|
|
0
|
|
|
|
(24
|
)
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification into earnings
|
|
$
|
1,616
|
|
|
$
|
7,698
|
|
|
$
|
4,953
|
|
|
$
|
18,695
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange derivative contracts
|
|
Foreign exchange gain, net
|
|
$
|
2,874
|
|
|
$
|
513
|
|
|
$
|
3,077
|
|
|
$
|
2,550
|
|
|
|
Income tax expense
|
|
|
(976
|
)
|
|
|
(144
|
)
|
|
|
(1,046
|
)
|
|
|
(715
|
)
|
|
|
Non-controlling interest, net of tax
|
|
|
(8
|
)
|
|
|
0
|
|
|
|
(10
|
)
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification to earnings
|
|
$
|
1,890
|
|
|
$
|
369
|
|
|
$
|
2,021
|
|
|
$
|
1,835
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension and other defined benefit liability:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of actuarial gain (loss)
|
|
Cost of revenues
|
|
$
|
61
|
|
|
$
|
31
|
|
|
$
|
121
|
|
|
$
|
5
|
|
|
|
Income tax expense
|
|
|
(21
|
)
|
|
|
(8
|
)
|
|
|
(42
|
)
|
|
|
(1
|
)
|
|
|
Non-controlling interest, net of tax
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification to earnings
|
|
$
|
40
|
|
|
$
|
23
|
|
|
$
|
79
|
|
|
$
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
IGATE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2014
11.
|
Derivative Instruments and Hedging Activities
|
The Company enters into foreign currency
forward and option contracts (foreign exchange derivative contracts) to mitigate and manage the risk of changes in foreign exchange rates on inter-company and end customer accounts receivables and forecasted sales and inter-company
transactions. The Company hedges anticipated sales transactions that are subject to foreign exchange exposure with foreign exchange derivative contracts that are designated effective and that qualify as cash flow hedges under ASC Topic 815,
Derivatives and Hedging
(ASC No. 815).
As part of its hedge strategy, the Company also enters into foreign
exchange derivative contracts which are replaced with successive new contracts up to the period in which the forecasted transaction is expected to occur (
i.e
., roll-over hedges). In case of rollover hedges, the hedge effectiveness is assessed
based on changes in fair value to the extent of changes in spot prices and recorded in accumulated other comprehensive income (loss) until the hedged transactions occur and upon such occurrence gain or loss is reclassified to earnings in the
consolidated statements of income. Accordingly, the changes in the fair value of the contract related to the changes in the difference between the spot price and the forward price (
i.e.,
forward premium/discount) are excluded from assessment
of hedge effectiveness and are recognized in consolidated statements of income and are included in foreign exchange gain (loss).
In
respect of foreign exchange derivative contracts which hedge the foreign currency risk associated with both the anticipated sales transaction and the collection thereof (dual purpose hedges), the hedge effectiveness is assessed based on overall
changes in fair value with the effective portion of gains or losses included in accumulated other comprehensive income (loss). The effective portion of gain or loss attributable to forecasted sales are reclassified from accumulated other
comprehensive income (loss) and recognized in consolidated statements of income when the sales transaction occurs. Post the date of sales transaction, the Company reclassifies an amount from accumulated other comprehensive income (loss) to earnings
to offset foreign currency translation gain (loss) recorded for the respective receivable during the period. In addition, the Company determines the amount of cost to be ascribed to each period of the hedging relationship based on the functional
currency interest rate implicit in the hedging relationship and recognizes this cost by reclassifying it from accumulated other comprehensive income (loss) to consolidated statements of income for recognized receivables based on the pro rata
method.
Changes in the fair value of cash flow hedges deemed ineffective are recognized in the consolidated statement of income and are
included in foreign exchange gain (loss). The Company also uses foreign exchange derivatives contracts not designated as hedging instruments under ASC No. 815 to hedge intercompany and end customer accounts receivables and other monetary assets
denominated in currencies other than the functional currency. Changes in the fair value of these foreign exchange derivative contracts are recognized in the consolidated statements of income and are included in foreign exchange gain (loss).
In respect of foreign exchange derivative contracts designated as hedges, the Company formally documents all relationships between hedging
instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. The Company evaluates hedge effectiveness at the time a contract is entered into as well as on an ongoing basis. If
during this time, a contract is deemed ineffective, the change in the fair value is recorded in the consolidated statements of income and is included in foreign exchange gain (loss). In situations in which hedge accounting is discontinued and the
foreign exchange derivative contract remains outstanding, the net derivative gain or loss continue to be reported in accumulated other comprehensive income unless it is probable that the forecasted transaction will not occur by the end of the
originally specified time period (as documented at the inception of the hedging relationship) or within an additional two-month period of time thereafter.
18
IGATE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2014
The following table presents the aggregate contracted principal amounts of the Companys
foreign exchange derivative contracts:
OUTSTANDING CASH FLOW HEDGE TRANSACTIONS QUALIFYING FOR HEDGE ACCOUNTING (in thousands):
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
June 30, 2014
|
|
|
December 31, 2013
|
|
Foreign Exchange Forward Contracts USD
|
|
$
|
127,000
|
|
|
$
|
94,300
|
|
Foreign Exchange Forward Contracts CAD
|
|
$
|
17,789
|
|
|
$
|
13,160
|
|
Foreign Exchange Forward Contracts GBP
|
|
$
|
16,198
|
|
|
$
|
14,041
|
|
OUTSTANDING FAIR VALUE HEDGE TRANSACTIONS NOT QUALIFYING FOR HEDGE ACCOUNTING (in thousands):
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
June 30, 2014
|
|
|
December 31, 2013
|
|
Foreign Exchange Forward Contracts GBP
|
|
$
|
9,378
|
|
|
$
|
12,059
|
|
Foreign Exchange Forward Contracts CAD
|
|
$
|
2,809
|
|
|
$
|
0
|
|
Foreign Exchange Forward Contracts USD
|
|
$
|
13,500
|
|
|
$
|
0
|
|
The foreign exchange derivative contracts mature generally within twelve (12) months.
The effect of derivative instruments on the Condensed Consolidated Statements of Income for the three months ended June 30, 2014 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives in
ASC Topic 815
Cash
Flow
Hedging
Relationships
|
|
Amount of Gain
(Loss) recognized
in OCI on
Derivative
|
|
|
Location of Gain
(Loss) reclassified
from
Accumulated
OCI into Income
|
|
Amount of Gain
(Loss) reclassified
from Accumulated
OCI into Income
|
|
|
Location of Gain
(Loss) recognized
in Income
on
Derivative
|
|
Amount of Gain (Loss)
recognized in Income
Statement
|
|
|
|
(Effective Portion)
|
|
|
(Effective Portion)
|
|
|
(Ineffective Portion and amount excluded
from effectiveness testing)
|
|
|
|
June 30, 2014
|
|
|
June 30, 2014
|
|
|
June 30, 2014
|
|
|
|
|
|
|
|
Foreign Exchange Contracts
|
|
$
|
1,492
|
*
|
|
Foreign exchange gain (loss), net
|
|
$
|
2,874
|
|
|
Foreign exchange gain (loss), net
|
|
$
|
0
|
|
19
IGATE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2014
The effect of derivative instruments on the Condensed Consolidated Statements of Income for the six months
ended June 30, 2014 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives in
ASC Topic 815
Cash
Flow
Hedging
Relationships
|
|
Amount of Gain
(Loss) recognized
in OCI on
Derivative
|
|
|
Location of Gain
(Loss)
reclassified
from Accumulated
OCI into Income
|
|
Amount of Gain
(Loss) reclassified
from Accumulated
OCI into Income
|
|
|
Location of Gain
(Loss) recognized
in Income
on
Derivative
|
|
Amount of Gain (Loss)
recognized in Income
Statement
|
|
|
|
(Effective Portion)
|
|
|
(Effective Portion)
|
|
|
(Ineffective Portion and amount excluded
from effectiveness testing)
|
|
|
|
June 30, 2014
|
|
|
June 30, 2014
|
|
|
June 30, 2014
|
|
|
|
|
|
|
|
Foreign Exchange Contracts
|
|
$
|
8,332
|
*
|
|
Foreign exchange gain (loss), net
|
|
$
|
3,077
|
|
|
Foreign exchange gain (loss), net
|
|
$
|
0
|
|
*
|
Includes deferred gain on settled rollover derivatives amounting to $0.0 million and $0.0 million for three and six months ended June 30, 2014 respectively.
|
The effect of derivative instruments on the Condensed Consolidated Statements of Income for the three months ended June 30, 2013 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives in
ASC Topic 815
Cash
Flow
Hedging
Relationships
|
|
Amount of Gain
(Loss) recognized
in OCI on
Derivative
|
|
|
Location of
Gain
(Loss) reclassified
from Accumulated
OCI into Income
|
|
Amount of Gain
(Loss) reclassified
from Accumulated
OCI into Income
|
|
|
Location of Gain
(Loss) recognized
in Income
on
Derivative
|
|
Amount of Gain
(Loss) recognized
in Income
Statement
|
|
|
|
(Effective Portion)
|
|
|
(Effective Portion)
|
|
|
(Ineffective Portion and amount
excluded from effectiveness testing)
|
|
|
|
June 30, 2013
|
|
|
June 30, 2013
|
|
|
June 30, 2013
|
|
|
|
|
|
|
|
Foreign Exchange Contracts
|
|
$
|
(9,413
|
)*
|
|
Foreign exchange gain (loss), net
|
|
$
|
513
|
|
|
Foreign exchange gain (loss), net
|
|
$
|
38
|
|
20
IGATE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2014
The effect of derivative instruments on the Condensed Consolidated Statements of Income for the six months
ended June 30, 2013 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives in
ASC Topic 815
Cash
Flow
Hedging
Relationships
|
|
Amount of Gain
(Loss) recognized
in OCI on
Derivative
|
|
|
Location of Gain
(Loss) reclassified
from
Accumulated
OCI into Income
|
|
Amount of Gain
(Loss) reclassified
from Accumulated
OCI into Income
|
|
|
Location of Gain
(Loss)
recognized
in
Income on
Derivative
|
|
Amount of Gain
(Loss)
recognized in
Income
Statement
|
|
|
|
(Effective Portion)
|
|
|
(Effective Portion)
|
|
|
(Ineffective Portion and amount
excluded from effectiveness testing)
|
|
|
|
June 30, 2013
|
|
|
June 30, 2013
|
|
|
June 30, 2013
|
|
|
|
|
|
|
|
Foreign Exchange Contracts
|
|
$
|
(3,066
|
)*
|
|
Foreign exchange gain (loss), net
|
|
$
|
2,550
|
|
|
Foreign exchange gain (loss), net
|
|
$
|
837
|
|
*
|
Includes deferred gain on settled rollover derivatives amounting to $0.01 million and $0.61 million for three and six months ended June 30, 2013 respectively.
|
Derivatives not designated as hedging instruments (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
|
Six months ended June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
Statement of Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange gain (loss), net
|
|
$
|
503
|
|
|
$
|
(6,347
|
)
|
|
$
|
996
|
|
|
$
|
(3,318
|
)
|
These foreign exchange derivative contracts were entered into to hedge the fluctuations in foreign exchange
rates for recognized balance sheet items such as inter-company and end customer receivables and loans, and were not originally designated as hedges. Realized gains (losses) and changes in the fair value of these foreign exchange derivative contracts
are recorded in foreign exchange gains (losses), net in the condensed consolidated statements of income.
Information on the location and amounts of
derivative fair values in the Condensed Consolidated Balance Sheets (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Derivative Instruments Foreign Exchange Derivative Contracts
|
|
As of
|
|
|
|
|
|
June 30, 2014
|
|
|
December 31, 2013
|
|
Balance Sheet Location
|
|
Designated/ Not Designated
|
|
Fair Value
|
|
|
Fair Value
|
|
Current Assets
|
|
Designated
|
|
$
|
5,740
|
|
|
$
|
832
|
|
|
|
Not Designated
|
|
$
|
16
|
|
|
$
|
4
|
|
|
|
|
|
Current liabilities
|
|
Designated
|
|
$
|
557
|
|
|
$
|
904
|
|
|
|
Not Designated
|
|
$
|
26
|
|
|
$
|
5
|
|
21
IGATE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2014
The estimated net amount of existing gains (losses), net of taxes, as of June 30, 2014
that is expected to be reclassified from accumulated other comprehensive income (losses) into earnings within the next 12 months is $3.4 million.
The Company utilizes standard counterparty master agreements containing provisions for netting of certain foreign currency transaction
obligations and for set-off of certain obligations in the event of insolvency of one of the parties to the transaction. This provision may reduce the Companys potential loss resulting from the insolvency of counterparty and would also reduce
the counterpartys potential overall loss resulting from the insolvency of the Company. In the condensed consolidated balance sheet, the Company records the foreign exchange derivative assets and liabilities at gross fair value. The potential
effect of netting foreign exchange derivative assets and liabilities under the counterparty master agreement was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amount
presented in the
Condensed Consolidated
Balance Sheet
|
|
|
Potential effect
of rights of
set off
|
|
|
Net amount
of recognized
assets/liabilities
|
|
As of June 30, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange derivative assets
|
|
$
|
5,756
|
|
|
$
|
476
|
|
|
$
|
5,280
|
|
Foreign exchange derivative liabilities
|
|
$
|
583
|
|
|
$
|
476
|
|
|
$
|
107
|
|
|
|
|
|
As of December 31, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange derivative assets
|
|
$
|
836
|
|
|
$
|
642
|
|
|
$
|
194
|
|
Foreign exchange derivative liabilities
|
|
$
|
909
|
|
|
$
|
642
|
|
|
$
|
267
|
|
12.
|
Fair Value Measurements
|
FASB ASC Topic 820
Fair Value Measurements
establishes a three-tier value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:
Level
1 Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2
Includes other inputs that are directly or indirectly observable in the marketplace.
Level 3 Unobservable inputs which are
supported by little or no market activity.
The fair value hierarchy also requires an entity to maximize the use of observable inputs and
minimize the use of unobservable inputs when measuring fair value.
In accordance with ASC 820, assets and liabilities are to be measured
based on the following valuation techniques:
Market approach Prices and other relevant information generated by market
transactions involving identical or comparable assets or liabilities.
Income approach Converting the future amounts based on the
market expectations to its present value using the discounting methodology.
Cost approach Replacement cost method.
The Company uses the market approach for measuring the fair value of the assets and liabilities. Short term investments comprising of money
market mutual funds and foreign currency derivative contracts are measured at fair value. The cash equivalents and money market mutual funds are valued using quoted market prices and classified within Level 1. The foreign currency derivative
contracts are classified within Level 2 as the valuation inputs are based on quoted prices and market observable data of similar instruments in active markets.
22
IGATE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2014
Investments and Foreign exchange derivative contracts, as disclosed in Note 9 and 11, which
are measured at fair value are summarized below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value measurement at reporting date using
|
|
Description
|
|
As of June 30,
2014
|
|
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs (Level 3)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a) Liquid mutual fund units
|
|
$
|
150,690
|
|
|
$
|
150,690
|
|
|
$
|
0
|
|
|
$
|
0
|
|
b) Fixed deposits with banks
|
|
|
174
|
|
|
|
174
|
|
|
|
0
|
|
|
|
0
|
|
Foreign exchange derivative contracts
|
|
|
5,756
|
|
|
|
0
|
|
|
|
5,756
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
$
|
156,620
|
|
|
$
|
150,864
|
|
|
$
|
5,756
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange derivative contracts
|
|
$
|
583
|
|
|
$
|
0
|
|
|
$
|
583
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
$
|
583
|
|
|
$
|
0
|
|
|
$
|
583
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value measurement at reporting date using
|
|
Description
|
|
As of December 31,
2013
|
|
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs (Level 3)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a) Liquid mutual fund units
|
|
$
|
181,231
|
|
|
$
|
181,231
|
|
|
$
|
0
|
|
|
$
|
0
|
|
b) Fixed deposits with banks
|
|
|
170
|
|
|
|
170
|
|
|
|
0
|
|
|
|
0
|
|
Foreign exchange derivative contracts
|
|
|
836
|
|
|
|
0
|
|
|
|
836
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
$
|
182,237
|
|
|
$
|
181,401
|
|
|
$
|
836
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange derivative contracts
|
|
$
|
909
|
|
|
$
|
0
|
|
|
$
|
909
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
$
|
909
|
|
|
$
|
0
|
|
|
$
|
909
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
IGATE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2014
Defined Contribution Plan
The Companys eligible employees in India participate in the Employees Provident Fund (the Provident Fund), which is a
defined contribution plan. The employee and the Company make monthly contributions of a specified percentage of salary to the Provident Fund, which is administered by the prescribed authority in India. The aggregate contributions along with interest
thereon can be withdrawn on retirement, death, incapacitation or termination of employment. The Companys contribution to the Provident Fund for the three months ended June 30, 2014 and 2013 was $2.5 million and $2.2 million, respectively.
The Companys contribution to the Provident Fund for the six months ended June 30, 2014 and 2013 was $4.6 million and $4.3 million, respectively.
401(k) Plan
Eligible United States
employees of the Company participate in an employee retirement savings plan (the Plan) under Section 401(k) of the United States Internal Revenue Code. The Plan allows for employees to defer a portion of their annual earnings on a
pre-tax basis through voluntary contributions to the Plan. The Company is not currently making any matching contributions.
Defined Benefit Plan
The Company provides for gratuity, a defined benefit retirement plan covering eligible employees in India. The plan provides a lump
sum payment to the vested employees at retirement, death, incapacitation or termination of employment, subject to a specified period of service based on the respective employees salary and tenure of service. Liabilities with regard to the plan
are determined by actuarial valuation.
The following table sets forth the net periodic cost recognized by the Company in respect of the
Plan (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
Net periodic plan cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
644
|
|
|
$
|
494
|
|
|
$
|
1,305
|
|
|
$
|
1,292
|
|
Interest cost
|
|
|
330
|
|
|
|
345
|
|
|
|
649
|
|
|
|
676
|
|
Expected return on plan asset
|
|
|
(235
|
)
|
|
|
(224
|
)
|
|
|
(463
|
)
|
|
|
(459
|
)
|
Amortization of actuarial gain
|
|
|
(60
|
)
|
|
|
3
|
|
|
|
(119
|
)
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic plan cost for the period
|
|
$
|
679
|
|
|
$
|
618
|
|
|
$
|
1,372
|
|
|
$
|
1,504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Pension Benefits
One of the former founder directors of IGATE Computer (currently merged with IGATE Global), is entitled to receive pension benefits upon
retirement or on termination from employment at the rate of 50% of his last drawn monthly salary. The payment of pension will start when he reaches the age of 65. The Company has invested in a plan with Life Insurance Corporation of India which will
mature at the time this founder director reaches the age of 65. Since the Company is obligated to fund the shortfall, if any, between the annuity payable and the value of the plan asset, the pension liability is actuarially valued at each balance
sheet date.
24
IGATE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2014
14.
|
Stock-based compensation
|
During the three and six months ended June 30, 2014, the
Company granted 1,168 and 19,168 options, respectively, and 8,368 and 53,868 stock awards, respectively. During the three and six months ended June 30, 2013, the Company granted 527,445 and 571,445 options, respectively, and 601,445 and 723,062
stock awards, respectively.
Stock-based compensation expense recorded in income from operations during the three and six months ended
June 30, 2014 and 2013 (in thousands) was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
Stock-based compensation recorded in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
$
|
1,195
|
|
|
$
|
1,441
|
|
|
$
|
3,014
|
|
|
$
|
2,778
|
|
Selling, general and administrative expense
|
|
|
2,324
|
|
|
|
1,799
|
|
|
|
4,802
|
|
|
|
3,587
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,519
|
|
|
$
|
3,240
|
|
|
$
|
7,816
|
|
|
$
|
6,365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the three and six months ended June 30, 2014, the Company issued 0.1 million and
0.5 million shares, respectively, upon exercise of stock options and awards. During the three and six months ended June 30, 2013, the Company issued 0.0 million and 0.3 million shares, respectively, upon exercise of stock options and
awards.
Components of other income, net for the three and six months ended
June 30, 2014 and 2013 (in thousands) was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
Investment income
|
|
$
|
2,432
|
|
|
$
|
10,692
|
|
|
$
|
7,540
|
|
|
$
|
25,969
|
|
Interest income
|
|
|
189
|
|
|
|
577
|
|
|
|
1,814
|
|
|
|
2,281
|
|
Gain on sale of fixed assets
|
|
|
65
|
|
|
|
2,266
|
|
|
|
18
|
|
|
|
2,240
|
|
Forfeiture of vested stock options
|
|
|
0
|
|
|
|
3,005
|
|
|
|
0
|
|
|
|
3,005
|
|
Other
|
|
|
954
|
|
|
|
877
|
|
|
|
1,622
|
|
|
|
1,202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income, net
|
|
$
|
3,640
|
|
|
$
|
17,417
|
|
|
$
|
10,994
|
|
|
$
|
34,697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeiture of vested stock options during the three and six months ended June 30, 2013, represents the
reversal of stock based compensation expense pursuant to the claw back feature that was triggered in connection with the termination of the Companys former Chief Executive Officer.
16.
|
Concentration of revenues
|
The following is a concentration of revenues greater than 10%
by customer for the periods shown:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
General Electric Company
|
|
|
16
|
%
|
|
|
13
|
%
|
|
|
16
|
%
|
|
|
13
|
%
|
Royal Bank of Canada
|
|
|
10
|
%
|
|
|
11
|
%
|
|
|
10
|
%
|
|
|
11
|
%
|
25
IGATE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2014
The Companys Chief Executive Officer, who is also the Chief
Operating Decision Maker, has recently regrouped the organization into vertical-based business units to bring in more industry knowledge and solutions and increase the depth and accountability to the business. However, the Company does not have
discrete financial information as per the requirements of ASC 280 and as a result segment information is not presented.
18.
|
Guarantor Subsidiaries - Supplemental condensed consolidating financial information
|
In
connection with the refinancing of the previous Senior Notes issued in 2011, the Company issued the 2014 Senior Notes which are the senior unsecured obligations of the Company. The Senior Notes are guaranteed by the Companys 100% owned
domestic subsidiaries ITI, IGATE Inc., and IGATE Holding Corporation (collectively, the Guarantors). The Company has not included separate financial statements of the Guarantors because they are 100% owned by the Company, the guarantees
issued are full and unconditional, and the guarantees are joint and several. There are customary exceptions in the Indenture under which a subsidiarys guarantee would terminate namely:
|
|
|
a permitted sale or other disposition by a guarantor of all or substantially all of its assets;
|
|
|
|
the designation or classification of a guarantor as an unrestricted subsidiary pursuant to the Indenture governing the guarantees;
|
|
|
|
defeasance or discharge of the Senior Notes;
|
|
|
|
the release of a guarantor due to the operation of the definition of Immaterial Subsidiary in the documents governing the guarantees; or
|
|
|
|
the Senior Notes achievement of investment grade status.
|
26
IGATE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2014
Condensed consolidating financial information for the Company and the Guarantors are as
follows (in thousands):
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Non-Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
0
|
|
|
$
|
15,342
|
|
|
$
|
113,165
|
|
|
$
|
0
|
|
|
$
|
128,507
|
|
Restricted cash
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Short-term investments
|
|
|
0
|
|
|
|
0
|
|
|
|
150,864
|
|
|
|
0
|
|
|
|
150,864
|
|
Accounts receivable, net
|
|
|
0
|
|
|
|
106,104
|
|
|
|
63,652
|
|
|
|
0
|
|
|
|
169,756
|
|
Unbilled revenues
|
|
|
0
|
|
|
|
41,350
|
|
|
|
37,310
|
|
|
|
0
|
|
|
|
78,660
|
|
Prepaid expenses and other current assets
|
|
|
1,021
|
|
|
|
4,889
|
|
|
|
33,644
|
|
|
|
0
|
|
|
|
39,554
|
|
Prepaid income taxes
|
|
|
19,741
|
|
|
|
0
|
|
|
|
6,349
|
|
|
|
(5,546
|
)
|
|
|
20,544
|
|
Deferred tax assets
|
|
|
0
|
|
|
|
3,163
|
|
|
|
(1,167
|
)
|
|
|
0
|
|
|
|
1,996
|
|
Foreign exchange derivative contracts
|
|
|
0
|
|
|
|
0
|
|
|
|
5,756
|
|
|
|
0
|
|
|
|
5,756
|
|
Inter-corporate loan
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Receivable from related parties
|
|
|
0
|
|
|
|
1,962
|
|
|
|
5,369
|
|
|
|
0
|
|
|
|
7,331
|
|
Receivable from group companies
|
|
|
37,272
|
|
|
|
122,303
|
|
|
|
139,820
|
|
|
|
(299,395
|
)
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
58,034
|
|
|
|
295,113
|
|
|
|
554,762
|
|
|
|
(304,941
|
)
|
|
|
602,968
|
|
Investment in subsidiaries
|
|
|
460,955
|
|
|
|
700,603
|
|
|
|
0
|
|
|
|
(1,161,558
|
)
|
|
|
0
|
|
Inter-corporate loan
|
|
|
325,000
|
|
|
|
2,489
|
|
|
|
0
|
|
|
|
(327,489
|
)
|
|
|
0
|
|
Deposits and other assets
|
|
|
4,379
|
|
|
|
1,169
|
|
|
|
16,932
|
|
|
|
0
|
|
|
|
22,480
|
|
Prepaid income taxes
|
|
|
0
|
|
|
|
0
|
|
|
|
32,552
|
|
|
|
0
|
|
|
|
32,552
|
|
Property and equipment, net
|
|
|
0
|
|
|
|
4,049
|
|
|
|
197,351
|
|
|
|
0
|
|
|
|
201,400
|
|
Leasehold land
|
|
|
0
|
|
|
|
0
|
|
|
|
77,798
|
|
|
|
0
|
|
|
|
77,798
|
|
Deferred tax assets
|
|
|
0
|
|
|
|
15,054
|
|
|
|
508
|
|
|
|
0
|
|
|
|
15,562
|
|
Goodwill
|
|
|
0
|
|
|
|
1,026
|
|
|
|
449,629
|
|
|
|
0
|
|
|
|
450,655
|
|
Intangible assets, net
|
|
|
0
|
|
|
|
95
|
|
|
|
117,058
|
|
|
|
0
|
|
|
|
117,153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
848,368
|
|
|
$
|
1,019,598
|
|
|
$
|
1,446,590
|
|
|
$
|
(1,793,988
|
)
|
|
$
|
1,520,568
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES, PREFERRED STOCK AND SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
0
|
|
|
$
|
2,160
|
|
|
$
|
8,116
|
|
|
$
|
0
|
|
|
$
|
10,276
|
|
Line of credit
|
|
|
0
|
|
|
|
0
|
|
|
|
52,000
|
|
|
|
0
|
|
|
|
52,000
|
|
Senior Notes
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Term loans
|
|
|
0
|
|
|
|
0
|
|
|
|
90,000
|
|
|
|
0
|
|
|
|
90,000
|
|
Accrued payroll and related costs
|
|
|
0
|
|
|
|
17,204
|
|
|
|
31,097
|
|
|
|
0
|
|
|
|
48,301
|
|
Other accrued liabilities
|
|
|
4,296
|
|
|
|
22,347
|
|
|
|
49,856
|
|
|
|
0
|
|
|
|
76,499
|
|
Accrued income taxes
|
|
|
0
|
|
|
|
5,546
|
|
|
|
3,049
|
|
|
|
(5,546
|
)
|
|
|
3,049
|
|
Foreign exchange derivative contracts
|
|
|
0
|
|
|
|
0
|
|
|
|
583
|
|
|
|
0
|
|
|
|
583
|
|
Deferred revenue
|
|
|
0
|
|
|
|
10,089
|
|
|
|
9,366
|
|
|
|
0
|
|
|
|
19,455
|
|
Inter-corporate loan
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Payable to group companies
|
|
|
51,961
|
|
|
|
174,305
|
|
|
|
73,129
|
|
|
|
(299,395
|
)
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
56,257
|
|
|
|
231,651
|
|
|
|
317,196
|
|
|
|
(304,941
|
)
|
|
|
300,163
|
|
Other long-term liabilities
|
|
|
0
|
|
|
|
326
|
|
|
|
5,094
|
|
|
|
0
|
|
|
|
5,420
|
|
Senior Notes
|
|
|
325,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
325,000
|
|
Term loans
|
|
|
0
|
|
|
|
0
|
|
|
|
270,000
|
|
|
|
0
|
|
|
|
270,000
|
|
Accrued income taxes
|
|
|
0
|
|
|
|
650
|
|
|
|
19,434
|
|
|
|
0
|
|
|
|
20,084
|
|
Inter-corporate loan
|
|
|
0
|
|
|
|
325,000
|
|
|
|
2,489
|
|
|
|
(327,489
|
)
|
|
|
0
|
|
Deferred tax liabilities
|
|
|
0
|
|
|
|
0
|
|
|
|
35,199
|
|
|
|
0
|
|
|
|
35,199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
381,257
|
|
|
|
557,627
|
|
|
|
649,412
|
|
|
|
(632,430
|
)
|
|
|
955,866
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series B Preferred stock
|
|
|
427,184
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
427,184
|
|
IGATE Corporation shareholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares
|
|
|
599
|
|
|
|
330,000
|
|
|
|
53,451
|
|
|
|
(383,451
|
)
|
|
|
599
|
|
Common shares held in treasury, at cost
|
|
|
(14,714
|
)
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
(14,714
|
)
|
Additional paid-in capital
|
|
|
229,199
|
|
|
|
161,275
|
|
|
|
604,865
|
|
|
|
(778,107
|
)
|
|
|
217,232
|
|
Retained earnings
|
|
|
(175,157
|
)
|
|
|
(29,400
|
)
|
|
|
491,226
|
|
|
|
0
|
|
|
|
286,669
|
|
Accumulated other comprehensive loss
|
|
|
0
|
|
|
|
96
|
|
|
|
(357,578
|
)
|
|
|
0
|
|
|
|
(357,482
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total IGATE Corporation shareholders equity
|
|
|
39,927
|
|
|
|
461,971
|
|
|
|
791,964
|
|
|
|
(1,161,558
|
)
|
|
|
132,304
|
|
Non-controlling interest
|
|
|
0
|
|
|
|
0
|
|
|
|
5,214
|
|
|
|
0
|
|
|
|
5,214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
39,927
|
|
|
|
461,971
|
|
|
|
797,178
|
|
|
|
(1,161,558
|
)
|
|
|
137,518
|
|
Total liabilities, preferred stock and shareholders equity
|
|
$
|
848,368
|
|
|
$
|
1,019,598
|
|
|
$
|
1,446,590
|
|
|
$
|
(1,793,988
|
)
|
|
$
|
1,520,568
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
IGATE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2014
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Non-Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
0
|
|
|
$
|
82,497
|
|
|
$
|
122,339
|
|
|
$
|
0
|
|
|
$
|
204,836
|
|
Restricted cash
|
|
|
0
|
|
|
|
360,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
360,000
|
|
Short-term investments
|
|
|
0
|
|
|
|
0
|
|
|
|
181,401
|
|
|
|
0
|
|
|
|
181,401
|
|
Accounts receivable, net
|
|
|
0
|
|
|
|
87,110
|
|
|
|
70,795
|
|
|
|
0
|
|
|
|
157,905
|
|
Unbilled revenues
|
|
|
0
|
|
|
|
29,309
|
|
|
|
32,115
|
|
|
|
0
|
|
|
|
61,424
|
|
Prepaid expenses and other current assets
|
|
|
11,997
|
|
|
|
3,693
|
|
|
|
28,802
|
|
|
|
0
|
|
|
|
44,492
|
|
Prepaid income taxes
|
|
|
0
|
|
|
|
797
|
|
|
|
41
|
|
|
|
0
|
|
|
|
838
|
|
Deferred tax assets
|
|
|
0
|
|
|
|
3,163
|
|
|
|
7,072
|
|
|
|
0
|
|
|
|
10,235
|
|
Foreign exchange derivative contracts
|
|
|
0
|
|
|
|
0
|
|
|
|
836
|
|
|
|
0
|
|
|
|
836
|
|
Inter-corporate loan
|
|
|
360,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
(360,000
|
)
|
|
|
0
|
|
Receivable from related parties
|
|
|
0
|
|
|
|
1,618
|
|
|
|
2,428
|
|
|
|
0
|
|
|
|
4,046
|
|
Receivable from group companies
|
|
|
21,332
|
|
|
|
0
|
|
|
|
24,952
|
|
|
|
(46,284
|
)
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
393,329
|
|
|
|
568,187
|
|
|
|
470,781
|
|
|
|
(406,284
|
)
|
|
|
1,026,013
|
|
Investment in subsidiaries
|
|
|
460,955
|
|
|
|
545,412
|
|
|
|
0
|
|
|
|
(1,006,367
|
)
|
|
|
0
|
|
Inter-corporate loan
|
|
|
410,000
|
|
|
|
2,476
|
|
|
|
0
|
|
|
|
(412,476
|
)
|
|
|
0
|
|
Deposits and other assets
|
|
|
5,596
|
|
|
|
1,084
|
|
|
|
18,250
|
|
|
|
0
|
|
|
|
24,930
|
|
Prepaid income taxes
|
|
|
0
|
|
|
|
0
|
|
|
|
32,160
|
|
|
|
0
|
|
|
|
32,160
|
|
Property and equipment, net
|
|
|
0
|
|
|
|
2,291
|
|
|
|
163,290
|
|
|
|
0
|
|
|
|
165,581
|
|
Leasehold land
|
|
|
0
|
|
|
|
0
|
|
|
|
76,732
|
|
|
|
0
|
|
|
|
76,732
|
|
Deferred tax assets
|
|
|
0
|
|
|
|
15,054
|
|
|
|
99
|
|
|
|
0
|
|
|
|
15,153
|
|
Goodwill
|
|
|
0
|
|
|
|
1,026
|
|
|
|
437,865
|
|
|
|
0
|
|
|
|
438,891
|
|
Intangible assets, net
|
|
|
0
|
|
|
|
130
|
|
|
|
119,132
|
|
|
|
0
|
|
|
|
119,262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,269,880
|
|
|
$
|
1,135,660
|
|
|
$
|
1,318,309
|
|
|
$
|
(1,825,127
|
)
|
|
$
|
1,898,722
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES, PREFERRED STOCK AND SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
0
|
|
|
$
|
1,834
|
|
|
$
|
7,434
|
|
|
$
|
0
|
|
|
$
|
9,268
|
|
Line of credit
|
|
|
0
|
|
|
|
0
|
|
|
|
52,000
|
|
|
|
0
|
|
|
|
52,000
|
|
Senior Notes
|
|
|
360,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
360,000
|
|
Term loans
|
|
|
0
|
|
|
|
0
|
|
|
|
90,000
|
|
|
|
0
|
|
|
|
90,000
|
|
Accrued payroll and related costs
|
|
|
0
|
|
|
|
19,086
|
|
|
|
38,007
|
|
|
|
0
|
|
|
|
57,093
|
|
Other accrued liabilities
|
|
|
11,550
|
|
|
|
24,012
|
|
|
|
44,223
|
|
|
|
0
|
|
|
|
79,785
|
|
Accrued income taxes
|
|
|
0
|
|
|
|
0
|
|
|
|
5,802
|
|
|
|
0
|
|
|
|
5,802
|
|
Foreign exchange derivative contracts
|
|
|
0
|
|
|
|
0
|
|
|
|
909
|
|
|
|
0
|
|
|
|
909
|
|
Deferred revenue
|
|
|
0
|
|
|
|
8,917
|
|
|
|
8,859
|
|
|
|
0
|
|
|
|
17,776
|
|
Inter-corporate loan
|
|
|
0
|
|
|
|
360,000
|
|
|
|
0
|
|
|
|
(360,000
|
)
|
|
|
0
|
|
Payable to group companies
|
|
|
0
|
|
|
|
26,446
|
|
|
|
19,838
|
|
|
|
(46,284
|
)
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
371,550
|
|
|
|
440,295
|
|
|
|
267,072
|
|
|
|
(406,284
|
)
|
|
|
672,633
|
|
Other long-term liabilities
|
|
|
0
|
|
|
|
165
|
|
|
|
3,367
|
|
|
|
0
|
|
|
|
3,532
|
|
Senior Notes
|
|
|
410,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
410,000
|
|
Term loans
|
|
|
0
|
|
|
|
0
|
|
|
|
270,000
|
|
|
|
0
|
|
|
|
270,000
|
|
Accrued income taxes
|
|
|
0
|
|
|
|
650
|
|
|
|
13,286
|
|
|
|
0
|
|
|
|
13,936
|
|
Inter-corporate loan
|
|
|
0
|
|
|
|
410,000
|
|
|
|
2,476
|
|
|
|
(412,476
|
)
|
|
|
0
|
|
Deferred tax liabilities
|
|
|
0
|
|
|
|
0
|
|
|
|
41,717
|
|
|
|
0
|
|
|
|
41,717
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
781,550
|
|
|
|
851,110
|
|
|
|
597,918
|
|
|
|
(818,760
|
)
|
|
|
1,411,818
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series B Preferred stock
|
|
|
410,371
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
410,371
|
|
IGATE Corporation shareholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares
|
|
|
594
|
|
|
|
330,000
|
|
|
|
53,451
|
|
|
|
(383,451
|
)
|
|
|
594
|
|
Common shares held in treasury, at cost
|
|
|
(14,714
|
)
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
(14,714
|
)
|
Additional paid-in capital
|
|
|
216,107
|
|
|
|
6,209
|
|
|
|
604,743
|
|
|
|
(622,916
|
)
|
|
|
204,143
|
|
Retained earnings
|
|
|
(124,028
|
)
|
|
|
(51,755
|
)
|
|
|
444,533
|
|
|
|
0
|
|
|
|
268,750
|
|
Accumulated other comprehensive loss
|
|
|
0
|
|
|
|
96
|
|
|
|
(387,211
|
)
|
|
|
0
|
|
|
|
(387,115
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total IGATE Corporation shareholders equity
|
|
|
77,959
|
|
|
|
284,550
|
|
|
|
715,516
|
|
|
|
(1,006,367
|
)
|
|
|
71,658
|
|
Non-controlling interest
|
|
|
0
|
|
|
|
0
|
|
|
|
4,875
|
|
|
|
0
|
|
|
|
4,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
77,959
|
|
|
|
284,550
|
|
|
|
720,391
|
|
|
|
(1,006,367
|
)
|
|
|
76,533
|
|
Total liabilities, preferred stock and shareholders equity
|
|
$
|
1,269,880
|
|
|
$
|
1,135,660
|
|
|
$
|
1,318,309
|
|
|
$
|
(1,825,127
|
)
|
|
$
|
1,898,722
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
IGATE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2014
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THREE MONTHS ENDED JUNE 30, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Non-Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Revenues
|
|
$
|
0
|
|
|
$
|
198,173
|
|
|
$
|
188,508
|
|
|
$
|
(74,936
|
)
|
|
$
|
311,745
|
|
Cost of revenues (exclusive of depreciation and amortization)
|
|
|
0
|
|
|
|
149,899
|
|
|
|
122,770
|
|
|
|
(74,936
|
)
|
|
|
197,733
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
0
|
|
|
|
48,274
|
|
|
|
65,738
|
|
|
|
0
|
|
|
|
114,012
|
|
Selling, general and administrative expense
|
|
|
0
|
|
|
|
17,201
|
|
|
|
30,307
|
|
|
|
0
|
|
|
|
47,508
|
|
Depreciation and amortization
|
|
|
0
|
|
|
|
402
|
|
|
|
8,316
|
|
|
|
0
|
|
|
|
8,718
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
0
|
|
|
|
30,671
|
|
|
|
27,115
|
|
|
|
0
|
|
|
|
57,786
|
|
Interest expense
|
|
|
(8,479
|
)
|
|
|
(8,787
|
)
|
|
|
(2,797
|
)
|
|
|
7,867
|
|
|
|
(12,196
|
)
|
Foreign exchange gain (loss), net
|
|
|
(48
|
)
|
|
|
(88
|
)
|
|
|
2,853
|
|
|
|
0
|
|
|
|
2,717
|
|
Loss on extinguishment of debt
|
|
|
(51,760
|
)
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
(51,760
|
)
|
Other income (expense), net
|
|
|
7,861
|
|
|
|
1,251
|
|
|
|
2,395
|
|
|
|
(7,867
|
)
|
|
|
3,640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
(52,426
|
)
|
|
|
23,047
|
|
|
|
29,566
|
|
|
|
0
|
|
|
|
187
|
|
Income tax (benefit) expense
|
|
|
(19,741
|
)
|
|
|
9,907
|
|
|
|
6,807
|
|
|
|
0
|
|
|
|
(3,027
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(32,685
|
)
|
|
|
13,140
|
|
|
|
22,759
|
|
|
|
0
|
|
|
|
3,214
|
|
Non-controlling interest
|
|
|
0
|
|
|
|
0
|
|
|
|
98
|
|
|
|
0
|
|
|
|
98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to IGATE Corporation
|
|
|
(32,685
|
)
|
|
|
13,140
|
|
|
|
22,661
|
|
|
|
0
|
|
|
|
3,116
|
|
Accretion to preferred stock
|
|
|
145
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
145
|
|
Preferred dividend
|
|
|
8,390
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
8,390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to IGATE common shareholders
|
|
($
|
41,220
|
)
|
|
$
|
13,140
|
|
|
$
|
22,661
|
|
|
$
|
0
|
|
|
$
|
(5,419
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
IGATE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2014
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THREE MONTHS ENDED JUNE 30, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Non-Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Revenues
|
|
$
|
0
|
|
|
$
|
170,922
|
|
|
$
|
180,529
|
|
|
$
|
(68,183
|
)
|
|
$
|
283,268
|
|
Cost of revenues (exclusive of depreciation and amortization)
|
|
|
0
|
|
|
|
130,013
|
|
|
|
113,941
|
|
|
|
(68,183
|
)
|
|
|
175,771
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
0
|
|
|
|
40,909
|
|
|
|
66,588
|
|
|
|
0
|
|
|
|
107,497
|
|
Selling, general and administrative expense
|
|
|
0
|
|
|
|
16,857
|
|
|
|
32,493
|
|
|
|
0
|
|
|
|
49,350
|
|
Depreciation and amortization
|
|
|
0
|
|
|
|
307
|
|
|
|
8,288
|
|
|
|
0
|
|
|
|
8,595
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
0
|
|
|
|
23,745
|
|
|
|
25,807
|
|
|
|
0
|
|
|
|
49,552
|
|
Interest expense
|
|
|
(18,909
|
)
|
|
|
(17,945
|
)
|
|
|
(4,583
|
)
|
|
|
17,325
|
|
|
|
(24,112
|
)
|
Foreign exchange gain (loss), net
|
|
|
0
|
|
|
|
(61
|
)
|
|
|
2,044
|
|
|
|
0
|
|
|
|
1,983
|
|
Loss on extinguishment of debt
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Other income (expense), net
|
|
|
17,325
|
|
|
|
3,029
|
|
|
|
14,388
|
|
|
|
(17,325
|
)
|
|
|
17,417
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
(1,584
|
)
|
|
|
8,768
|
|
|
|
37,656
|
|
|
|
0
|
|
|
|
44,840
|
|
Income tax (benefit) expense
|
|
|
0
|
|
|
|
(43
|
)
|
|
|
14,910
|
|
|
|
0
|
|
|
|
14,867
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(1,584
|
)
|
|
|
8,811
|
|
|
|
22,746
|
|
|
|
0
|
|
|
|
29,973
|
|
Non-controlling interest
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to IGATE Corporation
|
|
|
(1,584
|
)
|
|
|
8,811
|
|
|
|
22,746
|
|
|
|
0
|
|
|
|
29,973
|
|
Accretion to preferred stock
|
|
|
120
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
120
|
|
Preferred dividend
|
|
|
7,752
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
7,752
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to IGATE common shareholders
|
|
$
|
(9,456
|
)
|
|
$
|
8,811
|
|
|
$
|
22,746
|
|
|
$
|
0
|
|
|
$
|
22,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
IGATE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2014
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR SIX MONTHS ENDED JUNE 30, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Non-Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Revenues
|
|
$
|
0
|
|
|
$
|
382,949
|
|
|
$
|
367,654
|
|
|
$
|
(136,652
|
)
|
|
$
|
613,951
|
|
Cost of revenues (exclusive of depreciation and amortization)
|
|
|
0
|
|
|
|
286,843
|
|
|
|
236,322
|
|
|
|
(136,652
|
)
|
|
|
386,513
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
0
|
|
|
|
96,106
|
|
|
|
131,332
|
|
|
|
0
|
|
|
|
227,438
|
|
Selling, general and administrative expense
|
|
|
0
|
|
|
|
32,200
|
|
|
|
57,969
|
|
|
|
0
|
|
|
|
90,169
|
|
Depreciation and amortization
|
|
|
0
|
|
|
|
781
|
|
|
|
17,495
|
|
|
|
0
|
|
|
|
18,276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
0
|
|
|
|
63,125
|
|
|
|
55,868
|
|
|
|
0
|
|
|
|
118,993
|
|
Interest expense
|
|
|
(27,482
|
)
|
|
|
(26,111
|
)
|
|
|
(7,429
|
)
|
|
|
25,197
|
|
|
|
(35,825
|
)
|
Foreign exchange gain (loss), net
|
|
|
0
|
|
|
|
(65
|
)
|
|
|
2,986
|
|
|
|
0
|
|
|
|
2,921
|
|
Loss on extinguishment of debt
|
|
|
(51,760
|
)
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
(51,760
|
)
|
Other income (expense), net
|
|
|
25,185
|
|
|
|
2,410
|
|
|
|
8,596
|
|
|
|
(25,197
|
)
|
|
|
10,994
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
(54,057
|
)
|
|
|
39,359
|
|
|
|
60,021
|
|
|
|
0
|
|
|
|
45,323
|
|
Income tax (benefit) expense
|
|
|
(19,741
|
)
|
|
|
17,004
|
|
|
|
13,135
|
|
|
|
0
|
|
|
|
10,398
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(34,316
|
)
|
|
|
22,355
|
|
|
|
46,886
|
|
|
|
0
|
|
|
|
34,925
|
|
Non-controlling interest
|
|
|
0
|
|
|
|
0
|
|
|
|
193
|
|
|
|
0
|
|
|
|
193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to IGATE Corporation
|
|
|
(34,316
|
)
|
|
|
22,355
|
|
|
|
46,693
|
|
|
|
0
|
|
|
|
34,732
|
|
Accretion to preferred stock
|
|
|
284
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
284
|
|
Preferred dividend
|
|
|
16,529
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
16,529
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to IGATE common shareholders
|
|
$
|
(51,129
|
)
|
|
$
|
22,355
|
|
|
$
|
46,693
|
|
|
$
|
0
|
|
|
$
|
17,919
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
IGATE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2014
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR SIX MONTHS ENDED JUNE 30, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Non-Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Revenues
|
|
$
|
0
|
|
|
$
|
328,099
|
|
|
$
|
359,616
|
|
|
$
|
(129,529
|
)
|
|
$
|
558,186
|
|
Cost of revenues (exclusive of depreciation and amortization)
|
|
|
0
|
|
|
|
245,097
|
|
|
|
230,442
|
|
|
|
(129,529
|
)
|
|
|
346,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
0
|
|
|
|
83,002
|
|
|
|
129,174
|
|
|
|
0
|
|
|
|
212,176
|
|
Selling, general and administrative expense
|
|
|
0
|
|
|
|
32,140
|
|
|
|
60,002
|
|
|
|
0
|
|
|
|
92,142
|
|
Depreciation and amortization
|
|
|
0
|
|
|
|
634
|
|
|
|
17,232
|
|
|
|
0
|
|
|
|
17,866
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
0
|
|
|
|
50,228
|
|
|
|
51,940
|
|
|
|
0
|
|
|
|
102,168
|
|
Interest expense
|
|
|
(37,755
|
)
|
|
|
(36,342
|
)
|
|
|
(7,322
|
)
|
|
|
34,650
|
|
|
|
(46,769
|
)
|
Foreign exchange gain (loss), net
|
|
|
0
|
|
|
|
(189
|
)
|
|
|
4,653
|
|
|
|
0
|
|
|
|
4,464
|
|
Loss on extinguishment of debt
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Other income (expense), net
|
|
|
34,650
|
|
|
|
2,905
|
|
|
|
31,792
|
|
|
|
(34,650
|
)
|
|
|
34,697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
(3,105
|
)
|
|
|
16,602
|
|
|
|
81,063
|
|
|
|
0
|
|
|
|
94,560
|
|
Income tax (benefit) expense
|
|
|
0
|
|
|
|
3,613
|
|
|
|
26,214
|
|
|
|
0
|
|
|
|
29,827
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(3,105
|
)
|
|
|
12,989
|
|
|
|
54,849
|
|
|
|
0
|
|
|
|
64,733
|
|
Non-controlling interest
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to IGATE Corporation
|
|
|
(3,105
|
)
|
|
|
12,989
|
|
|
|
54,849
|
|
|
|
0
|
|
|
|
64,733
|
|
Accretion to preferred stock
|
|
|
235
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
235
|
|
Preferred dividend
|
|
|
15,252
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
15,252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to IGATE common shareholders
|
|
$
|
(18,592
|
)
|
|
$
|
12,989
|
|
|
$
|
54,849
|
|
|
$
|
0
|
|
|
$
|
49,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
IGATE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2014
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THREE MONTHS ENDED JUNE 30, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Non-Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Net Income (loss) attributable to IGATE common shareholders
|
|
$
|
(41,220
|
)
|
|
$
|
13,140
|
|
|
$
|
22,661
|
|
|
$
|
0
|
|
|
$
|
(5,419
|
)
|
Add: Non-controlling interest
|
|
|
0
|
|
|
|
0
|
|
|
|
98
|
|
|
|
0
|
|
|
|
98
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value on marketable securities
|
|
|
0
|
|
|
|
0
|
|
|
|
296
|
|
|
|
0
|
|
|
|
296
|
|
Unrecognized actuarial gain (loss) on pension liability
|
|
|
0
|
|
|
|
0
|
|
|
|
(330
|
)
|
|
|
0
|
|
|
|
(330
|
)
|
Change in fair value of cash flow hedges
|
|
|
0
|
|
|
|
0
|
|
|
|
(913
|
)
|
|
|
0
|
|
|
|
(913
|
)
|
Gain (loss) on foreign currency translation
|
|
|
0
|
|
|
|
0
|
|
|
|
(2,932
|
)
|
|
|
0
|
|
|
|
(2,932
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss)
|
|
|
(41,220
|
)
|
|
|
13,140
|
|
|
|
18,880
|
|
|
|
0
|
|
|
|
(9,200
|
)
|
Less: Total comprehensive income attributable to non-controlling interest
|
|
|
0
|
|
|
|
0
|
|
|
|
71
|
|
|
|
0
|
|
|
|
71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss) attributable to IGATE common shareholders
|
|
$
|
(41,220
|
)
|
|
$
|
13,140
|
|
|
$
|
18,809
|
|
|
$
|
0
|
|
|
$
|
(9,271
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THREE MONTHS ENDED JUNE 30, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Non-Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Net Income (loss) attributable to IGATE common shareholders
|
|
$
|
(9,456
|
)
|
|
$
|
8,811
|
|
|
$
|
22,746
|
|
|
$
|
0
|
|
|
$
|
22,101
|
|
Add: Non-controlling interest
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value on marketable securities
|
|
|
0
|
|
|
|
0
|
|
|
|
(4,040
|
)
|
|
|
0
|
|
|
|
(4,040
|
)
|
Unrecognized actuarial gain (loss) on pension liability
|
|
|
0
|
|
|
|
0
|
|
|
|
257
|
|
|
|
0
|
|
|
|
257
|
|
Change in fair value of cash flow hedges
|
|
|
0
|
|
|
|
0
|
|
|
|
(6,974
|
)
|
|
|
0
|
|
|
|
(6,974
|
)
|
Gain (loss) on foreign currency translation
|
|
|
0
|
|
|
|
0
|
|
|
|
(89,390
|
)
|
|
|
0
|
|
|
|
(89,390
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss)
|
|
|
(9,456
|
)
|
|
|
8,811
|
|
|
|
(77,401
|
)
|
|
|
0
|
|
|
|
(78,046
|
)
|
Less: Total comprehensive income attributable to non-controlling interest
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss) attributable to IGATE common shareholders
|
|
$
|
(9,456
|
)
|
|
$
|
8,811
|
|
|
$
|
(77,401
|
)
|
|
$
|
0
|
|
|
$
|
(78,046
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
IGATE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2014
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR SIX MONTHS ENDED JUNE 30, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Non-
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Net Income (loss) attributable to IGATE common shareholders
|
|
$
|
(51,129
|
)
|
|
$
|
22,355
|
|
|
$
|
46,693
|
|
|
$
|
0
|
|
|
$
|
17,919
|
|
Add: Non-controlling interest
|
|
|
0
|
|
|
|
0
|
|
|
|
193
|
|
|
|
0
|
|
|
|
193
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value on marketable securities
|
|
|
0
|
|
|
|
0
|
|
|
|
(317
|
)
|
|
|
0
|
|
|
|
(317
|
)
|
Unrecognized actuarial gain (loss) on pension liability
|
|
|
0
|
|
|
|
0
|
|
|
|
(14
|
)
|
|
|
0
|
|
|
|
(14
|
)
|
Change in fair value of cash flow hedges
|
|
|
0
|
|
|
|
0
|
|
|
|
3,469
|
|
|
|
0
|
|
|
|
3,469
|
|
Gain (loss) on foreign currency translation
|
|
|
0
|
|
|
|
0
|
|
|
|
26,641
|
|
|
|
0
|
|
|
|
26,641
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss)
|
|
|
(51,129
|
)
|
|
|
22,355
|
|
|
|
76,665
|
|
|
|
0
|
|
|
|
47,891
|
|
Less: Total comprehensive income attributable to non-controlling interest
|
|
|
0
|
|
|
|
0
|
|
|
|
339
|
|
|
|
0
|
|
|
|
339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss) attributable to IGATE common shareholders
|
|
$
|
(51,129
|
)
|
|
$
|
22,355
|
|
|
$
|
76,326
|
|
|
$
|
0
|
|
|
$
|
47,552
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR SIX MONTHS ENDED JUNE 30, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Non-
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Net Income (loss) attributable to IGATE common shareholders
|
|
$
|
(18,592
|
)
|
|
$
|
12,989
|
|
|
$
|
54,849
|
|
|
$
|
0
|
|
|
$
|
49,246
|
|
Add: Non controlling interest
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value on marketable securities
|
|
|
0
|
|
|
|
0
|
|
|
|
(6,750
|
)
|
|
|
0
|
|
|
|
(6,750
|
)
|
Unrecognized actuarial gain (loss) on pension liability
|
|
|
0
|
|
|
|
0
|
|
|
|
570
|
|
|
|
0
|
|
|
|
570
|
|
Change in fair value of cash flow hedges
|
|
|
0
|
|
|
|
0
|
|
|
|
(3,935
|
)
|
|
|
0
|
|
|
|
(3,935
|
)
|
Gain (loss) on foreign currency translation
|
|
|
0
|
|
|
|
0
|
|
|
|
(72,007
|
)
|
|
|
0
|
|
|
|
(72,007
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss)
|
|
|
(18,592
|
)
|
|
|
12,989
|
|
|
|
(27,273
|
)
|
|
|
0
|
|
|
|
(32,876
|
)
|
Less: Total comprehensive income attributable to non controlling interest
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss) attributable to IGATE common shareholders
|
|
$
|
(18,592
|
)
|
|
$
|
12,989
|
|
|
$
|
(27,273
|
)
|
|
$
|
0
|
|
|
$
|
(32,876
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34
IGATE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2014
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR SIX MONTHS ENDED JUNE 30, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Non-
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Cash Flows From Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(34,316
|
)
|
|
$
|
22,355
|
|
|
$
|
46,886
|
|
|
$
|
0
|
|
|
$
|
34,925
|
|
Adjustments to reconcile net income to cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
0
|
|
|
|
781
|
|
|
|
17,495
|
|
|
|
0
|
|
|
|
18,276
|
|
Stock-based compensation
|
|
|
0
|
|
|
|
2,825
|
|
|
|
4,991
|
|
|
|
0
|
|
|
|
7,816
|
|
Realized gain on investments
|
|
|
0
|
|
|
|
0
|
|
|
|
(7,540
|
)
|
|
|
0
|
|
|
|
(7,540
|
)
|
Deferred loss on settled derivatives
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Provision (recovery) for doubtful debts
|
|
|
0
|
|
|
|
(1,104
|
)
|
|
|
228
|
|
|
|
0
|
|
|
|
(876
|
)
|
Deferred income taxes
|
|
|
0
|
|
|
|
0
|
|
|
|
783
|
|
|
|
0
|
|
|
|
783
|
|
Loss on extinguishment of debt
|
|
|
51,760
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
51,760
|
|
Amortization of debt issuance costs
|
|
|
2,297
|
|
|
|
0
|
|
|
|
1,247
|
|
|
|
0
|
|
|
|
3,544
|
|
Gain on sale of property and equipment
|
|
|
0
|
|
|
|
(26
|
)
|
|
|
8
|
|
|
|
0
|
|
|
|
(18
|
)
|
Deferred rent
|
|
|
0
|
|
|
|
60
|
|
|
|
483
|
|
|
|
0
|
|
|
|
543
|
|
Excess tax benefits related to stock option exercises
|
|
|
0
|
|
|
|
(2,707
|
)
|
|
|
0
|
|
|
|
0
|
|
|
|
(2,707
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable and unbilled revenues
|
|
|
0
|
|
|
|
(30,276
|
)
|
|
|
640
|
|
|
|
0
|
|
|
|
(29,636
|
)
|
Inter-corporate current account
|
|
|
36,022
|
|
|
|
25,541
|
|
|
|
(61,563
|
)
|
|
|
0
|
|
|
|
0
|
|
Prepaid expenses and other assets
|
|
|
0
|
|
|
|
(1,279
|
)
|
|
|
(3,824
|
)
|
|
|
0
|
|
|
|
(5,103
|
)
|
Accounts payable
|
|
|
0
|
|
|
|
325
|
|
|
|
(870
|
)
|
|
|
0
|
|
|
|
(545
|
)
|
Accrued and other liabilities
|
|
|
(27,474
|
)
|
|
|
5,600
|
|
|
|
(7,445
|
)
|
|
|
0
|
|
|
|
(29,319
|
)
|
Deferred revenue
|
|
|
0
|
|
|
|
1,172
|
|
|
|
289
|
|
|
|
0
|
|
|
|
1,461
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows provided by (used in) operating activities
|
|
|
28,289
|
|
|
|
23,267
|
|
|
|
(8,192
|
)
|
|
|
0
|
|
|
|
43,364
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
0
|
|
|
|
(2,474
|
)
|
|
|
(38,201
|
)
|
|
|
0
|
|
|
|
(40,675
|
)
|
Proceeds from sale of property and equipment
|
|
|
0
|
|
|
|
0
|
|
|
|
173
|
|
|
|
0
|
|
|
|
173
|
|
Purchase of available-for-sale investments
|
|
|
0
|
|
|
|
0
|
|
|
|
(332,350
|
)
|
|
|
0
|
|
|
|
(332,350
|
)
|
Proceeds from maturities and sale of available-for-sale investments
|
|
|
0
|
|
|
|
0
|
|
|
|
374,404
|
|
|
|
0
|
|
|
|
374,404
|
|
Inter-corporate loan
|
|
|
445,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
(445,000
|
)
|
|
|
0
|
|
Restricted cash
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Investment in subsidiaries
|
|
|
0
|
|
|
|
(155,190
|
)
|
|
|
0
|
|
|
|
155,190
|
|
|
|
0
|
|
Purchase of non-controlling interests
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows provided by (used in) investing activities
|
|
|
445,000
|
|
|
|
(157,664
|
)
|
|
|
4,026
|
|
|
|
(289,810
|
)
|
|
|
1,552
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments on capital lease obligations
|
|
|
0
|
|
|
|
0
|
|
|
|
(236
|
)
|
|
|
0
|
|
|
|
(236
|
)
|
Proceeds from line of credit and term loans
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Payments of line of credit and term loans
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Payment of debt related costs
|
|
|
(41,385
|
)
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
(41,385
|
)
|
Payment of Senior Notes
|
|
|
(770,000
|
)
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
(770,000
|
)
|
Proceeds from Senior Notes
|
|
|
325,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
325,000
|
|
Release of restricted cash towards debt retirement
|
|
|
0
|
|
|
|
360,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
360,000
|
|
Proceeds from issuance of equity stock
|
|
|
0
|
|
|
|
155,067
|
|
|
|
123
|
|
|
|
(155,190
|
)
|
|
|
0
|
|
Proceeds from exercise of stock options
|
|
|
10,389
|
|
|
|
(2,825
|
)
|
|
|
(4,993
|
)
|
|
|
0
|
|
|
|
2,571
|
|
Excess tax benefits related to stock option exercises
|
|
|
2,707
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
2,707
|
|
Inter-corporate loan
|
|
|
0
|
|
|
|
(445,000
|
)
|
|
|
0
|
|
|
|
445,000
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows provided by (used in) financing activities
|
|
|
(473,289
|
)
|
|
|
67,242
|
|
|
|
(5,106
|
)
|
|
|
289,810
|
|
|
|
(121,343
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes
|
|
|
0
|
|
|
|
0
|
|
|
|
98
|
|
|
|
0
|
|
|
|
98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
0
|
|
|
|
(67,155
|
)
|
|
|
(9,174
|
)
|
|
|
0
|
|
|
|
(76,329
|
)
|
Cash and cash equivalents, beginning of period
|
|
|
0
|
|
|
|
82,497
|
|
|
|
122,339
|
|
|
|
0
|
|
|
|
204,836
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
0
|
|
|
$
|
15,342
|
|
|
$
|
113,165
|
|
|
$
|
0
|
|
|
$
|
128,507
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35
IGATE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2014
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR SIX MONTHS ENDED JUNE 30, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Non-
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Cash Flows From Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(3,105
|
)
|
|
$
|
12,989
|
|
|
$
|
54,849
|
|
|
$
|
0
|
|
|
$
|
64,733
|
|
Adjustments to reconcile net income to cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
0
|
|
|
|
634
|
|
|
|
17,232
|
|
|
|
0
|
|
|
|
17,866
|
|
Stock-based compensation
|
|
|
0
|
|
|
|
(878
|
)
|
|
|
4,238
|
|
|
|
0
|
|
|
|
3,360
|
|
Realized gain on investments
|
|
|
0
|
|
|
|
0
|
|
|
|
(25,969
|
)
|
|
|
0
|
|
|
|
(25,969
|
)
|
Deferred loss on settled derivatives
|
|
|
0
|
|
|
|
0
|
|
|
|
(816
|
)
|
|
|
0
|
|
|
|
(816
|
)
|
Provision (recovery) for doubtful debts
|
|
|
0
|
|
|
|
(8
|
)
|
|
|
(147
|
)
|
|
|
0
|
|
|
|
(155
|
)
|
Deferred income taxes
|
|
|
0
|
|
|
|
0
|
|
|
|
(168
|
)
|
|
|
0
|
|
|
|
(168
|
)
|
Loss on extinguishment of debt
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Amortization of debt issuance costs
|
|
|
3,105
|
|
|
|
317
|
|
|
|
4,020
|
|
|
|
0
|
|
|
|
7,442
|
|
Gain on sale of property and equipment
|
|
|
0
|
|
|
|
0
|
|
|
|
(2,240
|
)
|
|
|
0
|
|
|
|
(2,240
|
)
|
Deferred rent
|
|
|
0
|
|
|
|
0
|
|
|
|
23
|
|
|
|
0
|
|
|
|
23
|
|
Excess tax benefits related to stock option exercises
|
|
|
0
|
|
|
|
(387
|
)
|
|
|
0
|
|
|
|
0
|
|
|
|
(387
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable and unbilled revenues
|
|
|
0
|
|
|
|
1,771
|
|
|
|
(13,491
|
)
|
|
|
0
|
|
|
|
(11,720
|
)
|
Inter-corporate current account
|
|
|
(4,052
|
)
|
|
|
(3,388
|
)
|
|
|
7,440
|
|
|
|
0
|
|
|
|
0
|
|
Prepaid expenses and other assets
|
|
|
0
|
|
|
|
(1,817
|
)
|
|
|
(7,320
|
)
|
|
|
0
|
|
|
|
(9,137
|
)
|
Accounts payable
|
|
|
0
|
|
|
|
(2,583
|
)
|
|
|
2,599
|
|
|
|
0
|
|
|
|
16
|
|
Accrued and other liabilities
|
|
|
0
|
|
|
|
(2,404
|
)
|
|
|
5,922
|
|
|
|
0
|
|
|
|
3,518
|
|
Deferred revenue
|
|
|
0
|
|
|
|
(1,735
|
)
|
|
|
(1,867
|
)
|
|
|
0
|
|
|
|
(3,602
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows provided by (used in) operating activities
|
|
|
(4,052
|
)
|
|
|
2,511
|
|
|
|
44,305
|
|
|
|
0
|
|
|
|
42,764
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
0
|
|
|
|
(635
|
)
|
|
|
(16,528
|
)
|
|
|
0
|
|
|
|
(17,163
|
)
|
Proceeds from sale of property and equipment
|
|
|
0
|
|
|
|
0
|
|
|
|
2,536
|
|
|
|
0
|
|
|
|
2,536
|
|
Purchase of available-for-sale investments
|
|
|
0
|
|
|
|
0
|
|
|
|
(1,014,947
|
)
|
|
|
0
|
|
|
|
(1,014,947
|
)
|
Proceeds from maturities and sale of available-for-sale investments
|
|
|
0
|
|
|
|
0
|
|
|
|
1,254,207
|
|
|
|
0
|
|
|
|
1,254,207
|
|
Inter-corporate loan
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Restricted cash
|
|
|
0
|
|
|
|
0
|
|
|
|
3,072
|
|
|
|
0
|
|
|
|
3,072
|
|
Investment in subsidiaries
|
|
|
0
|
|
|
|
(250
|
)
|
|
|
250
|
|
|
|
0
|
|
|
|
0
|
|
Purchase of non-controlling interests
|
|
|
0
|
|
|
|
0
|
|
|
|
(23,651
|
)
|
|
|
0
|
|
|
|
(23,651
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows provided by (used in) investing activities
|
|
|
0
|
|
|
|
(885
|
)
|
|
|
204,939
|
|
|
|
0
|
|
|
|
204,054
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments on capital lease obligations
|
|
|
0
|
|
|
|
0
|
|
|
|
(364
|
)
|
|
|
0
|
|
|
|
(364
|
)
|
Proceeds from line of credit and term loans
|
|
|
0
|
|
|
|
30,000
|
|
|
|
11,000
|
|
|
|
0
|
|
|
|
41,000
|
|
Payments of line of credit and term loans
|
|
|
0
|
|
|
|
(30,000
|
)
|
|
|
(239,500
|
)
|
|
|
0
|
|
|
|
(269,500
|
)
|
Payment of debt related costs
|
|
|
0
|
|
|
|
0
|
|
|
|
(2,394
|
)
|
|
|
0
|
|
|
|
(2,394
|
)
|
Payment of Senior Notes
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Proceeds from Senior Notes
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Release of restricted cash towards debt retirement
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Proceeds from issuance of equity stock
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Proceeds from exercise of stock options
|
|
|
3,665
|
|
|
|
879
|
|
|
|
(3,840
|
)
|
|
|
0
|
|
|
|
704
|
|
Excess tax benefits related to stock option exercises
|
|
|
387
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
387
|
|
Inter-corporate loan
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows provided by (used in) financing activities
|
|
|
4,052
|
|
|
|
879
|
|
|
|
(235,098
|
)
|
|
|
0
|
|
|
|
(230,167
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes
|
|
|
0
|
|
|
|
0
|
|
|
|
2,807
|
|
|
|
0
|
|
|
|
2,807
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
0
|
|
|
|
2,505
|
|
|
|
16,953
|
|
|
|
0
|
|
|
|
19,458
|
|
Cash and cash equivalents, beginning of period
|
|
|
0
|
|
|
|
14,365
|
|
|
|
80,790
|
|
|
|
0
|
|
|
|
95,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
0
|
|
|
$
|
16,870
|
|
|
$
|
97,743
|
|
|
$
|
0
|
|
|
$
|
114,613
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36
IGATE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2014
19.
|
Commitments and contingencies
|
Capital commitments
As of June 30, 2014, the Company has open purchase orders totaling $61.6 million towards construction of new facilities and purchase of
property and equipment.
Bank guarantees
As of June 30, 2014, guarantees and letters of credit provided by banks on behalf of the Companys subsidiaries, to customs
authorities, customers and vendors for capital procurements amounted to $3.1 million. These guarantees and letters of credit have a remaining term of approximately one to five years.
Other commitments
The Companys
business process delivery centers in India are 100% Export Oriented units or Software Technology Parks (STP) and SEZs under the STP and SEZ guidelines issued by the Government of India. These units are exempted from customs, central
excise duties, and levies on imported and indigenous capital goods, stores, and spares. The Company has executed legal undertakings to pay custom duties, central excise duties, levies, and liquidated damages payable, if any, in respect of imported
and indigenous capital goods, stores, and spares consumed duty free, in the event that certain terms and conditions are not fulfilled.
The Company has entered into a service agreement with a customer that provides such customer the option, exercisable at any time by providing
60 days notice to the Company to acquire an equity stake of up to 7.00% of the Companys outstanding voting shares at fair market value. The fair market value is the volume weighted average trading price of the Companys shares on
the NASDAQ Market for five consecutive trading days immediately before the date on which the customer delivers its notice under the option. The option does not restrict the customer in any way from buying the Companys shares in the open
market. The service agreement also requires the Company to register the shares upon exercise of the option by the customer and there are no events or circumstances that would require the Company to transfer consideration under the agreement.
Contingencies
The former Chief Executive
Officer of the Company has filed a complaint before the Alameda County Superior Court of California seeking compensation for breach of contract, breach of the covenant of good faith, and fair dealing, various Labor Code violations, false
promise, and defamation. The Company believes that it has valid defenses against this complaint and has filed a counter complaint on January 29, 2014. Based upon this belief and the inherent difficulties in evaluating the former Chief Executive
Officers complaint at this early stage, the Company cannot reasonably estimate the potential loss, if any. Accordingly, no accrual for loss contingency has been recorded for this matter.
The Company is involved in lawsuits and claims which arise in the ordinary course of business. Management believes that the ultimate outcome
of these matters will not have a material adverse impact on its financial position, results of operations and cash flows.
37
IGATE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2014
20.
|
Recently Issued Accounting Pronouncements
|
In May 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers (Topic 606).
ASU 2014-09
supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition, and most industry-specific guidance. The
core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those
goods or services. To achieve that core principle, an entity is required to follow five steps which comprises of a) identifying the contract(s) with a customer; b) identifying the performance obligations in the contract; c) determining the
transaction price; d) allocating the transaction price to the performance obligations in the contract and e) recognizing revenue when (or as) the entity satisfies a performance obligation. This guidance is effective for annual reporting periods
beginning after December 15, 2016, including interim periods within that reporting period, under either retrospective or retrospective with cumulative effect adoption. Early application is not permitted. The Company is currently assessing the
potential effects of these changes to the consolidated financial statements.
In June 2014, the FASB issued ASU No. 2014-12
Stock Compensation Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period which requires that a performance target that affects vesting
and that could be achieved after the requisite service period be treated as a performance condition. The ASU clarifies the proper method of accounting for share-based payments when the terms of an award provide that a performance target could be
achieved after the requisite service period. The ASU is effective for annual and interim periods for fiscal years beginning on or after December 15, 2015. Entities can apply the amendment either a) prospectively to all awards granted or
modified after the effective date or b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter.
The ASU does not have an impact on the consolidated financial statements.
21.
|
Recently Adopted Accounting Pronouncements
|
In July 2013, the FASB issued an ASU
No. 2013-11 Income Taxes Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carry forward, a Similar Tax Loss, or a Tax Credit Carry forwards Exists which provides that a liability related to an
unrecognized tax benefit would be offset against a deferred tax asset for a net operating loss carry-forward, a similar tax loss or a tax credit carry-forward if such settlement is required or expected in the event the uncertain tax position is
disallowed, which would require an entity to present the liability associated with an unrecognized tax benefit or a portion of an unrecognized tax benefit, in the financial statements as a reduction to a deferred tax asset for a net operating loss
carry-forward, a similar tax loss or a tax credit carry-forward. The ASU also mentions that, to the extent a net operating loss carry-forward, a similar tax loss, or a tax credit carry-forward is not available at the reporting date under the tax law
of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use,
the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The ASU is effective for annual and interim periods for fiscal
years beginning on or after December 15, 2013. The Company has adopted this ASU effective January 1, 2014 and the adoption did not have a material impact on the Companys condensed consolidated balance sheet or statement of income.
38
ITEM 2.
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
Some of the statements in this Form 10-Q contain statements that are not historical facts and that constitute forward-looking
statements within the meaning of such term under the Private Securities Litigation Reform Act of 1995. These forward-looking statements include our financial growth and liquidity projections as well as statements concerning our plans,
strategies, intentions and beliefs concerning our business, cash flows, costs and the markets in which we operate. Without limiting the foregoing, the words believe, anticipate, plan, expect and
similar expressions are intended to identify certain forward-looking statements. These forward-looking statements are based on information currently available to us, and we assume no obligation to update these statements as circumstances change.
There are risks and uncertainties that could cause actual events to differ materially from these forward-looking statements. While we cannot predict all of the risks and uncertainties, they include, but are not limited to, our ability to predict our
financial performance, the level of market demand for our services, the highly-competitive market for the types of services that we offer, the impact of competitive factors on profit margins, market conditions that could cause our customers to
reduce their spending for our services, our ability to create, acquire and build new businesses and grow our existing businesses, our ability to attract and retain qualified personnel, our ability to reduce costs and conserve cash, currency
fluctuations and market conditions in India and elsewhere around the world, changes in generally accepted accounting principles and/or their interpretation, our ability to satisfy or refinance our substantial indebtedness, our ability to comply with
our debt covenants, increases to our borrowing costs and other risks that are described in more detail in our filings with the U.S. Securities and Exchange Commission (the SEC), including our Form 10-K (Form 10-K) for the
year ended December 31, 2013 and in this Form 10-Q under Item 1 (A).
Unless otherwise indicated or the context otherwise
requires, all references in this report to IGATE, the Company, us, our, or we are to IGATE Corporation, a Pennsylvania corporation, and its consolidated subsidiaries. IGATE Corporation,
through its operating subsidiaries, is a worldwide provider of Information Technology (IT) and IT-enabled operations, and provides integrated technology and operations-based solutions to large and medium-sized organizations. These
services include application development, application maintenance, business intelligence and analytics, cloud services, engineering design services, enterprise application solutions, enterprise mobility, infrastructure management services, product
and engineering solutions, embedded systems, product verification and validation, verification and validation and business process outsourcing (BPO).
Website Access to SEC Reports
The
Companys website is http://www.igate.com. The Companys Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, current reports on Form 8-K and any amendments to these reports are available free of charge on the Investors page of the
Companys website as soon as reasonably practicable after the reports are filed electronically with the SEC. The inclusion of our website address above and elsewhere in this quarterly report is, in each case, intended to be an inactive textual
reference only and not an active hyperlink to our website. The information contained in, or that can be accessed through, our website is not part of this quarterly report.
Business Overview
We are a global leader
in providing integrated technology and operations-based information technology solutions. We provide solutions to clients business challenges by leveraging our technology and process capabilities and offering productized applications and
platforms that provide the necessary competitive and innovation edge to clients across industries, through a combination of speed, agility and imagination. We believe that these three attributes will be the key guiding principles for us to navigate
our way to creating greater value for all our stakeholders.
We deliver a comprehensive range of solutions and services across multiple
domains and industries including healthcare, life sciences, insurance, manufacturing, banking, financial services, business administrative services, data management services, product and engineering solutions, retail, consumer packaged goods,
communications, energy, utility, media and entertainment. Our services include application development, application maintenance, business intelligence and analytics, cloud services, engineering design services, enterprise application solutions,
enterprise mobility, infrastructure management services, product and engineering solutions embedded systems, product verification and validation, verification and validation and BPO.
We are the first integrated technology and operations (ITOPS) company. ITOPS is a business outcomes based model that
adds certainty to our clients business. Through ITOPS, we enable our clients to optimize their business through a combination of process investment strategies, technology leverage, and business process outsourcing and provisioning. Our core
proposition of integrating technology and customer processes in a proprietary way has conformed to the changing customer needs and the ITOPS framework has helped us align better with the new-age business challenges of corporations. Our ITOPS
framework has helped us build solutions that address explicit client issues taking into account the market and industry context. We have also developed strong expertise in industry processes that enable us to drive more innovation and technology
capabilities to solve business challenges.
We have adopted a global delivery model for providing varied and complex IT-enabled services
to our global customers spread across multiple locations. With a global presence and world class delivery centers spanning across the Americas, EMEA and Asia-Pacific
39
with 32,742 employees (consisting of 30,729 IT and IT-enabled service professionals and 2,013 individuals working in sales, recruiting, general and administrative roles, of which 26,933 employees
were located at offshore premises and 5,809 employees were located at onsite premises) and 24 offices worldwide, we combine a single business management system with best industry practices, models and standards. We have tailored delivery models
encompassing pure offshore, pure onsite, pure near-shore and blended models (onsite, near-shore, offshore) to meet the specific requirements of our clients.
In our pursuit to be a differentiated value provider to clients and better address their business imperatives, we rebranded our identity which
is represented by a new logo, and renewed vision, mission and values. Our mission is to be an organization that strives for superior and predictable financial performance through focused and innovative execution excellence delivered by a team
that believes in high performance and all through its journey, remains socially conscious.
We were founded in 1986. We are incorporated
in Pennsylvania and our principal executive office is located at Bridgewater, New Jersey. We have operations in India, Canada, the United States, Belgium, Denmark, France, Finland, Germany, Ireland, Netherlands, Sweden, Switzerland, Luxemburg,
Mexico, Hungary, Singapore, Malaysia, Japan, Australia, the United Arab Emirates, South Africa, China, Mauritius and the United Kingdom.
A majority of our clients have headquarters in North America and operate internationally.
We market our service offerings to large and medium-sized organizations. Certain contracts are based upon a fixed price with payment based
upon deliverables and/or project milestones reached. Certain contracts are time-and-materials based and are billed at an agreed upon hourly or daily rate. Certain contracts with no stated deliverables have a designated workforce and are based on
fixed periodic payments. Some process outsourcing contracts provide pricing per transaction. Customers typically have the right to cancel contracts with minimal notice. Contracts with deliverables or project milestones can provide for certain
penalties if the deliverables or project milestones are not met within contract timelines.
We service customers in a wide range of
industries. Our largest customer is General Electric Company (GE), which accounted for approximately 16% of revenues for the three and six months ended June 30, 2014 and 13% of revenues for the three and six months ended
June 30, 2013. Our second largest customer, Royal Bank of Canada (RBC), accounted for approximately 10% of revenues for the three and six months ended June 30, 2014 and 11% for the three and six months ended June 30, 2013.
IGATE is a Global Preferred Partner of RBC.
Recent Developments
Redemption of the 9% Senior Notes due 2016
On April 22, 2014, the Company redeemed 9% Senior Notes due 2016, pursuant to a conditional notice of redemption which was delivered on
March 20, 2014, to the holders thereof, calling for redemption of the entire outstanding $770 million aggregate principal amount of the Notes. The redemption was pursuant to the terms of the indenture (the Indenture), dated as of
April 29, 2011, by and among the Company, the Guarantors named therein and Wilmington Trust, National Association (as successor by merger to Wilmington Trust, FSB), as trustee, governing the Existing Notes. The redemption price was equal
to 100% of the principal amount of the Notes plus the applicable premium, which was $806.3 million.
Issuance of New Senior Notes
On April 2, 2014, the Company completed the private placement of $325 million aggregate principal amount of 4.75% Senior Notes due 2019
(the Notes) to several initial purchasers. The Notes will mature on April 15, 2019, and bear interest at a rate of 4.75% per annum, payable semi-annually in cash in arrears on April 15 and October 15 of each year,
beginning on October 15, 2014. The Notes are senior unsecured obligations of the Company and will be guaranteed by the Guarantors. The Notes will be redeemable, in whole or in part, at any time on or after April 15, 2016, at the redemption
prices specified in an indenture (the Indenture), dated as of April 2, 2014, by and among the Company, IGATE Technologies Inc. (ITI), IGATE, Inc., IGATE Holding Corporation and the trustee, together with accrued and
unpaid interest, if any, to the redemption date. At any time prior to April 15, 2016, the Company may redeem up to 40% of the aggregate principal amount of the Notes with the net cash proceeds from certain equity offerings at a redemption price
equal to 104.75% of the principal amount thereof, together with accrued and unpaid interest, if any, to the redemption date. In addition, at any time prior to April 15, 2016, the Company may redeem the Notes, in whole or in part, at a
redemption price equal to 100% of the principal amount of the Notes so redeemed, plus a make whole premium, together with accrued and unpaid interest, if any, to the redemption date. Upon the occurrence of a change of control triggering
event specified in the Indenture, the Company must offer to purchase the Notes at a redemption price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of purchase.
40
Reportable Financial Segments
The Companys Chief Executive Officer, who is also the Chief Operating Decision Maker, has recently regrouped the organization into
vertical-based business units to bring in more industry knowledge and solutions and increase the depth and accountability to the business. However, the Company does not prepare discrete financial information as per the requirements of ASC 280
and as a result segment information is not presented.
Critical Accounting Policies
Our condensed consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles
(GAAP) as set forth in the Financial Accounting Standards Boards Accounting Standards Codification (the Codification) and consider the various staff accounting bulletins and other applicable guidance issued by the SEC.
GAAP, as set forth within the Codification, requires us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at the
time that these estimates, judgments and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of
revenues and expenses during the periods presented. To the extent there are differences between these estimates, judgments or assumptions and actual results, our financial statements will be affected. The accounting policies that reflect our more
significant estimates, judgments and assumptions and which we believe are the most critical to aid in fully understanding and evaluating our reported financial results include the following:
|
|
|
Derivative Instruments and Hedging Activities.
|
|
|
|
Stock-based compensation.
|
During the six months ended June 30, 2014, there were no significant
changes to our critical accounting policies and estimates. Managements Discussion and Analysis of Financial Condition and Results of Operations contained in Part II, Item 7 of our Annual Report on Form 10-K for our fiscal year ended
December 31, 2013 provides a more complete discussion of our critical accounting policies and estimates.
Recently Issued Accounting
Pronouncements
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606).
ASU 2014-09
supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition, and most industry-specific guidance. The core principle of the guidance is that an entity should recognize
revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity
is required to follow five steps which comprises of a) identifying the contract(s) with a customer; b) identifying the performance obligations in the contract; c) determining the transaction price; d) allocating the transaction price to the
performance obligations in the contract and e) recognizing revenue when (or as) the entity satisfies a performance obligation. This guidance is effective for annual reporting periods beginning after December 15, 2016, including interim periods
within that reporting period, under either retrospective or retrospective with cumulative effect adoption. Early application is not permitted. The Company is currently assessing the potential effects of these changes to the consolidated financial
statements.
In June 2014, the FASB issued ASU No. 2014-12 Stock Compensation Accounting for Share-Based Payments
When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period which requires that a performance target that affects vesting and that could be achieved after the requisite service period be
treated as a performance condition. The ASU clarifies the proper method of accounting for share-based payments when the terms of an award provide that a performance target could be achieved after the requisite service period. The ASU is effective
for annual and interim periods for fiscal years beginning on or after December 15, 2015. Entities can apply the amendment either a) prospectively to all awards granted or modified after the effective date or b) retrospectively to all
awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. The ASU does not have an impact on the consolidated financial
statements.
41
Results of Operations for the Three Months Ended June 30, 2014 as Compared to the Three Months Ended
June 30, 2013 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
% change of
amount from
comparable
period
|
|
|
|
Amount
|
|
|
% of
Revenues
|
|
|
Amount
|
|
|
% of
Revenues
|
|
|
|
|
Revenues
|
|
$
|
311,745
|
|
|
|
100.0
|
%
|
|
$
|
283,268
|
|
|
|
100.0
|
%
|
|
|
10.1
|
%
|
Cost of revenues
(a)
|
|
|
197,733
|
|
|
|
63.4
|
|
|
|
175,771
|
|
|
|
62.1
|
|
|
|
12.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
114,012
|
|
|
|
36.6
|
|
|
|
107,497
|
|
|
|
37.9
|
|
|
|
6.1
|
|
Selling, general and administrative expense
|
|
|
47,508
|
|
|
|
15.2
|
|
|
|
49,350
|
|
|
|
17.4
|
|
|
|
(3.7
|
)
|
Depreciation and amortization
|
|
|
8,718
|
|
|
|
2.8
|
|
|
|
8,595
|
|
|
|
3.0
|
|
|
|
1.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
57,786
|
|
|
|
18.6
|
|
|
|
49,552
|
|
|
|
17.5
|
|
|
|
16.6
|
|
Interest expense
|
|
|
(12,196
|
)
|
|
|
(3.9
|
)
|
|
|
(24,112
|
)
|
|
|
(8.5
|
)
|
|
|
(49.4
|
)
|
Foreign exchange gain, net
|
|
|
2,717
|
|
|
|
0.8
|
|
|
|
1,983
|
|
|
|
0.7
|
|
|
|
37.0
|
|
Loss on extinguishment of debt
(b)
|
|
|
(51,760
|
)
|
|
|
(16.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
3,640
|
|
|
|
1.1
|
|
|
|
17,417
|
|
|
|
6.1
|
|
|
|
(79.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
187
|
|
|
|
0.0
|
|
|
|
44,840
|
|
|
|
15.8
|
|
|
|
(99.6
|
)
|
Income tax (benefit) expense
(c)
|
|
|
(3,027
|
)
|
|
|
(1.0
|
)
|
|
|
14,867
|
|
|
|
5.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
3,214
|
|
|
|
1.0
|
|
|
|
29,973
|
|
|
|
10.6
|
|
|
|
(89.3
|
)
|
Non-controlling interest
(b)
|
|
|
98
|
|
|
|
0.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to IGATE
|
|
|
3,116
|
|
|
|
1.0
|
|
|
|
29,973
|
|
|
|
10.6
|
|
|
|
(89.6
|
)
|
Accretion to preferred stock
|
|
|
145
|
|
|
|
0.0
|
|
|
|
120
|
|
|
|
0.0
|
|
|
|
20.8
|
|
Preferred dividend
|
|
|
8,390
|
|
|
|
2.7
|
|
|
|
7,752
|
|
|
|
2.7
|
|
|
|
8.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to IGATE common shareholders
|
|
$
|
(5,419
|
)
|
|
|
(1.7
|
)%
|
|
$
|
22,101
|
|
|
|
7.9
|
%
|
|
|
(124.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Cost of revenues is exclusive of depreciation and amortization.
|
(b)
|
As there is no amount in the previous period, the percent change from previous period is not computed.
|
(c)
|
As the effective tax rate is a better comparable measure, the percent change from comparable period is not computed.
|
Revenues
Revenues increased by 10.1% for
the three months ended June 30, 2014 as compared to the three months ended June 30, 2013. The increase is directly attributable to the combination of increased business with our recurring customers by 7.6% and business with new customers
by 3.5%, which was partly offset by the cessation of business with certain existing customers by 1.2%. In addition, the movement of the U.S. dollar (USD) as against various other currencies during the three months ended June 30,
2014 as compared to the corresponding period in the previous year had a favorable impact on our revenues by 0.2%.
Our top five customers
accounted for 39.1% and 40.0% of the revenues for the three months ended June 30, 2014 and 2013, respectively. We continue to derive a significant portion of our revenues from our customers in the United States and Canada, which constitutes
about 78.5% and 82.0% of revenue for the three months ended June 30, 2014 and 2013, respectively.
42
Revenues by Geography
The following table presents our consolidated domestic and international revenues as a percentage of consolidated revenues based on customer
geography (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
215,057
|
|
|
|
69.0
|
|
|
$
|
202,190
|
|
|
|
71.4
|
|
Canada
|
|
|
29,702
|
|
|
|
9.5
|
|
|
|
30,064
|
|
|
|
10.6
|
|
EMEA
(1)
|
|
|
48,857
|
|
|
|
15.7
|
|
|
|
33,885
|
|
|
|
12.0
|
|
Asia Pacific
|
|
|
18,129
|
|
|
|
5.8
|
|
|
|
17,129
|
|
|
|
6.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
311,745
|
|
|
|
100.0
|
|
|
$
|
283,268
|
|
|
|
100.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Comprises of Europe, Middle East and African countries.
|
Revenue by verticals
The following table presents our consolidated revenues as a percentage of consolidated revenues based on customer business verticals (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Banking and financial services
|
|
$
|
72,558
|
|
|
|
23.3
|
|
|
$
|
59,375
|
|
|
|
21.0
|
|
Insurance
|
|
|
62,410
|
|
|
|
20.0
|
|
|
|
65,060
|
|
|
|
23.0
|
|
Healthcare and life sciences
|
|
|
28,120
|
|
|
|
9.0
|
|
|
|
27,176
|
|
|
|
9.6
|
|
Manufacturing
|
|
|
82,187
|
|
|
|
26.4
|
|
|
|
74,247
|
|
|
|
26.2
|
|
Retail and CPG
|
|
|
27,535
|
|
|
|
8.8
|
|
|
|
26,724
|
|
|
|
9.4
|
|
Services
|
|
|
38,935
|
|
|
|
12.5
|
|
|
|
30,686
|
|
|
|
10.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
311,745
|
|
|
|
100.0
|
|
|
$
|
283,268
|
|
|
|
100.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The revenue mix by vertical for the three months ended June 30, 2014 as compared to 2013 changed marginally by
increase in Banking and financial services by 2.3%, Services sector by 1.7% and a decrease in Insurance sector by 3.0%. The change in the mix in Banking and financial services sector is primarily due to the increased business from the existing
customers. The change in the mix in Insurance sector is primarily on account of reduced business from the existing customers. The change in the mix in Services sector is primarily on account of new customers.
Revenue by project type
The following table presents our
consolidated revenues as a percentage of consolidated revenues based on project type (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed price
|
|
$
|
209,214
|
|
|
|
67.1
|
|
|
$
|
176,626
|
|
|
|
62.4
|
|
Time and material
|
|
|
102,531
|
|
|
|
32.9
|
|
|
|
106,642
|
|
|
|
37.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
311,745
|
|
|
|
100.0
|
|
|
$
|
283,268
|
|
|
|
100.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The revenue mix by project type for the three months ended June 30, 2014 as compared to June 30, 2013 changed
by an increase in fixed price projects by 4.7% which was predominantly on account of increased business from the existing customers and the new customers based on fixed price.
43
Gross margin
Our Gross margin percentage was 36.6% for the three months ended June 30, 2014, as compared to 37.9% for the three months ended
June 30, 2013. The details of gross margin are as follows (in thousands):
Gross Margin Metrics:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
|
2014
|
|
|
2013
|
|
Revenue
|
|
$
|
311,745
|
|
|
$
|
283,268
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
Direct salary costs
|
|
|
170,869
|
|
|
|
148,229
|
|
Direct travel costs
|
|
|
6,340
|
|
|
|
8,488
|
|
Direct other costs
|
|
|
20,524
|
|
|
|
19,054
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Margin
|
|
$
|
114,012
|
|
|
$
|
107,497
|
|
|
|
|
|
|
|
|
|
|
As we conduct business through our globally integrated onsite and offshore delivery locations, primarily in
India, the strengthening or weakening of the USD against other currencies, has a direct effect on our costs by reducing or increasing the cost of our services in offshore delivery centers which impacts our profitability.
During the three months ended June 30, 2014, the decrease in gross margin percentage was directly attributable to an increase in salaries
and other costs directly associated with billable professionals, including payroll taxes by 3.2%, which was offset by a decrease in immigration costs including visa fees by 0.5%, insurance, travel and other related expenses by 0.1% and favorable
movement of the USD against other currencies by 1.3%.
Selling, general and administrative expenses
Selling, general and administrative expenses (SG&A) include all costs that are not directly associated with revenue-generating
activities. These include employee costs, corporate costs and facilities costs. Employee costs include selling, marketing and administrative salaries and related employee benefits and training costs. Corporate costs include costs such as marketing
and advertisement expense, reorganization costs, legal, accounting and outside consulting fees. Facilities costs primarily include rent and communications costs. The SG&A expense details are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
|
2014
|
|
|
2013
|
|
Employee costs
|
|
$
|
22,543
|
|
|
$
|
22,009
|
|
Travel costs
|
|
|
2,925
|
|
|
|
2,822
|
|
Corporate costs:
|
|
|
|
|
|
|
|
|
- Marketing costs
|
|
|
2,464
|
|
|
|
1,080
|
|
- Legal costs
|
|
|
(236
|
)
|
|
|
2,432
|
|
- Other corporate costs
|
|
|
6,935
|
|
|
|
9,506
|
|
|
|
|
|
|
|
|
|
|
Total Corporate costs
|
|
|
9,163
|
|
|
|
13,018
|
|
Facility costs
|
|
|
12,877
|
|
|
|
11,501
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
$
|
47,508
|
|
|
$
|
49,350
|
|
|
|
|
|
|
|
|
|
|
Total SG&A expenses for the three months ended June 30, 2014 decreased by $1.8 million as compared to
the three months ended June 30, 2013.
Employee costs increased by $0.5 million for the three months ended June 30, 2014, as
compared to the three months ended June 30, 2013, resulting from an increase due to employee stock-based compensation expenses of $0.5 million.
44
Our corporate costs decreased by $3.9 million for the three months ended June 30, 2014 as
compared to the three months ended June 30, 2013. Marketing costs increased by $1.4 million due to rebranding activity. Legal costs decreased by $2.7 million primarily due to decreased professional fees of $1.3 million related to ongoing
general litigation matters and the Company also received from an insurance company a reimbursement of $1.3 million against the payment towards the claim brought against us by a former employee. Other corporate costs decreased by $2.6 million mainly
due to a decrease in merger and reorganization expenses of $4.8 million incurred in connection with implementation of structural changes which was partly offset by $1.4 million increase in statutory payments, an increase in recovery of doubtful
debts of $0.4 million and an increase in recruitment expenses by $0.5 million.
Facilities costs increased by $1.4 million for the three
months ended June 30, 2014 as compared to the three months ended June 30, 2013. The increase was primarily on account of increase in rent and related expenses by $1.4 million.
Depreciation and amortization costs
Depreciation and amortization costs were 2.8% and 3.0% of revenue for the three months ended June 30, 2014 and 2013, respectively.
Although, the costs decreased marginally as a percentage of revenue due to the higher revenue base in 2014 as compared to 2013, it marginally increased in absolute terms.
Operating income
Our operating margin
(operating income as a percentage of revenue) was 18.6% and 17.5% for the three months ended June 30, 2014 and 2013, respectively. The increase was mainly due to increased business resulting in increased revenues thereby contributing to an
increase in margins and a decrease in selling, general and administrative expenses.
Interest expense
Interest expenses were 3.9% and 8.5% of revenues for the three months ended June 30, 2014 and 2013, respectively. The details of interest
expense are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
2014
|
|
|
2013
|
|
Interest on Senior Notes (including amortization of debt issuance costs)
|
|
$
|
8,479
|
|
|
$
|
18,910
|
|
Interest expense on line of credit and term loans (including amortization of debt issuance costs)
|
|
|
3,605
|
|
|
|
5,055
|
|
Interest on uncertain tax position
|
|
|
76
|
|
|
|
110
|
|
Other interest charges
|
|
|
36
|
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
12,196
|
|
|
$
|
24,112
|
|
|
|
|
|
|
|
|
|
|
The decrease in interest expense was $11.9 million for the three months ended June 30, 2014 as compared
to the three months ended June 30, 2013. The decrease during the current reporting period is primarily on account of lower interest on new Senior Notes at 4.75% as compared to the extinguished Senior Notes at 9%.
Foreign exchange gain, net
Foreign
exchange gain was $2.7 million and $1.9 million for the three months ended June 30, 2014 and 2013, respectively.
We recognized
foreign currency gain of $3.4 million and loss of $2.0 million on foreign exchange derivative contracts related to inter-company and end customer receivables and forecasted revenues for the three months ended June 30, 2014 and 2013,
respectively.
We also recognized a foreign currency loss of $0.4 million on the re-measurement related to other monetary assets and
liabilities and loss of $0.3 million on the re-measurement of the unsecured revolving working credit facility for the three months ended June 30, 2014, as compared to a gain of $8.6 million on the re-measurement of other monetary assets and
liabilities, a loss of $4.6 million on the re-measurement of unsecured revolving working credit facility, a loss of $0.9 million on the re-measurement of escrow account balance and a gain of $0.8 million on re-measurement of redeemable
non-controlling interest for the three months ended June 30, 2013.
45
Loss on extinguishment of debt
On April 22, 2014, pursuant to the Optional Redemption clause, as per the terms of the Indenture of Senior Notes due
May 1, 2016, the Company redeemed 9.00% Senior Notes of $770 million together with a make whole premium of $36.3 million and charged the loss on extinguishment of $51.8 million (inclusive of unamortized debt issuance cost of $15.5 million) to
earnings during the quarter. The Company redeemed the Senior Notes due by partly raising funds through the private placement of $325 million principal amount of 4.75% Senior Notes due April 15, 2019 (the Notes) to several initial
purchasers. See Note 6 for more details on the new Notes.
Other income, net
Other income was 1.1% and 6.1% of revenues for the three months ended June 30, 2014 and 2013, respectively. The details of other income
are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
2014
|
|
|
2013
|
|
Investment income
|
|
$
|
2,432
|
|
|
$
|
10,692
|
|
Interest income
|
|
|
189
|
|
|
|
577
|
|
Gain on sale of fixed assets
|
|
|
65
|
|
|
|
2,266
|
|
Forfeiture of vested stock options
|
|
|
|
|
|
|
3,005
|
|
Other
|
|
|
954
|
|
|
|
877
|
|
|
|
|
|
|
|
|
|
|
Other income, net
|
|
$
|
3,640
|
|
|
$
|
17,417
|
|
|
|
|
|
|
|
|
|
|
The decrease in other income is primarily due to the reduction in the investment income. Our investment base
as of April 01, 2014 and 2013 was $162.2 million and $500.5 million, respectively.
The Company sold some of the lands located in
India and realized a gain of $2.2 million for the three months ended June 30, 2013.
Interest received on tax refunds from tax
authorities amounted to $0.3 million for the three months ended June 30, 2013. Additionally, other income for the three months ended June 30, 2013, includes approximately $3.0 million attributable to the forfeiture of vested stock options
in connection with the termination of our former Chief Executive Officer.
Income taxes
Our effective tax rate (ETR) was (1618.7)% and 33.2% during the three months ended June 30, 2014 and 2013, respectively.
The Company recognized a tax benefit of $19.7 million during the three months ended June 30, 2014 related to the loss on extinguishment
of debt of $51.8 million (inclusive of unamortized debt issuance cost of $15.5 million).
During the three months ended June 30,
2014, the Company released valuation allowance of $2.0 million pertaining to its subsidiary in U.K. jurisdiction. The Company weighed all evidences as of June 30, 2014 and determined that the positive evidences relating to the realizability of
its deferred tax asset particularly the evidences that were objectively verifiable outweighed the negative evidences. The positive evidences as of June 30, 2014 that outweighed the negative evidences includes (i) three years cumulative
income position; (ii) the strong positive trend in the subsidiarys financial performance over four consecutive quarters; (iii) the forecasted income for 2014 and future taxable income; (iv) indefinite carry forward period of the
net operating losses; and (v) improved trend in earnings and increased customer revenues from contracts entered in 2013 and new contracts entered in 2014. Accordingly, the Company concluded that it is more likely than not that the deferred tax
assets will be realized and released the valuation allowance.
The impact of the above resulted in negative ETR during the three months
ended June 30, 2014.
During the three months ended June 30, 2013, the company recorded a tax expense of $3.0 million as a
result of increase in Indian statutory tax rate on the deferred tax liability as per the new legislation. The Company also recorded a discrete tax benefit of $3.7 million on account of merger of entities in India jurisdiction. This led to a net tax
benefit of 0.7 million during the three months ended June 30, 2013. In addition, one of the divisions registered under SEZ scheme of the Indian entity has completed its first five years of 100% tax holiday and would be claiming 50% of tax
holiday. This resulted in reduced SEZ benefits of $1.2 million for the three months ended June 30, 2013
46
Non-controlling interest
Post the approval of the merger scheme of IGATE Global Solutions Limited (IGATE Global) on May 10, 2013 by the High Court of
Judicature at Mumbai approving the merger of IGATE Computer Systems Limited (IGATE Computer) with IGATE Global, shareholders of IGATE Computer who did not tender their shares during the exit period (until May 27, 2013) were issued
IGATE Global shares in the ratio of five equity shares of IGATE Global for twenty two equity shares of IGATE Computer. As of June 30, 2013, the Company had no obligation to redeem the shares and accordingly the remaining redeemable
non-controlling interest was reclassified to permanent equity. The shares held by general public as of June 30, 2014 represents approximately 0.5% of the outstanding share capital of IGATE Global.
For the three months ended June 30, 2014, we recorded $0.1 million share of profits and $0.1 million of accumulated other comprehensive
income attributable to non-controlling interest.
Preferred dividend
On February 1, 2011, pursuant to the securities purchase agreement with Viscaria Limited dated January 10, 2011, we issued 210,000
shares of Series B Preferred Stock for a consideration of $210 million and an additional 120,000 shares were issued on May 9, 2011 for a consideration of $120 million. We have accrued for cumulative dividends of $8.4 million and $7.8 million at
a rate of 8.00% per annum, compounded quarterly, for the three months ended June 30, 2014 and 2013, respectively.
Results of Operations for
the Six Months Ended June 30, 2014 as Compared to the Six Months Ended June 30, 2013 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
% change of
Amount from
comparable
period
|
|
|
|
Amount
|
|
|
% of
Revenues
|
|
|
Amount
|
|
|
% of
Revenues
|
|
|
|
|
Revenues
|
|
$
|
613,951
|
|
|
|
100.0
|
%
|
|
$
|
558,186
|
|
|
|
100.0
|
%
|
|
|
10.0
|
%
|
Cost of revenues
(a)
|
|
|
386,513
|
|
|
|
63.0
|
|
|
|
346,010
|
|
|
|
62.0
|
|
|
|
11.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
227,438
|
|
|
|
37.0
|
|
|
|
212,176
|
|
|
|
38.0
|
|
|
|
7.2
|
|
Selling, general and administrative expense
|
|
|
90,169
|
|
|
|
14.7
|
|
|
|
92,142
|
|
|
|
16.5
|
|
|
|
(2.1
|
)
|
Depreciation and amortization
|
|
|
18,276
|
|
|
|
3.0
|
|
|
|
17,866
|
|
|
|
3.2
|
|
|
|
2.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
118,993
|
|
|
|
19.3
|
|
|
|
102,168
|
|
|
|
18.3
|
|
|
|
16.5
|
|
Interest expense
|
|
|
(35,825
|
)
|
|
|
(5.8
|
)
|
|
|
(46,769
|
)
|
|
|
(8.4
|
)
|
|
|
(23.4
|
)
|
Foreign exchange gain, net
|
|
|
2,921
|
|
|
|
0.5
|
|
|
|
4,464
|
|
|
|
0.8
|
|
|
|
(34.6
|
)
|
Loss on extinguishment of debt
(b)
|
|
|
(51,760
|
)
|
|
|
(8.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
10,994
|
|
|
|
1.8
|
|
|
|
34,697
|
|
|
|
6.2
|
|
|
|
(68.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
45,323
|
|
|
|
7.4
|
|
|
|
94,560
|
|
|
|
16.9
|
|
|
|
(52.1
|
)
|
Income tax expense
(c)
|
|
|
10,398
|
|
|
|
1.7
|
|
|
|
29,827
|
|
|
|
5.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
34,925
|
|
|
|
5.7
|
|
|
|
64,733
|
|
|
|
11.6
|
|
|
|
(46.0
|
)
|
Non-controlling interest
(b)
|
|
|
193
|
|
|
|
0.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to IGATE
|
|
|
34,732
|
|
|
|
5.7
|
|
|
|
64,733
|
|
|
|
11.6
|
|
|
|
(46.3
|
)
|
Accretion to preferred stock
|
|
|
284
|
|
|
|
0.1
|
|
|
|
235
|
|
|
|
0.0
|
|
|
|
20.9
|
|
Preferred dividend
|
|
|
16,529
|
|
|
|
2.7
|
|
|
|
15,252
|
|
|
|
2.7
|
|
|
|
8.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to IGATE common shareholders
|
|
$
|
17,919
|
|
|
|
2.9
|
%
|
|
$
|
49,246
|
|
|
|
8.9
|
%
|
|
|
(63.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Cost of revenues is exclusive of depreciation and amortization.
|
(b)
|
As there is no amount in the previous period, the percent change from previous period is not computed.
|
(c)
|
As the effective tax rate is a better comparable measure, the percent change from comparable period is not computed.
|
47
Revenues
Revenues increased by 10.0% for the six months ended June 30, 2014 as compared to the six months ended June 30, 2013. The increase is
directly attributable to the combination of increased business with our recurring customers by 8.0% and business with new customers by 3.0%, which was partly offset by the cessation of business with certain existing customers by 0.7%. In addition,
the movement of the USD as against various other currencies during the six months ended June 30, 2014 as compared to the corresponding period in the previous year had a net adverse impact on our revenues by 0.3%.
Our top five customers accounted for 38.8% and 39% of the revenues for the six months ended June 30, 2014 and 2013, respectively. We
continue to derive a significant portion of our revenues from our customers in the United States and Canada, which constitutes about 78.0% and 81.2% of revenue for the six months ended June 30, 2014 and 2013, respectively.
Revenues by Geography
The following table presents our
consolidated domestic and international revenues as a percentage of consolidated revenues based customer geography (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
420,316
|
|
|
|
68.4
|
|
|
$
|
393,992
|
|
|
|
70.6
|
|
Canada
|
|
|
58,916
|
|
|
|
9.6
|
|
|
|
59,085
|
|
|
|
10.6
|
|
EMEA
(1)
|
|
|
98,681
|
|
|
|
16.1
|
|
|
|
68,723
|
|
|
|
12.3
|
|
Asia Pacific
|
|
|
36,038
|
|
|
|
5.9
|
|
|
|
36,386
|
|
|
|
6.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
613,951
|
|
|
|
100.0
|
|
|
$
|
558,186
|
|
|
|
100.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Comprises of Europe, Middle East and African countries.
|
Revenue by verticals
The following table presents our consolidated revenues as a percentage of consolidated revenues based on customer business verticals (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Banking and financial services
|
|
$
|
142,161
|
|
|
|
23.2
|
|
|
$
|
120,427
|
|
|
|
21.6
|
|
Insurance
|
|
|
123,700
|
|
|
|
20.1
|
|
|
|
125,371
|
|
|
|
22.5
|
|
Healthcare and life sciences
|
|
|
55,466
|
|
|
|
9.0
|
|
|
|
54,957
|
|
|
|
9.8
|
|
Manufacturing
|
|
|
162,225
|
|
|
|
26.4
|
|
|
|
147,894
|
|
|
|
26.5
|
|
Retail and CPG
|
|
|
53,921
|
|
|
|
8.8
|
|
|
|
48,513
|
|
|
|
8.7
|
|
Services
|
|
|
76,478
|
|
|
|
12.5
|
|
|
|
61,024
|
|
|
|
10.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
613,951
|
|
|
|
100.0
|
|
|
$
|
558,186
|
|
|
|
100.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The revenue mix by vertical for the six months ended June 30, 2014 as compared to 2013 changed marginally by
increase in Banking and financial services by 1.6%, Services sector by 1.6% and a decrease in Insurance sector by 2.4%. The change in the mix in Banking and financial services sector is primarily due to the increased business from the existing
customers. The change in the mix in Insurance sector is primarily on account of reduced business from the existing customers. The change in the mix in Services sector is primarily on account of new customers.
48
Revenue by project type
The following table presents our consolidated revenues as a percentage of consolidated revenues based on project type (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed price
|
|
$
|
411,688
|
|
|
|
67.1
|
|
|
$
|
347,818
|
|
|
|
62.3
|
|
Time and material
|
|
|
202,263
|
|
|
|
32.9
|
|
|
|
210,368
|
|
|
|
37.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
613,951
|
|
|
|
100.0
|
|
|
$
|
558,186
|
|
|
|
100.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The revenue mix by project type for the six months ended June 30, 2014 as compared to June 30, 2013 changed by
an increase in fixed price projects by 4.8% which was predominantly on account of increased business from the existing customers and the new customers based on fixed price.
Gross margin
Our Gross margin
percentage was 37.0% for the six months ended June 30, 2014, as compared to 38.0% for the six months ended June 30, 2013. The details of gross margin are as follows (in thousands):
Gross Margin Metrics:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2014
|
|
|
2013
|
|
Revenue
|
|
$
|
613,951
|
|
|
$
|
558,186
|
|
|
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
Direct salary costs
|
|
|
322,630
|
|
|
|
288,624
|
|
|
|
|
Direct travel costs
|
|
|
21,018
|
|
|
|
21,100
|
|
|
|
|
Direct other costs
|
|
|
42,865
|
|
|
|
36,286
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Margin
|
|
$
|
227,438
|
|
|
$
|
212,176
|
|
|
|
|
|
|
|
|
|
|
As we conduct business through our globally integrated onsite and offshore delivery locations, primarily in
India, the strengthening or weakening of the USD against other currencies, has a direct effect on our costs by reducing or increasing the cost of our services in offshore delivery centers which impacts our profitability.
During the six months ended June 30, 2014, the decrease in gross margin percentage was directly attributable to an increase in salaries,
performance incentives and other costs directly associated with billable professionals, including payroll taxes by 3.3%, an increase in immigration costs including visa fees by 0.1%, which was offset by decrease in travel and other related expenses
by 0.5% and favorable movement of the USD against the other currencies by 1.9%.
49
Selling, general and administrative expenses
SG&A include all costs that are not directly associated with revenue-generating activities. These include employee costs, corporate costs
and facilities costs. Employee costs include selling, marketing and administrative salaries and related employee benefits and training costs. Corporate costs include costs such as marketing and advertisement expense, reorganization costs, legal,
accounting and outside consulting fees. Facilities costs primarily include rent and communications costs. The SG&A expense details are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2014
|
|
|
2013
|
|
Employee costs
|
|
$
|
45,117
|
|
|
$
|
42,499
|
|
Travel costs
|
|
|
5,779
|
|
|
|
6,063
|
|
Corporate costs:
|
|
|
|
|
|
|
|
|
- Marketing costs
|
|
|
3,846
|
|
|
|
3,788
|
|
- Legal costs
|
|
|
741
|
|
|
|
2,924
|
|
- Other corporate costs
|
|
|
10,601
|
|
|
|
14,069
|
|
|
|
|
|
|
|
|
|
|
Total Corporate costs
|
|
|
15,188
|
|
|
|
20,781
|
|
Facility costs
|
|
|
24,085
|
|
|
|
22,799
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
$
|
90,169
|
|
|
$
|
92,142
|
|
|
|
|
|
|
|
|
|
|
Total SG&A expenses for the six months ended June 30, 2014 decreased by $2.0 million as compared to
the six months ended June 30, 2013.
Employee costs increased by $2.6 million for the six months ended June 30, 2014, as
compared to the six months ended June 30, 2013, resulting from an increase due to salary costs of $1.2 million and employee stock-based compensation expenses of $1.2 million.
Our corporate costs decreased by $5.6 million for the six months ended June 30, 2014 as compared to the six months ended June 30,
2013. Legal costs decreased by $2.2 million primarily due to decreased professional fees of $0.8 million related to ongoing general litigation matters and the Company also received from an insurance company a reimbursement of $1.3 million against
the payment towards the claim brought against us by a former employee. Other corporate costs decreased by $3.5 million mainly due to decrease in merger and reorganization expenses of $5.2 million incurred in connection with implementation of
structural changes, reversal of provision for doubtful debts by $0.7 million, professional and accounting fees by $0.3 million, which was partly offset by $1.2 million increase in statutory payments, and an increase in recruitment expenses by $0.7
million. The Company received a service tax refund of $0.9 million for the six months ended June 30, 2013, which was recognized in the earnings.
Facilities costs increased by $1.3 million for the six months ended June 30, 2014 as compared to the six months ended June 30, 2013.
The increase was primarily on account of increase in rent and related expenses by $1.7 million, which was partly offset by a decrease in communication expenses by $0.4 million.
Depreciation and amortization costs
Depreciation and amortization costs were consistent at 3.0% and 3.2% of revenue for the six months ended June 30, 2014 and 2013,
respectively.
Operating income
Our
operating margin (operating income as a percentage of revenue) was 19.3% and 18.3% for the six months ended June 30, 2014 and 2013, respectively. The increase was mainly due to increased business resulting in increased revenues thereby
contributing to an increase in margins and decrease in selling, general and administrative expenses.
50
Interest expense
Interest expenses were 5.8% and 8.4% of revenues for the six months ended June 30, 2014 and 2013, respectively. The details of interest
expense are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2014
|
|
|
2013
|
|
Interest on Senior Notes (including amortization of debt issuance costs)
|
|
$
|
27,482
|
|
|
$
|
37,755
|
|
Interest expense on line of credit and term loans (including amortization of debt issuance costs)
|
|
|
7,192
|
|
|
|
8,743
|
|
Interest on uncertain tax position
|
|
|
1,067
|
|
|
|
217
|
|
Other interest charges
|
|
|
84
|
|
|
|
54
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
35,825
|
|
|
$
|
46,769
|
|
|
|
|
|
|
|
|
|
|
The decrease in interest expense was $10.9 million for the six months ended June 30, 2014 as compared to
the six months ended June 30, 2013. The decrease is primarily on account of lower interest on new Senior Notes at 4.75% as compared to the extinguished Senior Notes at 9%.
Foreign exchange gain, net
Foreign
exchange gain was $2.9 million and $4.5 million for the six months ended June 30, 2014 and 2013, respectively.
We recognized foreign
currency gain of $4.1 million and $4.0 million on foreign exchange derivative contracts related to inter-company and end customer receivables and forecasted revenues for the six months ended June 30, 2014 and 2013, respectively.
We also recognized a foreign currency loss of $2.6 million on the re-measurement related to other monetary assets and liabilities and gain of
$1.4 million on the re-measurement of the unsecured revolving working credit facility for the six months ended June 30, 2014, as compared to a gain of $4.9 million on the re-measurement of other monetary assets and liabilities, a loss of $3.9
million on the re-measurement of unsecured revolving working credit facility, a loss of $0.9 million on the re-measurement of escrow account balance and a gain of $0.4 million on re-measurement of redeemable non-controlling interest for the six
months ended June 30, 2013.
Loss on extinguishment of debt
On April 22, 2014, pursuant to the Optional Redemption clause, as per the terms of the Indenture of Senior Notes due
May 1, 2016, the Company redeemed 9.00% Senior Notes of $770 million together with a make whole premium of $36.3 million and charged the loss on extinguishment of $51.8 million (inclusive of unamortized debt issuance cost of $15.5 million) to
earnings during the quarter. The Company redeemed the Senior Notes due by partly raising funds through the private placement of $325 million principal amount of 4.75% Senior Notes due April 15, 2019 (the Notes) to several initial
purchasers. See Note 6 for more details on the new Notes.
Other income, net
Other income was 1.8% and 6.2% of revenues for the six months ended June 30, 2014 and 2013, respectively. The details of other income are
as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2014
|
|
|
2013
|
|
Investment income
|
|
$
|
7,540
|
|
|
$
|
25,969
|
|
Interest income
|
|
|
1,814
|
|
|
|
2,281
|
|
Gain (loss) on sale of fixed assets
|
|
|
18
|
|
|
|
2,240
|
|
Forfeiture of vested stock options
|
|
|
|
|
|
|
3,005
|
|
Other
|
|
|
1,622
|
|
|
|
1,202
|
|
|
|
|
|
|
|
|
|
|
Other income, net
|
|
$
|
10,994
|
|
|
$
|
34,697
|
|
|
|
|
|
|
|
|
|
|
The decrease in other income is primarily due to the reduction in the investment income. Our investment base
as of January 01, 2014 and 2013 was $181.4 million and $510.8 million, respectively.
The Company sold some of the lands located in
India and realized a gain of $2.2 million for the six months ended June 30, 2013.
Interest received on tax refunds from tax
authorities amounted to $0.6 million for the six months ended June 30, 2014 as compared to $1.9 million for the six months ended June 30, 2013. Interest received from one of the customers as part of the receivables settlement is $0.7
million for the six months ended June 30, 2014. Additionally, other income for the six months ended June 30, 2013, includes approximately $3.0 million attributable to the forfeiture of vested stock options in connection with the
termination of our former Chief Executive Officer.
51
Income taxes
Our effective tax rate was 22.9% and 31.5% during the six months ended June 30, 2014 and 2013, respectively.
The Company recognized a tax benefit of $19.7 million during the six months ended June 30, 2014 related to the loss on extinguishment of
debt of $51.8 million (inclusive of unamortized debt issuance cost of $15.5 million).
During the six months ended June 30, 2014 the
Company released valuation allowance of $2.0 million pertaining to its subsidiary in U.K. jurisdiction. The Company weighed all evidences as of June 30, 2014 and determined that the positive evidences relating to the reliability of its deferred
tax asset particularly the evidences that were objectively verifiable outweighed the negative evidences. The positive evidences as of June 30, 2014 that outweighed the negative evidences includes (i) three years cumulative income position;
(ii) the strong positive trend in the subsidiarys financial performance over four consecutive quarters; (iii) the forecasted income for 2014 and future taxable income; (iv) indefinite carry forward period of the net operating
losses; and (v) improved trend in earnings and increased customer revenues from contracts entered in 2013 and new contracts entered in 2014. Accordingly, the Company concluded that it is more likely than not that the deferred tax assets will be
realized and released the valuation allowance.
The impact of the above resulted in lower ETR during the six months ended June 30,
2014.
During the six months ended June 30, 2013, the Company recorded a tax expense of $3.0 million as a result of increase in
Indian statutory tax rate on the deferred tax liability as per the new legislation. The Company also recorded a discrete tax benefit of $3.7 million on account of merger of entities in India jurisdiction. This led to a net tax benefit of
0.7 million for six months ended June 30, 2013. In addition, one of the divisions registered under SEZ scheme of the Indian entity has completed its first five years of 100% tax holiday and would be claiming 50% of tax holiday. This
resulted in reduced SEZ benefits of $1.2 million for the six months ended June 30, 2013.
Non-controlling interest
Post the approval of the merger scheme of IGATE Global on May 10, 2013 by the High Court of Judicature at Mumbai approving the merger of
IGATE Computer with IGATE Global, shareholders of IGATE Computer who did not tender their shares during the exit period (until May 27, 2013) were issued IGATE Global shares in the ratio of five equity shares of IGATE Global for twenty two
equity shares of IGATE Computer. As of June 30, 2013, the Company had no obligation to redeem the shares and accordingly the remaining redeemable non-controlling interest was reclassified to permanent equity. The shares held by general public
as of June 30, 2014 represents approximately 0.5% of the outstanding share capital of IGATE Global.
For the six months ended
June 30, 2014, we recorded $0.2 million share of profits and $0.3 million of accumulated other comprehensive income attributable to non-controlling interest.
Preferred dividend
On February 1,
2011, pursuant to the securities purchase agreement with Viscaria Limited dated January 10, 2011, we issued 210,000 shares of Series B Preferred Stock for a consideration of $210 million and an additional 120,000 shares were issued on
May 9, 2011 for a consideration of $120 million. We have accrued for cumulative dividends of $16.5 million and $15.3 million at a rate of 8.00% per annum, compounded quarterly, for the six months ended June 30, 2014 and 2013,
respectively.
Use of non-GAAP Financial Measures:
We believe that providing Adjusted EBITDA and non-GAAP net income and non-GAAP basic and diluted earnings per share in addition to the related
GAAP measures provides investors with greater transparency to the information used by our management in our financial and operational decision-making. These non-GAAP measures are also used by management in connection with our performance
compensation programs.
These non-GAAP measures are not in accordance with, or an alternative for measures prepared in accordance with,
GAAP and may be different from non-GAAP measures used by other companies. In addition, these non-GAAP measures are not based on any comprehensive set of accounting rules or principles. Reconciliations of these non-GAAP measures to their comparable
GAAP measures are included in the financial tables below.
52
We believe that non-GAAP measures have limitations in that they do not reflect all of the amounts
associated with our results of operations as determined in accordance with GAAP and that these measures should only be used to evaluate our results of operations in conjunction with the corresponding GAAP measures. These non GAAP measures should be
considered supplemental in nature and should not be considered in isolation or be construed as being more important than comparable GAAP measures.
The
non-GAAP financial measures contained herein exclude the following items:
|
|
|
Amortization of intangible assets: Intangible assets primarily comprise of customer relationships. We incur charges relating to the amortization of these intangibles. These charges are included in our GAAP presentation
of earnings from operations, operating margin, net income and diluted earnings per share. We exclude these charges for purposes of calculating these non-GAAP measures.
|
|
|
|
Stock-based compensation: Although stock-based compensation is an important component of the compensation of our employees and executives, determining the fair value of the stock-based instruments involves a high degree
of judgment and estimation and the expense recorded may not reflect the actual value realized upon the future exercise or termination of the related stock-based awards. Furthermore, unlike cash compensation, the value of stock-based compensation is
determined using a complex formula that incorporates factors, such as market volatility, that are beyond our control. Management believes it is useful to exclude stock-based compensation in order to better understand the long-term performance of our
core business.
|
|
|
|
Foreign exchange (gain)/loss: From time to time, we recognize foreign currency losses on re-measurement of escrow account balance and foreign exchange gains on re-measurement of redeemable non-controlling interest
liability. We believe that eliminating the non-capitalized items for purposes of calculating these non-GAAP measures facilitates a more meaningful evaluation of our current performance and comparisons to its past performance.
|
|
|
|
Delisting expenses: We voluntarily delisted the equity shares of our majority owned subsidiary, IGATE Computer from the National Stock Exchange of India Limited and the Bombay Stock Exchange Limited and the American
Depository Shares from the New York Stock Exchange. Delisting is an infrequent activity and expenses incurred in connection therein are inconsistent in amount and are significantly impacted by the timing and nature of the delisting. We believe that
eliminating these expenses for purposes of calculating these non-GAAP measures facilitates a more meaningful evaluation of our current operating performance and comparisons to its past operating performance.
|
|
|
|
Merger and reorganization expenses: We are merging and reorganizing our overseas subsidiaries and branches with a view to simplifying the corporate structure and have incurred legal and professional expenses in this
connection. Merger and reorganization is an infrequent activity and expenses incurred in connection therein are inconsistent in amount and significantly impacted by the timing and nature of the reorganization. We believe that eliminating these
expenses for purposes of calculating these non-GAAP measures facilitates a more meaningful evaluation of our current operating performance and comparisons to our past operating performance.
|
|
|
|
Preferred dividend and accretion to preferred stock: We have issued 8.00% Series B Preferred Stock. We also incurred issuance costs that have been netted against the proceeds received from the issuance of the Series B
Preferred Stock. The Series B Preferred Stock is being accreted over a period of six years. Although, the effect of inclusion of equivalent units of common stock towards convertible participating preferred stock is anti-dilutive for GAAP purposes,
the non-GAAP diluted earnings per share has been calculated assuming the conversion of all outstanding shares of preferred stock into equivalent units of common stock. We believe that eliminating these expenses as well as inclusion of
equivalent units of common stock towards the preference shares to compute diluted earnings per share for purposes of calculating these non-GAAP measures facilitates a more meaningful evaluation of our current operating performance and comparisons to
our past operating performance.
|
|
|
|
Loss on extinguishment of Debt: We have extinguished Debt prior to its scheduled maturity which has resulted in non-operating expenses which otherwise would not have been incurred. Debt extinguishment related charges
that are excluded from GAAP earnings to determine non-GAAP earnings consist of the extinguishment premium paid as well as the write-off of unamortized debt issuance costs. These expenses are one-off and of a non-recurring nature and we believe that
eliminating them for purposes of calculating these non-GAAP measures facilitates a more meaningful evaluation of our current operating performance and comparisons to our past operating performance.
|
53
From time to time in the future, there may be other items that we may exclude in presenting our
financial results.
The table below presents a reconciliation of our non-GAAP financial measures to the most comparable GAAP measures for
the three and six months ended June 30, 2014 and 2013, respectively (in thousands, except for per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30
|
|
|
Six months ended June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
GAAP Net Income attributable to IGATE common shareholders
|
|
$
|
(5,419
|
)
|
|
$
|
22,101
|
|
|
$
|
17,919
|
|
|
$
|
49,246
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred dividend and accretion to preferred stock
|
|
|
8,535
|
|
|
|
7,872
|
|
|
|
16,813
|
|
|
|
15,487
|
|
Amortization of Intangible assets
|
|
|
2,701
|
|
|
|
2,692
|
|
|
|
5,281
|
|
|
|
5,440
|
|
Stock-based compensation
|
|
|
3,519
|
|
|
|
3,240
|
|
|
|
7,816
|
|
|
|
6,365
|
|
Delisting expenses
|
|
|
0
|
|
|
|
|
|
|
|
0
|
|
|
|
93
|
|
Merger and reorganization expenses
|
|
|
0
|
|
|
|
4,845
|
|
|
|
130
|
|
|
|
5,264
|
|
Foreign exchange loss on acquisition hedging and re-measurement
|
|
|
0
|
|
|
|
88
|
|
|
|
0
|
|
|
|
489
|
|
Loss on extinguishment of debt
|
|
|
51,760
|
|
|
|
|
|
|
|
51,760
|
|
|
|
|
|
Forfeiture of vested stock options
|
|
|
|
|
|
|
(3,005
|
)
|
|
|
|
|
|
|
(3,005
|
)
|
Income tax adjustments
|
|
|
(21,574
|
)
|
|
|
(3,327
|
)
|
|
|
(23,817
|
)
|
|
|
(5,008
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP Net income attributable to IGATE common shareholders
|
|
$
|
39,522
|
|
|
$
|
34,506
|
|
|
$
|
75,902
|
|
|
$
|
74,371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS (GAAP) to Basic EPS (Non-GAAP):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC EPS (GAAP)
|
|
$
|
(0.07
|
)
|
|
$
|
0.29
|
|
|
$
|
0.22
|
|
|
$
|
0.65
|
|
Preferred dividend and accretion to preferred stock
|
|
|
0.11
|
|
|
|
0.10
|
|
|
|
0.21
|
|
|
|
0.20
|
|
Amortization of Intangible assets
|
|
|
0.03
|
|
|
|
0.04
|
|
|
|
0.07
|
|
|
|
0.08
|
|
Stock-based compensation
|
|
|
0.04
|
|
|
|
0.04
|
|
|
|
0.10
|
|
|
|
0.08
|
|
Delisting expenses
|
|
|
0.00
|
|
|
|
|
|
|
|
0.00
|
|
|
|
0.00
|
|
Merger and reorganization expenses
|
|
|
0.00
|
|
|
|
0.06
|
|
|
|
0.00
|
|
|
|
0.06
|
|
Foreign exchange loss on acquisition hedging and re-measurement
|
|
|
0.00
|
|
|
|
0.00
|
|
|
|
0.00
|
|
|
|
0.00
|
|
Loss on extinguishment of debt
|
|
|
0.65
|
|
|
|
|
|
|
|
0.65
|
|
|
|
|
|
Forfeiture of vested stock options
|
|
|
|
|
|
|
(0.04
|
)
|
|
|
|
|
|
|
(0.04
|
)
|
Income tax adjustments
|
|
|
(0.27
|
)
|
|
|
(0.04
|
)
|
|
|
(0.30
|
)
|
|
|
(0.06
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC EPS (Non-GAAP)
|
|
$
|
0.49
|
|
|
$
|
0.45
|
|
|
$
|
0.95
|
|
|
$
|
0.97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS (GAAP) to Diluted EPS (Non-GAAP):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS (GAAP)
|
|
$
|
(0.07
|
)
|
|
$
|
0.28
|
|
|
$
|
0.22
|
|
|
$
|
0.62
|
|
Preferred dividend and accretion to preferred stock
|
|
|
0.11
|
|
|
|
0.10
|
|
|
|
0.21
|
|
|
|
0.20
|
|
Amortization of Intangible assets
|
|
|
0.03
|
|
|
|
0.04
|
|
|
|
0.06
|
|
|
|
0.08
|
|
Stock-based compensation
|
|
|
0.04
|
|
|
|
0.04
|
|
|
|
0.10
|
|
|
|
0.08
|
|
Delisting expenses
|
|
|
0.00
|
|
|
|
|
|
|
|
0.00
|
|
|
|
0.00
|
|
Merger and reorganization expenses
|
|
|
0.00
|
|
|
|
0.06
|
|
|
|
0.00
|
|
|
|
0.07
|
|
Foreign exchange loss on acquisition hedging and re-measurement
|
|
|
0.00
|
|
|
|
(0.00
|
)
|
|
|
0.00
|
|
|
|
(0.00
|
)
|
Loss on extinguishment of debt
|
|
|
0.63
|
|
|
|
|
|
|
|
0.63
|
|
|
|
|
|
Forfeiture of vested stock options
|
|
|
|
|
|
|
(0.04
|
)
|
|
|
|
|
|
|
(0.04
|
)
|
Income tax adjustments
|
|
|
(0.26
|
)
|
|
|
(0.04
|
)
|
|
|
(0.29
|
)
|
|
|
(0.06
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS (Non-GAAP)
|
|
$
|
0.48
|
|
|
$
|
0.44
|
|
|
$
|
0.93
|
|
|
$
|
0.95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding, Basic
|
|
|
58,836
|
|
|
|
57,311
|
|
|
|
58,762
|
|
|
|
57,426
|
|
Add: Assumed preferred stock conversion
|
|
|
21,139
|
|
|
|
19,529
|
|
|
|
21,139
|
|
|
|
19,529
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP weighted average shares outstanding, Basic
|
|
|
79,975
|
|
|
|
76,840
|
|
|
|
79,901
|
|
|
|
76,955
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average dilutive common shares outstanding
|
|
|
60,692
|
|
|
|
58,899
|
|
|
|
60,619
|
|
|
|
59,086
|
|
Add: Assumed preferred stock conversion
|
|
|
21,139
|
|
|
|
19,529
|
|
|
|
21,139
|
|
|
|
19,529
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average dilutive common equivalent shares outstanding
|
|
|
81,831
|
|
|
|
78,428
|
|
|
|
81,758
|
|
|
|
78,615
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54
Non-GAAP Disclosure of Adjusted EBITDA
We present Adjusted EBITDA as a supplemental measure of our performance. We define Adjusted EBITDA as net income plus (i) depreciation and
amortization, (ii) interest expense, (iii) income tax expense, minus (iv) other income, net plus (v) foreign exchange (gain)/loss, (vi) stock-based compensation (vii) delisting expenses (viii) loss on
extinguishment of debt and (ix) merger and reorganization expenses. We eliminated the impact of the above as we do not consider them as indicative of our ongoing operating
55
performance. These adjustments are itemized below. You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. In evaluating Adjusted
EBITDA, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in this presentation. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results
will be unaffected by unusual or non-recurring items.
We present Adjusted EBITDA because we believe it assists investors and analysts in
comparing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. In addition, we use Adjusted EBITDA: (i) as a factor in evaluating
managements performance when determining incentive compensation, (ii) to evaluate the effectiveness of our business strategies and (iii) because our credit agreement and our Indenture use measures similar to Adjusted EBITDA to
measure our compliance with certain covenants.
Adjusted EBITDA has limitations as an analytical tool. Some of these limitations are:
|
|
|
Adjusted EBITDA does not reflect our cash expenditures or future requirements, for capital expenditures or contractual commitments;
|
|
|
|
Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
|
|
|
|
Adjusted EBITDA does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our debts; although depreciation and amortization are non-cash charges,
the assets being depreciated and amortized will often have to be replaced in the future, and adjusted EBITDA does not reflect any cash requirements for such replacements; non-cash compensation is and will remain a key element of our overall
long-term incentive compensation package, although we exclude it as an expense when evaluating our ongoing operating performance for a particular period; and
|
|
|
|
Adjusted EBITDA does not reflect the impact of certain cash charges resulting from matters we consider not to be indicative of our ongoing operations; and other companies in our industry may calculate Adjusted EBITDA
differently than we do, limiting its usefulness as a comparative measure.
|
Because of these limitations, Adjusted EBITDA
should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP. We compensate for these limitations by relying primarily on our GAAP results and using Adjusted EBITDA only supplementally.
The table below presents Adjusted EBITDA for each of the three and six months ended June 30, 2014 and 2013, respectively (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
Net income
|
|
$
|
3,214
|
|
|
$
|
29,973
|
|
|
$
|
34,925
|
|
|
$
|
64,733
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
8,718
|
|
|
|
8,595
|
|
|
|
18,276
|
|
|
|
17,866
|
|
Interest expenses
|
|
|
12,196
|
|
|
|
24,112
|
|
|
|
35,825
|
|
|
|
46,769
|
|
Income tax expense
|
|
|
(3,027
|
)
|
|
|
14,867
|
|
|
|
10,398
|
|
|
|
29,827
|
|
Other income, net
|
|
|
(3,640
|
)
|
|
|
(17,417
|
)
|
|
|
(10,994
|
)
|
|
|
(34,697
|
)
|
Foreign exchange (gain)
|
|
|
(2,717
|
)
|
|
|
(1,983
|
)
|
|
|
(2,921
|
)
|
|
|
(4,464
|
)
|
Stock-based compensation
|
|
|
3,519
|
|
|
|
3,240
|
|
|
|
7,816
|
|
|
|
6,365
|
|
Loss on extinguishment of debt
|
|
|
51,760
|
|
|
|
|
|
|
|
51,760
|
|
|
|
|
|
Delisting expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
93
|
|
Merger and reorganization expenses
|
|
|
|
|
|
|
4,845
|
|
|
|
130
|
|
|
|
5,264
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA (a non-GAAP measure)
|
|
$
|
70,023
|
|
|
$
|
66,232
|
|
|
$
|
145,215
|
|
|
$
|
131,756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company presents the non-GAAP financial measure Adjusted EBITDA because, management uses this measure to
monitor and evaluate the performance of the business and believes that the presentation of this measure will enhance the investors ability to analyze trends in the business and evaluate our underlying performance relative to other companies in
the industry.
56
Liquidity and Capital Resources
Our cash balances are held in numerous locations throughout the world, of which we hold approximately $247.5 million of cash, cash equivalents
and short-term investments in our foreign subsidiaries as of June 30, 2014. Amounts held outside of the United States are utilized to support non-U.S. liquidity needs. Our ongoing cash flows and external borrowings in the United States are
expected to be sufficient to meet our primary operating liquidity needs, in the United States, for at least twelve (12) months following this report.
We have provided for the United States federal tax liability on the post-acquisition and pre-merger earnings and profits of the former IGATE
Computer (currently merged with IGATE Global), India. The Company intends to use the remaining accumulated and future earnings of merged entities as well as other foreign subsidiaries to expand operations outside the United States and accordingly,
undistributed earnings and profits are deemed permanently reinvested. However, if our intent is to change and we elected to repatriate such undistributed foreign earnings back to United States, it could result in additional income tax payments in
future years. We estimate the potential tax liability relating to the repatriation of such undistributed foreign earnings to be approximately $191.0 million as of June 30, 2014.
The following table summarizes the sources and uses of cash from our condensed consolidated statements of cash flow (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2014
|
|
|
2013
|
|
Net cash provided by operating activities
|
|
$
|
43,364
|
|
|
$
|
42,764
|
|
Net cash provided by investing activities
|
|
|
1,552
|
|
|
|
204,054
|
|
Net cash used in financing activities
|
|
|
(121,343
|
)
|
|
|
(230,167
|
)
|
Effect of exchange rate changes
|
|
|
98
|
|
|
|
2,807
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
$
|
(76,329
|
)
|
|
$
|
19,458
|
|
|
|
|
|
|
|
|
|
|
Cash from Operations
Our largest source of operating cash flows is cash collections from our customers for different information technology services we render under
various Statements of Work. Our primary uses of cash from operating activities are for personnel related expenditures, leased facilities and taxes.
Net cash provided by operating activities increased by $0.6 million for the six months ended June 30, 2014 as compared to the six months
ended June 30, 2013, primarily due to lower net income which was adjusted for higher non-cash charges such as depreciation, amortization of intangible assets, amortization of debt issuance costs and stock-based compensation which was partially
offset by increases in accounts receivable and unbilled revenues resulting from an increased business.
Investing Activities
Cash provided by investing activities for the six months ended June 30, 2014 was $1.6 million as compared to $204.1 million for the six
months ended June 30, 2013.
Our investment portfolio and other investments decreased by $42.1 million for the six months ended
June 30, 2014 as compared to $239.3 million for the six months ended June 30, 2013. Our investment portfolio decreased during the previous reporting period as we redeemed investments to repay term loan facility.
During the six months ended June 30, 2013, $23.7 million was used to purchase 2.5 million shares of IGATE Computer and released the
restricted cash of $3.07 million on utilization of the same.
Capital expenditures were $40.7 million and $17.2 million for the six months
ended June 30, 2014 and 2013, respectively. Significant portions of the capital expenditures were due to the expansion of our campus facilities located in our Indian centers.
57
Financing Activities
Cash used in financing activities was $121.3 million for the six months ended June 30, 2014 as compared to $230.2 million for the six
months ended June 30, 2013.
The net proceeds from the exercise of employee stock options were $5.3 million and $1.1 million for the
six months ended June 30, 2014 and 2013, respectively.
The cash used in financing activities during the six months ended
June 30, 2014, was primarily due to the repayment of 9% Senior Notes of $770 million together with a make whole premium of $36.3 million on April 22, 2014. We used our restricted cash of $360 million towards the repayment of the Senior
Notes. On April 2, 2014, we completed the private placement of $325 million aggregate principal amount of the 4.75% Senior Notes due April 15, 2019, on which we paid debt issuance cost of $5.1 million.
The cash used in financing activities during the six months ended June 30, 2013, was primarily due to the net repayment of outstanding
term loan amounting to $228.5 million. We also incurred a payment of debt related cost of $2.4 million. We took a term loan of $6.0 million from DBS Bank Ltd., and also availed a revolving credit facility of $35.0 million.
Our primary future cash requirements will be to fund working capital, debt service, capital expenditures, and benefit obligations. In addition
to our working capital requirements, we expect our primary cash requirements for 2014 to be as follows:
|
|
|
Debt service
We expect to make payments of approximately $12.8 million during the remaining of 2014 for interest associated with Senior Notes and bank borrowings.
|
|
|
|
Capital expenditures
We expect to spend approximately $75.9 million for new and existing facility expansion and new hardware and software during the remaining of 2014. Of this, we have open purchase
obligations of $61.6 million towards construction of new facilities and purchase of property and equipment. We will fund all capital expenditures through a combination of available cash reserves and short term investments and expect to fund the
costs of future expansion through our net cash flows provided by operations.
|
We and our subsidiaries may from time to time
seek to retire or purchase our outstanding debt (including publicly issued debt) through cash purchases and/or exchanges, in open market purchases, privately negotiated transactions, by tender offer or otherwise. Such repurchases or exchanges, if
any, will depend on prevailing market conditions, liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.
Future Sources of Liquidity
We
expect our primary source of cash to be positive net cash flows provided by operating activities. Further, we continue to focus on cost reductions and have initiated steps to reduce overhead and provide cash savings.
The Company currently has two revolving credit facilities providing for borrowings of up to an aggregate of $120 million subject to certain
contractual limitations. As of June 30, 2014, we had borrowed $52 million under the revolving credit facilities. Both revolving credit facilities include other conditions that, if not complied with, could restrict our availability to borrow.
The Indenture governing our Senior Notes and our credit agreements contain various covenants which are subject to a number of limitations
and exceptions. The Indenture governing the Notes requires us to comply with a Consolidated Total Leverage Ratio, Consolidated Total Secured Leverage Ratio and a Fixed Charge Coverage Ratio when certain events occur. These ratios are based on what
we refer to as Adjusted EBITDA, which is defined under Use of non-GAAP Financial Measures in this Form 10 Q. Non-compliance with such covenants could affect our liquidity. We are currently in compliance with all covenants
associated with our borrowings. The specific covenants and related definitions can be found in the Indenture and credit agreements, each of which are filed with the SEC.
For more information on the revolving credit facilities and the restrictions on borrowing there under, including information on the covenants,
please refer to Note 4, Line of Credit, Note 5, Term Loans and Note 6, Senior Notes, to our unaudited condensed consolidated financial statements included in this Form 10-Q.
In order to meet our cash needs we may, from time to time borrow under our credit facilities or issue long term or short-term debt or equity,
if the market and our credit facilities and the Indenture governing our Notes permit us to do so. For more information on the income tax consequences of the repatriation of the earnings of our foreign subsidiaries, please refer to the disclosure
provided in Liquidity and Capital Resources included in this Form 10 Q. We regularly evaluate market conditions, our liquidity profile, and various financing alternatives for opportunities to enhance our capital structure.
58
Based on past performance and current expectations, we expect our existing cash, cash equivalents
and short-term investments of $279.4 million as of June 30, 2014, and our ongoing cash flows, external borrowings or foreign earnings that are not deemed permanently reinvested, to be sufficient to meet our operating liquidity requirements
described above for at least the twelve (12) months following this report.
Debt Service Obligations
As of June, 30, 2014, principal payments due under our indebtedness were $737 million, excluding capital lease obligations of $1.4 million. Our
interest expense (excluding amortization) for the three and six months ended June 30, 2014 was $10.9 million and $31.2 million, respectively.
Our leverage requires that a substantial portion of our cash flows from operations be dedicated to the payment of principal and interest on
our indebtedness. We continually monitor our exposure to the risk of increased interest rates as portions of our borrowings under our credit facilities are at variable rates of interest.
The Company has made all scheduled payments timely under the indentures governing its extinguished Senior Notes and the new Senior Notes, and
the revolving credit facilities.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
59