IGATE CORP - FORM 10-Q - October 22, 2014

IGATE CORP - FORM 10-Q - October 22, 2014

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EXCEL - IDEA: XBRL DOCUMENT - IGATE CORP	Financial_Report.xls
EX-31.2 - EX-31.2 - IGATE CORP	d783064dex312.htm
EX-31.1 - EX-31.1 - IGATE CORP	d783064dex311.htm
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EX-32.1 - EX-32.1 - IGATE CORP	d783064dex321.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2014

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 000-21755

IGATE CORPORATION

(Exact name of registrant as specified in its charter)


PENNSYLVANIA		25-1802235
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

100 Somerset Corporate Blvd Bridgewater, NJ		08807
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (908) 219-8050

N/A

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

The number of shares of the registrant’s Common Stock, par value $0.01 per share, outstanding as of October 16, 2014 was 59,050,607.

IGATE CORPORATION

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2014

TABLE OF CONTENTS


		Page
PART I. FINANCIAL INFORMATION			3

Item 1.	Financial Statements:

	—Condensed Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2014 and 2013		3

	—Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2014 and 2013		4

	—Condensed Consolidated Balance Sheets as of September 30, 2014 and December 31, 2013		5

	—Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2014 and 2013		6

	—Notes to Condensed Consolidated Financial Statements		7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		41

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		64

Item 4.	Controls and Procedures		65

PART II. OTHER INFORMATION			66

Item 1	Legal Proceedings		66

Item 1A	Risk Factors		66

Item 6.	Exhibits		67

SIGNATURES			68

PART I. FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

IGATE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Amounts in thousands, except per share data)

(Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
Revenues⁽¹⁾	$	322,774		$	293,406		$	936,725		$	851,592
Cost of revenues (exclusive of depreciation and amortization)		208,801			172,063			595,314			518,073

Gross margin		113,973			121,343			341,411			333,519
Selling, general and administrative expense		49,934			46,862			140,103			139,004
Depreciation and amortization		9,384			8,439			27,660			26,305

Income from operations		54,655			66,042			173,648			168,210
Interest expense		(7,492	)		(20,256	)		(43,317	)		(67,025	)
Foreign exchange gain (loss), net		3,169			(4,372	)		6,090			92
Loss on extinguishment of debt		0			0			(51,760	)		0
Other income, net		4,153			5,213			15,147			39,910

Income before income taxes		54,485			46,627			99,808			141,187
Income tax expense		17,088			14,634			27,486			44,461

Net income		37,397			31,993			72,322			96,726
Non-controlling interest		89			97			282			97

Net income attributable to IGATE Corporation		37,308			31,896			72,040			96,629
Accretion to preferred stock		152			126			436			361
Preferred dividend		8,653			7,994			25,182			23,246

Net income attributable to IGATE common shareholders	$	28,503		$	23,776		$	46,422		$	73,022

Basic earnings per share:
Common Stock	$	0.35		$	0.30		$	0.58		$	0.94
Unvested restricted stock	$	0.00		$	0.30		$	0.00		$	0.93
Series B Preferred Stock	$	0.75		$	0.70		$	1.75		$	2.10
Diluted earnings per share	$	0.34		$	0.30		$	0.56		$	0.91

1. Includes the following related party amounts:
Revenues	$	6,791		$	2,773		$	19,885		$	5,343

See accompanying notes.

IGATE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Amounts in thousands)

(Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
Net income attributable to IGATE common shareholders	$	28,503		$	23,776		$	46,422		$	73,022
Add: Non-controlling interest		89			97			282			97
Other comprehensive income:
Change in fair value of marketable securities		(1,161	)		(336	)		(1,478	)		(7,086	)
Unrecognized actuarial gain on pension liability		132			293			118			863
Change in fair value of cash flow hedges		(861	)		(1,482	)		2,608			(5,417	)
Loss on foreign currency translation		(28,290	)		(48,269	)		(1,649	)		(120,276	)

Total comprehensive income (loss)		(1,588	)		(25,921	)		46,303			(58,797	)
Less: Total comprehensive income (loss) attributable to non-controlling interest		(129	)		(1,890	)		210			(1,890	)

Total comprehensive income (loss) attributable to IGATE common shareholders	$	(1,459	)	$	(24,031	)	$	46,093		$	(56,907	)

See accompanying notes.

IGATE CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except share and per share data)


	September 30, 2014 (Unaudited)			December 31, 2013
ASSETS
Current assets:
Cash and cash equivalents	$	130,204		$	204,836
Restricted cash		0			360,000
Short-term investments		32,754			181,401
Accounts receivable, net of allowances for doubtful accounts of $3,115 and $4,103, as of September 30, 2014 and December 31, 2013, respectively		165,837			157,905
Unbilled revenues		79,457			61,424
Prepaid expenses and other current assets		43,624			44,492
Prepaid income taxes		13,248			838
Deferred tax assets		3,875			10,235
Foreign exchange derivative contracts		4,912			836
Receivable from related parties		5,954			4,046

Total current assets		479,865			1,026,013

Deposits and other assets		20,293			24,930
Prepaid income taxes		32,138			32,160
Property and equipment, net of accumulated depreciation of $124,890 and $108,084, as of September 30, 2014 and December 31, 2013, respectively		220,964			165,581
Leasehold land		75,603			76,732
Deferred tax assets		15,281			15,153
Goodwill		439,175			438,891
Intangible assets, net		111,398			119,262

Total assets	$	1,394,717		$	1,898,722

LIABILITIES, PREFERRED STOCK AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	10,208		$	9,268
Line of credit		52,000			52,000
Senior Notes		0			360,000
Term loans		0			90,000
Accrued payroll and related costs		45,798			57,093
Other accrued liabilities		66,098			79,785
Accrued income taxes		3,861			5,802
Foreign exchange derivative contracts		1,159			909
Deferred revenue		18,406			17,776

Total current liabilities		197,530			672,633
Other long-term liabilities		6,185			3,532
Senior Notes		325,000			410,000
Term loans		234,000			270,000
Accrued income taxes		18,261			13,936
Deferred tax liabilities		35,261			41,717

Total liabilities		816,237			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		435,989			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; 60,019,143 and 59,428,151 shares issued; 59,029,041 and 58,438,049 shares outstanding as of September 30, 2014 and December 31, 2013, respectively		600			594
Common shares held in treasury, at cost, 990,102 shares		(14,714	)		(14,714	)
Additional paid-in capital		225,147			204,143
Retained earnings		315,172			268,750
Accumulated other comprehensive loss		(387,444	)		(387,115	)

Total IGATE Corporation shareholders’ equity		138,761			71,658
Non-controlling interest		3,730			4,875

Total equity		142,491			76,533

Total liabilities, preferred stock and shareholders’ equity	$	1,394,717		$	1,898,722

See accompanying notes.

IGATE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)


	Nine Months ended September 30,
	2014			2013
Cash Flows From Operating Activities:
Net income	$	72,322		$	96,726
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization		27,660			26,305
Stock-based compensation		12,423			7,238
Realized gain on investments		(10,995	)		(30,057	)
Deferred loss on settled derivatives		0			(1,066	)
Provision (recovery) for doubtful debts		(551	)		154
Deferred income taxes		(341	)		(467	)
Loss on extinguishment of debt		51,760			0
Amortization of debt issuance costs		4,406			9,209
Gain on sale of property and equipment		(82	)		(2,248	)
Deferred rent		946			198
Excess tax benefits related to stock option exercises		(3,101	)		(463	)
Changes in operating assets and liabilities:
Accounts receivable and unbilled revenue		(29,955	)		(4,164	)
Prepaid expenses and other assets		(9,275	)		(10,389	)
Accounts payable		(330	)		458
Accrued and other liabilities		(31,247	)		39,270
Deferred revenue		904			(2,411	)

Net cash flows provided by operating activities		84,544			128,293

Cash Flows From Investing Activities:
Purchase of property and equipment		(70,870	)		(24,230	)
Proceeds from sale of property and equipment		257			2,574
Purchase of available-for-sale investments		(421,377	)		(1,188,835	)
Proceeds from maturities and sale of available-for-sale investments		581,196			1,372,990
Restricted cash		0			3,072
Purchase of non-controlling interests		(328	)		(23,651	)

Net cash flows provided by investing activities		88,878			141,920

Cash Flows From Financing Activities:
Payments on capital lease obligations		(366	)		(450	)
Payment of line of credit and term loans		(126,000	)		(287,000	)
Proceeds from line of credit and term loans		0			41,000
Payment of Senior Notes		(770,000	)		0
Proceeds from Senior Notes		325,000			0
Payment of debt related costs		(41,530	)		(2,394	)
Release of restricted cash towards debt retirement		360,000			0
Proceeds from exercise of stock options		4,458			3,625
Excess tax benefits related to stock option exercises		3,101			463

Net cash flows (used in) financing activities		(245,337	)		(244,756	)

Effect of exchange rate changes		(2,717	)		21,367

Net change in cash and cash equivalents		(74,632	)		46,824
Cash and cash equivalents, beginning of period		204,836			95,155

Cash and cash equivalents, end of period	$	130,204		$	141,979

See accompanying notes.

IGATE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2014

1. Basis of Presentation

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 nine months ended September 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 Company’s 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 nine months ended September 30, 2014 are as follows (in thousands):


	Amount
Goodwill as of December 31, 2013	$	438,891
Foreign currency translation effect		284

Goodwill as of September 30, 2014	$	439,175

IGATE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2014

The following describes changes in the carrying value of intangibles for the nine months ended September 30, 2014 (in thousands):


	Amount
Intangible assets as of December 31, 2013	$	119,262
Foreign currency translation effect		132
Amortization		(7,996	)

Intangible assets as of September 30, 2014	$	111,398

As of September 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		(49,017	)
Accumulated Amortization		(38,829	)

Intangible assets as of September 30, 2014	$	111,398

As of September 30, 2014 and December 31, 2013, accumulated amortization expense related to Intellectual property rights amounted to $5.3 million and $4.1 million, respectively, and Customer relationships amounted to $33.5 million and $26.7 million, respectively. Intangible assets are amortized over the remaining weighted average period of 11.3 years. Intellectual property rights are amortized over a weighted average period of 2.7 years. Customer relationship is amortized over its remaining useful life of 11.6 years.

Amortization expenses related to identifiable intangible assets were $2.7 million and $2.5 million for the three months ended September 30, 2014 and 2013, respectively and $8.0 million and $7.9 million for the nine months ended September 30, 2014 and 2013, respectively. Future estimated annual amortization is as follows (in thousands):


	Amount
Remainder of 2014	$	2,654
2015	$	10,938
2016	$	11,308
2017	$	10,891
2018	$	10,070

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.

IGATE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2014

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 Company’s common stock on an as-converted basis;

•

provides for a holder option to convert the outstanding principal plus accrued and unpaid dividends into the Company’s 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 Company’s 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 Company’s 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 Company’s 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 holder’s 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 Company’s 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 off 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 for each of the three months ended September 30, 2014 and 2013 and $0.4 million for each of the nine months ended September 30, 2014 and 2013. As of September 30, 2014 and 2013, the remaining unamortized balance of issuance costs was $1.8 million and $2.3 million, respectively.

The Company is accruing for cumulative dividends at a rate of 8.00% per annum, compounded quarterly. The amount of such dividends accrued was $8.7 million and $7.9 million during the three months ended September 30, 2014 and 2013, respectively, and $25.2 million and $23.2 million during the nine months ended September 30, 2014 and 2013, respectively.

As of September 30, 2014 and 2013, the shares of Series B Preferred Stock are potentially convertible into 21.6 million and 19.9 million shares of common stock, respectively.

IGATE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2014

4. Line of Credit

On February 21, 2011, the Company entered into an arrangement with a bank for an unsecured revolving working credit facility of $70 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 September 30, 2014, the Company had an outstanding amount of $52 million under this line of credit at a weighted average interest rate of 0.73%. Interest expense for the three months ended September 30, 2014 and 2013 was $0.1 million and $0.2 million, respectively and interest expense for the nine months ended September 30, 2014 and 2013 was $0.5 million and $0.6 million, respectively.

On May 10, 2011, the Company entered into a credit agreement with a bank for revolving credit commitments in an aggregate principal U.S. dollar equivalent of $50 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 September 30, 2014, the Company had $50 million of availability under this revolving credit arrangement. Interest expense for the three and nine months ended September 30, 2013 was $0.3 million and $0.6 million, respectively.

5. Term Loans

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. As of September 30, 2014, the Company repaid the second tranche amount of $90 million and also made a partial payment of $36 million against the first tranche of the loan.

In connection with the term loan, the Company recorded an interest expense of $2.4 million and $8.0 million for the three months and nine months ended September 30, 2014, respectively The Company incurred debt issuance costs of $8.9 million of which the amount amortized was $0.6 million and $1.9 million for the three and nine months ended September 30, 2014, respectively.

This facility was used to pay down a portion of the Company’s Senior Notes in April 2014. IGATE Technologies Inc. (“ITI”), the immediate parent company of Pan-Asia, pledged 65% of its equity investment amounting to $391.7 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 September 30, 2014, the Company was in compliance with all covenants associated with the aforementioned borrowings.

6. Senior notes

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 Company’s domestic 100% owned subsidiaries, as identified in Note 18, with exceptions considered customary for such guarantees under which a subsidiary’s guarantee would terminate.

IGATE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2014

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 September 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		100.0	%

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.

On September 19, 2014, the Company issued a prospectus pursuant to the Registration Rights Agreement which granted the initial purchasers and any subsequent holders of the Notes certain exchange and registration rights. The exchange offer expired on October 17, 2014 and all the Notes were tendered by the Note holders.

As of September 30, 2014, the amortizable debt issuance cost was $5.2 million, of which $1.0 million is accounted for as part of prepaid expenses and other current assets and $4.2 million as part of deposits and other assets. These costs are being amortized to interest expense over the balance period of approximately four and a half years using the effective interest method. The amount amortized was $0.2 and $0.4 million for the three and nine months ended September 30, 2014, respectively. Interest expense (including amortized debt issue costs) for the three and nine months ended September 30, 2014 was $4.1 million and $8.1 million, respectively.

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. Interest expense (including amortized debt issue costs) for the three and nine months ended September 30, 2014 was $0 million and $23.5 million, respectively, as compared to $18.9 million and $56.7 million for the three and nine months ended September 30, 2013, respectively.

7. Income tax

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.

IGATE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2014

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 Company’s reported effective tax rate (“ETR”), including discrete items, was 31.4% and 27.5% for the three and nine months ended September 30, 2014, respectively. For the three and nine months ended September 30, 2013, the Company’s reported ETR, including discrete items, was 31.4% and 31.5%, respectively.

The difference in the effective tax rate as compared to the U.S. statutory rate of 35.0% is primarily attributable to certain tax holidays that the Company is eligible for in India, certain permanent differences, and the mix of Global earnings. 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.

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 September 30, 2014 and 2013, the tax holiday benefits were $2.6 million and $1.3 million, respectively. For the nine months ended September 30, 2014 and 2013, the tax holiday benefits were $6.8 million and $5.8 million, respectively. This SEZ tax holiday will begin to expire from March 2023 through 2029.

As of September 30, 2014 and December 31, 2013, total gross unrecognized tax benefits, excluding related interest and penalties, were $20.6 million and $16.6 million respectively.

There has been no material movements in ASC 740-10 reserves since June 30, 2014.

The Company recognizes interest related to uncertain tax positions within the interest expense line in the consolidated statements of income. During the nine months ended September 30, 2014 and 2013, the Company has recorded interest expense of $1.2 million and $0.3 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 September 30, 2014.

As of September 30, 2014, the Company had $18.1 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 $6.1 million during the next twelve months due to the expiration of the statute of limitations.

IGATE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2014

8. Earnings Per Share

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.

IGATE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 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 September 30,				Nine Months Ended September 30,
		2014		2013		2014		2013
Net income attributable to IGATE common shareholders		$	28,503	$	23,776	$	46,422	$	73,022
Add: Dividend on Series B Preferred Stock			8,653		7,994		25,182		23,246

			37,156		31,770		71,604		96,268
Less: Dividends on
Series B Preferred Stock	[A]		8,653		7,994		25,182		23,246

Undistributed Income		$	28,503	$	23,776	$	46,422	$	73,022

Allocation of Undistributed Income :
Common stock	[B]		20,876		17,716		34,001		54,411
Unvested restricted stock	[C]		0		7		0		21
Series B Preferred Stock	[D]		7,627		6,053		12,421		18,590

		$	28,503	$	23,776	$	46,422	$	73,022

Shares outstanding for allocation of undistributed income:
Common stock			59,029		58,311		59,029		58,311
Unvested restricted stock			0		23		0		23
Series B Preferred Stock			21,565		19,923		21,565		19,923

			80,594		78,257		80,594		78,257

Weighted average shares outstanding:
Common stock	[E]		58,962		58,148		58,829		57,895
Unvested restricted stock	[F]		0		23		0		23
Series B Preferred Stock	[G]		21,565		19,923		21,565		19,923

			80,527		78,094		80,394		77,841

Weighted average common stock outstanding			58,962		58,148		58,829		57,895
Dilutive effect of stock options and restricted shares outstanding			1,905		1,688		1,880		1,669

Dilutive weighted average shares outstanding	[H]		60,867		59,836		60,709		59,564

Distributed earnings per share:
Series B Preferred Stock	[I=A/G]	$	0.40	$	0.40	$	1.17	$	1.17
Undistributed earnings per share:
Common stock	[J=B/E]	$	0.35	$	0.30	$	0.58	$	0.94
Unvested restricted stock	[K=C/F]	$	0.00	$	0.30	$	0.00	$	0.93
Series B Preferred Stock	[L=D/G]	$	0.35	$	0.30	$	0.58	$	0.93
Basic earnings per share from operations:
Common stock	[J]	$	0.35	$	0.30	$	0.58	$	0.94
Unvested restricted stock	[K]	$	0.00	$	0.30	$	0.00	$	0.93
Series B Preferred Stock	[I+L]	$	0.75	$	0.70	$	1.75	$	2.10
Diluted earnings per share from operations	[[B+C]/H]	$	0.34	$	0.30	$	0.56	$	0.91

IGATE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 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 0.5 million and 0.2 million shares for the three months ended September 30, 2014 and 2013, respectively, and 0.2 million and 0.8 million shares for the nine months ended September 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 21.6 million and 19.9 million for the three and nine months ended September 30, 2014 and 2013, respectively. These shares were excluded from the computation of diluted earnings per share as they were anti-dilutive.

9. Investments

Short term investments comprise the following (in thousands):


	As of September 30, 2014
	Carrying Value		Unrealized Gain		Fair Value
Liquid mutual funds	$	32,462	$	106	$	32,568
Fixed deposits with banks		186		0		186

	$	32,648	$	106	$	32,754


	As of December 31, 2013
	Carrying Value		Unrealized Gain		Fair Value
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 September 30, 2014, were as follows (in thousands):


	As of September 30, 2014
Due within one year	$	32,754

Realized gains and losses on the cost of securities sold or disposed is determined on First in First out (“FIFO”) method.

IGATE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2014

Realized gains and proceeds from the sale of available-for-sale securities are as follows (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
Gross realized gains	$	3,455	$	4,088	$	10,995	$	30,057
Sale proceeds		206,792		118,783		581,196		1,372,990

The changes in the unrealized gain, net, on marketable securities carrying value for the three and nine months ended September 30, 2014 and 2013 are as follows (in thousands):


	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
Unrealized gain on marketable securities at the beginning of the period	$	1,865		$	1,986		$	2,345		$	11,711
Reclassification of gain into earnings on maturity		(3,455	)		(4,088	)		(10,995	)		(30,057	)
Net unrealized gain due to changes in the fair value		1,696			3,386			8,756			19,630

Unrealized gain on marketable securities at the end of the period	$	106		$	1,284		$	106		$	1,284

IGATE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2014

10. Accumulated Other Comprehensive Loss

The changes in the balances of accumulated other comprehensive income (loss), net of tax, by component for the three and nine months ended September 30, 2014 and 2013 are summarized as follows (in thousands):


	Three Months Ended Sept 30,						Nine Months Ended Sept 30,
	2014			2013			2014			2013
Unrealized gain on Marketable securities:
Beginning balance attributable to IGATE common shareholders	$	1,228		$	1,525		$	1,542		$	8,275
Amount of gain (loss) recognized in other comprehensive income		1,120			2,687			5,780			14,310
Amounts of (gain) loss reclassified from accumulated other comprehensive income		(2,281	)		(3,023	)		(7,258	)		(21,396	)
Portion attributable to non-controlling interests		3			(1	)		6			(1	)

Ending balance attributable to IGATE common shareholders	$	70		$	1,188		$	70		$	1,188

Unrealized gain (loss) on cash flow hedges:
Beginning balance attributable to IGATE common shareholders	$	3,404		$	(3,490	)	$	(48	)	$	445
Amount of gain (loss) recognized in other comprehensive income		1,362			(5,656	)		6,862			(7,789	)
Amounts of (gain) loss reclassified from accumulated other comprehensive income		(2,223	)		4,174			(4,254	)		2,372
Portion attributable to non-controlling interests		4			24			(13	)		24

Ending balance attributable to IGATE common shareholders	$	2,547		$	(4,948	)	$	2,547		$	(4,948	)

Actuarial gain (loss) relating to defined benefit plan:
Beginning balance attributable to IGATE common shareholders	$	1,065		$	447		$	1,079		$	(123	)
Amount of gain (loss) recognized in other comprehensive income		172			294			236			869
Amounts of (gain) loss reclassified from accumulated other comprehensive income		(40	)		(1	)		(118	)		(6	)
Portion attributable to non-controlling interests		(1	)		(3	)		(1	)		(3	)

Ending balance attributable to IGATE common shareholders	$	1,196		$	737		$	1,196		$	737

Foreign currency translation:
Beginning balance attributable to IGATE common shareholders	$	(363,179	)	$	(355,187	)	$	(389,688	)	$	(283,180	)
Amount of gain (loss) recognized in other comprehensive income		(28,290	)		(48,269	)		(1,649	)		(120,276	)
Amounts of (gain) loss reclassified from accumulated other comprehensive income		0			0			0			0
Portion attributable to non-controlling interests		212			1,967			80			1,967

Ending balance attributable to IGATE common shareholders	$	(391,257	)	$	(401,489	)	$	(391,257	)	$	(401,489	)

IGATE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2014

The changes in the tax expense (benefit) on accumulated other comprehensive income (loss), by component, attributable to IGATE common shareholders, are summarized as follows for the three and nine months ended September 30, 2014 (in thousands):


	Three Months Ended Sept 30,						Nine Months Ended Sept 30,
	2014			2013			2014			2013
Unrealized gain on Marketable securities:
Beginning balance attributable to IGATE common shareholders	$	632		$	461		$	793		$	3,436
Amount of gain (loss) recognized in other comprehensive income		576			699			2,976			5,320
Amounts of (gain) loss reclassified from accumulated other comprehensive income		(1,174	)		(1,065	)		(3,737	)		(8,661	)
Portion attributable to non-controlling interests		2			0			4			0

Ending balance attributable to IGATE common shareholders	$	36		$	95		$	36		$	95

Unrealized gain (loss) on cash flow hedges:
Beginning balance attributable to IGATE common shareholders	$	1,754		$	(1,497	)	$	(23	)	$	184
Amount of gain (loss) recognized in other comprehensive income		702			(2,817	)		3,534			(3,751	)
Amounts of (gain) loss reclassified from accumulated other comprehensive income		(1,147	)		1,754			(2,193	)		1,007
Portion attributable to non-controlling interests		2			13			(7	)		13

Ending balance attributable to IGATE common shareholders	$	1,311		$	(2,547	)	$	1,311		$	(2,547	)

Actuarial gain (loss) relating to defined benefit plan:
Beginning balance attributable to IGATE common shareholders	$	547		$	226		$	555		$	(69	)
Amount of gain (loss) recognized in other comprehensive income		88			155			121			451
Amounts of (gain) loss reclassified from accumulated other comprehensive income		(20	)		0			(61	)		(1	)
Portion attributable to non-controlling interests		0			(2	)		0			(2	)

Ending balance attributable to IGATE common shareholders	$	615		$	379		$	615		$	379

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

IGATE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2014

The following table summarizes the reclassifications out of accumulated other comprehensive income for the three and nine months ended September 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 September 30,						Nine months ended September 30,
		2014			2013			2014			2013
Available-for-sale securities:
Sale of Securities	Other Income, net	$	3,455		$	4,088		$	10,995		$	30,057
	Income tax expense		(1,174	)		(1,065	)		(3,737	)		(8,661	)
	Non-controlling interest, net of tax		(8	)		(10	)		(32	)		(10	)

	Reclassification to earnings	$	2,273		$	3,013		$	7,226		$	21,386

Cash flow hedges:
Foreign exchange derivative contracts	Foreign exchange gain (loss), net	$	3,370		$	(5,929	)	$	6,447		$	(3,379	)
	Income tax expense		(1,147	)		1,755			(2,193	)		1,008
	Non-controlling interest, net of tax		(11	)		4			(23	)		4

	Reclassification to earnings	$	2,212		$	(4,170	)	$	4,231		$	(2,367	)

Pension and other defined benefit liability:
Amortization of actuarial gain (loss)	Cost of revenues	$	60		$	1		$	179		$	5
	Income tax expense		(20	)		(0	)		(61	)		(1	)
	Non-controlling interest, net of tax		0			(0	)		(1	)		(0	)

	Reclassification to earnings	$	40		$	1		$	117		$	4

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 at that time is recognized 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).

IGATE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2014

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. After the date of the 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 inter-company and end customer accounts receivable 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.

The following table presents the aggregate contracted principal amounts of the Company’s foreign exchange derivative contracts:

OUTSTANDING CASH FLOW HEDGE TRANSACTIONS QUALIFYING FOR HEDGE ACCOUNTING (in thousands)


	As of
	September 30, 2014		December 31, 2013
Foreign Exchange Forward Contracts USD	$	187,000	$	94,300
Foreign Exchange Forward Contracts CAD	$	28,615	$	13,160
Foreign Exchange Forward Contracts GBP	$	20,231	$	14,041
Foreign Exchange Forward Contracts EUR	$	755	$	0
Foreign Exchange Forward Contracts CHF	$	10,435	$	0

IGATE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2014

OUTSTANDING FAIR VALUE HEDGE TRANSACTIONS NOT QUALIFYING FOR HEDGE ACCOUNTING (in thousands):


	As of
	September 30, 2014		December 31, 2013
Foreign Exchange Forward Contracts USD	$	34,500	$	0
Foreign Exchange Forward Contracts CAD	$	5,991	$	0
Foreign Exchange Forward Contracts GBP	$	14,194	$	12,059
Foreign Exchange Forward Contracts EUR	$	629	$	0
Foreign Exchange Forward Contracts CHF	$	1,776	$	0
Foreign Exchange Forward Contracts JPY	$	2,445	$	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 September 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)

(Ineffective Portion and amount excluded from effectiveness testing)

September 30,
2014

September 30, 2014

Foreign Exchange Contracts

2,064

Foreign exchange gain (loss), net

3,370

Foreign exchange gain (loss), net

The effect of derivative instruments on the Condensed Consolidated Statements of Income for the nine months ended September 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)

(Ineffective Portion and amount excluded from effectiveness testing)

September 30, 2014

Foreign Exchange Contracts

10,396

Foreign exchange gain (loss), net

6,447

Foreign exchange gain (loss), net

IGATE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2014

The effect of derivative instruments on the Condensed Consolidated Statements of Income for the three months ended September 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)

(Ineffective Portion and amount excluded from effectiveness testing)

September 30, 2013

Foreign Exchange Contracts

(8,474

)

Foreign exchange gain (loss), net

(5,929

)

Foreign exchange gain (loss), net

The effect of derivative instruments on the Condensed Consolidated Statements of Income for the nine months ended September 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)

(Ineffective Portion and amount excluded from effectiveness testing)

September 30, 2013

Foreign Exchange Contracts

(11,540

)

Foreign exchange gain (loss), net

(3,379

)

Foreign exchange gain (loss), net

837

Derivatives not designated as hedging instruments (in thousands):


	Three months ended September 30,					Nine months ended September 30,
	2014		2013			2014		2013
Statement of Income
Foreign exchange gain (loss), net	$	1,014	$	(3,348	)	$	2,010	$	(6,666	)

IGATE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2014

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 September 30, 2014		As of December 31, 2013
Balance Sheet Location	Designated/ Not Designated	Fair Value		Fair Value
Current Assets	Designated	$	4,865	$	832
	Not Designated	$	47	$	4
Current liabilities	Designated	$	987	$	904
	Not Designated	$	172	$	5

The estimated net amount of existing gains (losses), net of taxes, as of September 30, 2014 that is expected to be reclassified from accumulated other comprehensive income (losses) into earnings within the next 12 months is $2.6 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 Company’s potential loss resulting from the insolvency of counterparty and would also reduce the counterparty’s 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 September 30, 2014:
Foreign exchange derivative assets	$	4,912	$	1,053	$	3,859
Foreign exchange derivative liabilities	$	1,159	$	1,053	$	106
As of December 31, 2013:
Foreign exchange derivative assets	$	836	$	642	$	194
Foreign exchange derivative liabilities	$	909	$	642	$	267

IGATE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2014

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.

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 September 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	$	32,568	$	32,568	$	0	$	0
b) Fixed deposits with banks		186		186		0		0
Foreign exchange derivative contracts		4,912		0		4,912		0

Total current assets	$	37,666	$	32,754	$	4,912	$	0

Liabilities
Current Liabilities:
Foreign exchange derivative contracts	$	1,159	$	0	$	1,159	$	0

Total current liabilities	$	1,159	$	0	$	1,159	$	0

IGATE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2014


			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

13. Employee Benefits

Defined Contribution Plan

The Company’s 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 Company’s contribution to the Provident Fund for the three months ended September 30, 2014 and 2013 was $2.6 million and $2.0 million, respectively. The Company’s contribution to the Provident Fund for the nine months ended September 30, 2014 and 2013 was $7.2 million and $6.3 million, respectively.

IGATE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2014

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 employee’s 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 September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
Net periodic plan cost
Service cost	$	701		$	603		$	2,006		$	1,895
Interest cost		326			300			975			976
Expected return on plan asset		(233	)		(203	)		(696	)		(662	)
Amortization of actuarial loss		(60	)		(4	)		(179	)		(9	)

Net periodic plan cost for the period	$	734		$	696		$	2,106		$	2,200

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 the 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.

14. Stock-based compensation

During the three and nine months ended September 30, 2014, the Company granted 898,592 and 917,760 options, respectively, and 5,830 and 59,698 stock awards, respectively. During the three and nine months ended September 30, 2013, the Company granted 215,878 and 787,323 options, respectively, and 603,676 and 1,326,738 stock awards, respectively.

IGATE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2014

Stock-based compensation expense recorded in income from operations during the three and nine months ended September 30, 2014 and 2013 (in thousands) was as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
Stock-based compensation recorded in:
Cost of revenues	$	1,634	$	1,801	$	4,648	$	4,579
Selling, general and administrative expense		2,973		2,077		7,775		5,664

	$	4,607	$	3,878	$	12,423	$	10,243

During the three and nine months ended September 30, 2014, the Company issued 0.1 million and 0.6 million shares, respectively, upon exercise of stock options and awards. During the three and nine months ended September 30, 2013, the Company issued 0.4 million and 0.7 million shares, respectively, upon exercise of stock options and awards.

15. Other Income, net

Components of other income for the three and nine months ended September 30, 2014 and 2013 (in thousands) were as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
Investment income	$	3,455	$	4,088	$	10,995	$	30,057
Interest income		63		705		1,877		2,986
Gain on sale of fixed assets		64		8		82		2,248
Forfeiture of vested stock options		0		0		0		3,005
Other		571		412		2,193		1,614

Other income, net	$	4,153	$	5,213	$	15,147	$	39,910

Forfeiture of vested stock options during the nine months ended September 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 Company’s 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 September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
General Electric Company		17	%		13	%		16	%		13	%
Royal Bank of Canada		10	%		11	%		10	%		11	%

IGATE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2014

17. Segment Information

The Company’s Chief Executive Officer, who is also the Chief Operating Decision Maker, has 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 Company’s 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 subsidiary’s 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.

IGATE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2014

Condensed consolidating financial information for the Company and the Guarantors are as follows (in thousands):

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF SEPTEMBER 30, 2014

(UNAUDITED)


	Issuer			Guarantors			Non-Guarantors			Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	0		$	37,521		$	92,683		$	0		$	130,204
Restricted cash		0			0			0			0			0
Short-term investments		0			0			32,754			0			32,754
Accounts receivable, net		0			102,816			63,021			0			165,837
Unbilled revenues		0			45,454			34,003			0			79,457
Prepaid expenses and other current assets		1,034			6,047			36,543			0			43,624
Prepaid income taxes		19,741			0			6,774			(13,267	)		13,248
Deferred tax assets		0			3,134			741			0			3,875
Foreign exchange derivative contracts		0			0			4,912			0			4,912
Inter-corporate loan		0			0			0			0			0
Receivable from related parties		0			2,360			3,594			0			5,954
Receivable from group companies		47,984			122,409			133,798			(304,191	)		0

Total current assets		68,759			319,741			408,823			(317,458	)		479,865
Investment in subsidiaries		460,955			700,603			0			(1,161,558	)		0
Inter-corporate loan		325,000			2,495			0			(327,495	)		0
Deposits and other assets		3,815			1,283			15,195			0			20,293
Prepaid income taxes		0			0			32,138			0			32,138
Property and equipment, net		0			4,340			216,624			0			220,964
Leasehold land		0			0			75,603			0			75,603
Deferred tax assets		0			15,044			237			0			15,281
Goodwill		0			1,026			438,149			0			439,175
Intangible assets, net		0			78			111,320			0			111,398

Total assets	$	858,529		$	1,044,610		$	1,298,089		$	(1,806,511	)	$	1,394,717

LIABILITIES, PREFERRED STOCK AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	0		$	1,920		$	8,288		$	0		$	10,208
Line of credit		0			0			52,000			0			52,000
Senior Notes		0			0			0			0			0
Term loans		0			0			0			0			0
Accrued payroll and related costs		0			16,497			29,301			0			45,798
Other accrued liabilities		7,711			21,322			37,065			0			66,098
Accrued income taxes		0			13,267			3,861			(13,267	)		3,861
Foreign exchange derivative contracts		0			0			1,159			0			1,159
Deferred revenue		0			9,769			8,637			0			18,406
Inter-corporate loan		0			0			0			0			0
Payable to group companies		52,061			176,929			75,201			(304,191	)		0

Total current liabilities		59,772			239,704			215,512			(317,458	)		197,530
Other long-term liabilities		0			559			5,626			0			6,185
Senior Notes		325,000			0			0			0			325,000
Term loans		0			0			234,000			0			234,000
Accrued income taxes		0			650			17,611			0			18,261
Inter-corporate loan		0			325,000			2,495			(327,495	)		0
Deferred tax liabilities		0			0			35,261			0			35,261

Total liabilities		384,772			565,913			510,505			(644,953	)		816,237

Series B Preferred stock		435,989			0			0			0			435,989
IGATE Corporation shareholders’ equity:
Common shares		600			330,000			53,452			(383,452	)		600
Common shares held in treasury, at cost		(14,714	)		0			0			0			(14,714	)
Additional paid-in capital		236,095			161,276			605,882			(778,106	)		225,147
Retained earnings		(184,213	)		(12,675	)		512,060			0			315,172
Accumulated other comprehensive loss		0			96			(387,540	)		0			(387,444	)

Total IGATE Corporation shareholders’ equity		37,768			478,697			783,854			(1,161,558	)		138,761
Non-controlling interest		0			0			3,730			0			3,730

Total equity		37,768			478,697			787,584			(1,161,558	)		142,491
Total liabilities, preferred stock and shareholders’ equity	$	858,529		$	1,044,610		$	1,298,089		$	(1,806,511	)	$	1,394,717

IGATE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 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

IGATE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2014

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

FOR THREE MONTHS ENDED SEPTEMBER 30, 2014


	Issuer			Guarantors			Non-Guarantors			Eliminations			Consolidated
Revenues	$	0		$	211,545		$	185,522		$	(74,293	)	$	322,774
Cost of revenues (exclusive of depreciation and amortization)		0			158,386			124,708			(74,293	)		208,801

Gross margin		0			53,159			60,814			0			113,973
Selling, general and administrative expense		0			20,350			29,584			0			49,934
Depreciation and amortization		0			414			8,970			0			9,384

Income from operations		0			32,395			22,260			0			54,655
Interest expense		(4,110	)		(3,061	)		(4,186	)		3,865			(7,492	)
Foreign exchange gain (loss), net		0			(92	)		3,261			0			3,169
Loss on extinguishment of debt		0			0			0			0			0
Other income (expense), net		3,859			(743	)		4,902			(3,865	)		4,153

Income before income taxes		(251	)		28,499			26,237			0			54,485
Income tax expense (benefit)		0			11,774			5,314			0			17,088

Net income (loss)		(251	)		16,725			20,923			0			37,397
Non-controlling interest		0			0			89			0			89

Net income (loss) attributable to IGATE Corporation		(251	)		16,725			20,834			0			37,308
Accretion to preferred stock		152			0			0			0			152
Preferred dividend		8,653			0			0			0			8,653

Net income (loss) attributable to IGATE common shareholders	$	(9,056	)	$	16,725		$	20,834		$	0		$	28,503

IGATE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2014

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

FOR THREE MONTHS ENDED SEPTEMBER 30, 2013


	Issuer			Guarantors			Non-Guarantors			Eliminations			Consolidated
Revenues	$	0		$	171,855		$	183,130		$	(61,579	)	$	293,406
Cost of revenues (exclusive of depreciation and amortization)		0			121,685			111,957			(61,579	)		172,063

Gross margin		0			50,170			71,173			0			121,343
Selling, general and administrative expense		0			18,151			28,711			0			46,862
Depreciation and amortization		0			295			8,144			0			8,439

Income from operations		0			31,724			34,318			0			66,042
Interest expense		(18,950	)		(18,307	)		(324	)		17,325			(20,256	)
Foreign exchange gain (loss), net		0			(109	)		(4,263	)		0			(4,372	)
Loss on extinguishment of debt		0			0			0			0			0
Other income (expense), net		17,325			239			4,974			(17,325	)		5,213

Income before income taxes		(1,625	)		13,547			34,705			0			46,627
Income tax expense (benefit)		0			5,842			8,792			0			14,634

Net income (loss)		(1,625	)		7,705			25,913			0			31,993
Non-controlling interest		0			0			97			0			97

Net income (loss) attributable to IGATE Corporation		(1,625	)		7,705			25,816			0			31,896
Accretion to preferred stock		126			0			0			0			126
Preferred dividend		7,994			0			0			0			7,994

Net income (loss) attributable to IGATE common shareholders	$	(9,745	)	$	7,705		$	25,816		$	0		$	23,776

IGATE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2014

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

FOR NINE MONTHS ENDED SEPTEMBER 30, 2014


	Issuer			Guarantors			Non-Guarantors			Eliminations			Consolidated
Revenues	$	0		$	594,494		$	553,176		$	(210,945	)	$	936,725
Cost of revenues (exclusive of depreciation and amortization)		0			445,229			361,030			(210,945	)		595,314

Gross margin		0			149,265			192,146			0			341,411
Selling, general and administrative expense		0			52,550			87,553			0			140,103
Depreciation and amortization		0			1,195			26,465			0			27,660

Income from operations		0			95,520			78,128			0			173,648
Interest expense		(31,592	)		(29,172	)		(11,615	)		29,062			(43,317	)
Foreign exchange gain (loss), net		0			(157	)		6,247			0			6,090
Loss on extinguishment of debt		(51,760	)		0			0			0			(51,760	)
Other income (expense), net		29,044			1,667			13,498			(29,062	)		15,147

Income before income taxes		(54,308	)		67,858			86,258			0			99,808
Income tax expense (benefit)		(19,741	)		28,778			18,449			0			27,486

Net income (loss)		(34,567	)		39,080			67,809			0			72,322
Non-controlling interest		0			0			282			0			282

Net income (loss) attributable to IGATE Corporation		(34,567	)		39,080			67,527			0			72,040
Accretion to preferred stock		436			0			0			0			436
Preferred dividend		25,182			0			0			0			25,182

Net income (loss) attributable to IGATE common shareholders	$	(60,185	)	$	39,080		$	67,527		$	0		$	46,422

IGATE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2014

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

FOR NINE MONTHS ENDED SEPTEMBER 30, 2013


	Issuer			Guarantors			Non-Guarantors			Eliminations			Consolidated
Revenues	$	0		$	499,954		$	542,746		$	(191,108	)	$	851,592
Cost of revenues (exclusive of depreciation and amortization)		0			366,782			342,399			(191,108	)		518,073

Gross margin		0			133,172			200,347			0			333,519
Selling, general and administrative expense		0			50,291			88,713			0			139,004
Depreciation and amortization		0			929			25,376			0			26,305

Income from operations		0			81,952			86,258			0			168,210
Interest expense		(56,705	)		(54,649	)		(7,646	)		51,975			(67,025	)
Foreign exchange gain (loss), net		0			(298	)		390			0			92
Loss on extinguishment of debt		0			0			0			0			0
Other income (expense), net		51,975			3,144			36,766			(51,975	)		39,910

Income before income taxes		(4,730	)		30,149			115,768			0			141,187
Income tax expense (benefit)		0			9,455			35,006			0			44,461

Net income (loss)		(4,730	)		20,694			80,762			0			96,726
Non-controlling interest		0			0			97			0			97

Net income (loss) attributable to IGATE Corporation		(4,730	)		20,694			80,665			0			96,629
Accretion to preferred stock		361			0			0			0			361
Preferred dividend		23,246			0			0			0			23,246

Net income (loss) attributable to IGATE common shareholders	$	(28,337	)	$	20,694		$	80,665		$	0		$	73,022

IGATE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2014

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THREE MONTHS ENDED SEPTEMBER 30, 2014


	Issuer			Guarantors		Non-Guarantors			Eliminations		Consolidated
Net Income (loss) attributable to IGATE common shareholders	$	(9,056	)	$	16,725	$	20,834		$	0	$	28,503
Add: Non-controlling interest		0			0		89			0		89
Other comprehensive income:
Change in fair value on marketable securities		0			0		(1,161	)		0		(1,161	)
Unrecognized actuarial gain (loss) on pension liability		0			0		132			0		132
Change in fair value of cash flow hedges		0			0		(861	)		0		(861	)
Gain (loss) on foreign currency translation		0			0		(28,290	)		0		(28,290	)

Total comprehensive income (loss)		(9,056	)		16,725		(9,257	)		0		(1,588	)
Less: Total comprehensive income (loss) attributable to non-controlling interest		0			0		(129	)		0		(129	)

Total comprehensive income (loss) attributable to IGATE common shareholders	$	(9,056	)	$	16,725	$	(9,128	)	$	0	$	(1,459	)

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THREE MONTHS ENDED SEPTEMBER 30, 2013


	Issuer			Guarantors		Non-Guarantors			Eliminations		Consolidated
Net Income (loss) attributable to IGATE common shareholders	$	(9,745	)	$	7,705	$	25,816		$	0	$	23,776
Add: Non-controlling interest		0			0		97			0		97
Other comprehensive income:
Change in fair value on marketable securities		0			0		(336	)		0		(336	)
Unrecognized actuarial gain (loss) on pension liability		0			0		293			0		293
Change in fair value of cash flow hedges		0			0		(1,482	)		0		(1,482	)
Gain (loss) on foreign currency translation		0			0		(48,269	)		0		(48,269	)

Total comprehensive income (loss)		(9,745	)		7,705		(23,881	)		0		(25,921	)
Less: Total comprehensive income (loss) attributable to non-controlling interest		0			0		(1,890	)		0		(1,890	)

Total comprehensive income (loss) attributable to IGATE common shareholders	$	(9,745	)	$	7,705	$	(21,991	)	$	0	$	(24,031	)

IGATE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2014

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR NINE MONTHS ENDED SEPTEMBER 30, 2014


	Issuer			Guarantors		Non- Guarantors			Eliminations		Consolidated
Net Income (loss) attributable to IGATE common shareholders	$	(60,185	)	$	39,080	$	67,527		$	0	$	46,422
Add: Non-controlling interest		0			0		282			0		282
Other comprehensive income:
Change in fair value on marketable securities		0			0		(1,478	)		0		(1,478	)
Unrecognized actuarial gain (loss) on pension liability		0			0		118			0		118
Change in fair value of cash flow hedges		0			0		2,608			0		2,608
Gain (loss) on foreign currency translation		0			0		(1,649	)		0		(1,649	)

Total comprehensive income (loss)		(60,185	)		39,080		67,408			0		46,303
Less: Total comprehensive income (loss) attributable to non-controlling interest		0			0		210			0		210

Total comprehensive income (loss) attributable to IGATE common shareholders	$	(60,185	)	$	39,080	$	67,198		$	0	$	46,093

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR NINE MONTHS ENDED SEPTEMBER 30, 2013


	Issuer			Guarantors		Non- Guarantors			Eliminations		Consolidated
Net Income (loss) attributable to IGATE common shareholders	$	(28,337	)	$	20,694	$	80,665		$	0	$	73,022
Add: Non-controlling interest		0			0		97			0		97
Other comprehensive income:
Change in fair value on marketable securities		0			0		(7,086	)		0		(7,086	)
Unrecognized actuarial gain (loss) on pension liability		0			0		863			0		863
Change in fair value of cash flow hedges		0			0		(5,417	)		0		(5,417	)
Gain (loss) on foreign currency translation		0			0		(120,276	)		0		(120,276	)

Total comprehensive income (loss)		(28,337	)		20,694		(51,154	)		0		(58,797	)
Less: Total comprehensive income (loss) attributable to non-controlling interest		0			0		(1,890	)		0		(1,890	)

Total comprehensive income (loss) attributable to IGATE common shareholders	$	(28,337	)	$	20,694	$	(49,264	)	$	0	$	(56,907	)

IGATE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2014

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

FOR NINE MONTHS ENDED SEPTEMBER 30, 2014


	Issuer			Guarantors			Non- Guarantors			Eliminations			Consolidated
Cash Flows From Operating Activities:
Net income (loss)	$	(34,567	)	$	39,080		$	67,809		$	0		$	72,322
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization		0			1,195			26,465			0			27,660
Stock-based compensation		0			4,715			7,708			0			12,423
Realized gain on investments		0			0			(10,995	)		0			(10,995	)
Deferred loss on settled derivatives		0			0			0			0			0
Provision (recovery) for doubtful debts		0			(1,013	)		462			0			(551	)
Deferred income taxes		0			39			(380	)		0			(341	)
Loss on extinguishment of debt		51,760			0			0			0			51,760
Amortization of debt issuance costs		2,548			0			1,858			0			4,406
Gain on sale of property and equipment		0			(26	)		(56	)		0			(82	)
Deferred rent		0			320			626			0			946
Excess tax benefits related to stock option exercises		0			(3,101	)		0			0			(3,101	)
Changes in operating assets and liabilities:
Accounts receivable and unbilled revenues		0			(31,579	)		1,624			0			(29,955	)
Inter-corporate current account		25,412			28,053			(53,465	)		0			0
Prepaid expenses and other assets		0			(2,551	)		(6,724	)		0			(9,275	)
Accounts payable		0			86			(416	)		0			(330	)
Accrued and other liabilities		(23,616	)		12,163			(19,794	)		0			(31,247	)
Deferred revenue		0			853			51			0			904

Net cash flows provided by (used in) operating activities		21,537			48,234			14,773			0			84,544

Cash Flows From Investing Activities:
Purchase of property and equipment		0			(3,371	)		(67,499	)		0			(70,870	)
Proceeds from sale of property and equipment		0			0			257			0			257
Purchase of available-for-sale investments		0			0			(421,377	)		0			(421,377	)
Proceeds from maturities and sale of available-for-sale investments		0			0			581,196			0			581,196
Restricted cash		0			0			0			0			0
Inter-corporate loan		445,000			0			(365	)		(444,635	)		0
Investment in group companies		0			(123	)		0			123			0
Purchase of non-controlling interests		0			0			(328	)		0			(328	)

Net cash flows provided by (used in) investing activities		445,000			(3,494	)		91,884			(444,512	)		88,878

Cash Flows From Financing Activities:
Payments on capital lease obligations		0			0			(366	)		0			(366	)
Payments of line of credit and term loans		0			0			(126,000	)		0			(126,000	)
Proceeds from line of credit and term loans		0			0			0			0			0
Payment of Senior Notes		(770,000	)		0			0			0			(770,000	)
Proceeds from Senior Notes		325,000			0			0			0			325,000
Payment of debt related costs		(41,530	)		0			0			0			(41,530	)
Release of restricted cash towards debt retirement		0			360,000			0			0			360,000
Proceeds from issuance of equity stock		0			0			123			(123	)		0
Proceeds from exercise of stock options		16,892			(4,716	)		(7,718	)		0			4,458
Excess tax benefits related to stock option exercises		3,101			0			0			0			3,101
Inter-corporate loan		0			(445,000	)		365			444,635			0
Proceeds from equity issue to group companies		0			0			0			0			0

Net cash flows provided by (used in) financing activities		(466,537	)		(89,716	)		(133,596	)		444,512			(245,337	)

Effect of exchange rate changes		0			0			(2,717	)		0			(2,717	)

Net change in cash and cash equivalents		0			(44,976	)		(29,656	)		0			(74,632	)
Cash and cash equivalents, beginning of period		0			82,497			122,339			0			204,836

Cash and cash equivalents, end of period	$	0		$	37,521		$	92,683			0		$	130,204

IGATE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2014

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

FOR NINE MONTHS ENDED SEPTEMBER 30, 2013


	Issuer			Guarantors			Non- Guarantors			Eliminations			Consolidated
Cash Flows From Operating Activities:
Net income (loss)	$	(4,730	)	$	20,694		$	80,762		$	0		$	96,726
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization		0			929			25,376			0			26,305
Stock-based compensation		0			208			7,030			0			7,238
Realized gain on investments		0			0			(30,057	)		0			(30,057	)
Deferred gain (loss) on settled derivatives		0			0			(1,066	)		0			(1,066	)
Provision (recovery) for doubtful debts		0			362			(208	)		0			154
Deferred income taxes		0			277			(744	)		0			(467	)
Loss on extinguishment of debt		0			0			0			0			0
Amortization of debt issuance costs		4,730			460			4,019			0			9,209
Gain on sale of property and equipment		0			0			(2,248	)		0			(2,248	)
Deferred rent		0			104			94			0			198
Excess tax benefits related to stock option exercises		0			(463	)		0			0			(463	)
Changes in operating assets and liabilities:
Accounts receivable and unbilled revenues		0			12,509			(16,673	)		0			(4,164	)
Inter-corporate current account		(28,259	)		7,539			20,720			0			0
Prepaid expenses and other assets		17,325			(1,528	)		(26,186	)		0			(10,389	)
Accounts payable		0			(1,945	)		2,403			0			458
Accrued and other liabilities		0			3,073			36,197			0			39,270
Deferred revenue		0			(276	)		(2,135	)		0			(2,411	)

Net cash flows (used in) provided by operating activities		(10,934	)		41,943			97,284			0			128,293

Cash Flows From Investing Activities:
Purchase of property and equipment		0			(921	)		(23,309	)		0			(24,230	)
Proceeds from sale of property and equipment		0			0			2,574			0			2,574
Purchase of available-for-sale investments		0			0			(1,188,835	)		0			(1,188,835	)
Proceeds from maturities and sale of available-for-sale investments		0			0			1,372,990			0			1,372,990
Restricted cash		0			0			3,072			0			3,072
Inter-corporate Loan		0			0			0			0			0
Investment in group companies		0			(255	)		0			255			0
Purchase of non-controlling interests		0			0			(23,651	)		0			(23,651	)

Net cash flows provided by (used in) investing activities		0			(1,176	)		142,841			255			141,920

Cash Flows From Financing Activities:
Payments on capital lease obligations		0			0			(450	)		0			(450	)
Payment of line of credit and term loans		0			(47,500	)		(239,500	)		0			(287,000	)
Proceeds from line of credit and term loans		0			30,000			11,000			0			41,000
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		10,471			(209	)		(6,637	)		0			3,625
Excess tax benefits related to stock option exercises		463			0			0			0			463
Inter-corporate loan		0			0			0			0			0
Proceeds from equity issue to group companies		0			0			255			(255	)		0

Net cash flows provided by (used in) financing activities		10,934			(17,709	)		(237,726	)		(255	)		(244,756	)

Effect of exchange rate changes		0			0			21,367			0			21,367

Net change in cash and cash equivalents		0			23,058			23,766			0			46,824
Cash and cash equivalents, beginning of period		0			14,365			80,790			0			95,155

Cash and cash equivalents, end of period	$	0		$	37,423		$	104,556		$	0		$	141,979

IGATE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2014

19. Commitments and contingencies

Capital commitments

As of September 30, 2014, the Company has open purchase orders totaling $38.1 million towards construction of new facilities and purchase of property and equipment.

Bank guarantees

As of September 30, 2014, guarantees and letters of credit provided by banks on behalf of the Company’s subsidiaries, to customs authorities, customers and vendors for capital procurements amounted to $3.6 million. These guarantees and letters of credit have a remaining term of approximately one to five years.

Other commitments

The Company’s 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 Company’s outstanding voting shares at fair market value. The fair market value is the volume weighted average trading price of the Company’s 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 Company’s 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 Officer’s complaint at this 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.

IGATE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 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.

In August 2014, the FASB issued ASU No. 2014-15– “Presentation of Financial Statements – Going Concern” which requires an entity’s management to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued or available to be issued. The ASU defines and clarifies that substantial doubt exists when conditions and events indicate that it is probable that the entity will be unable to meet its obligations as they become due within one year after the date financial statements are issued or available to be issued. The ASU requires management to perform the assessment every interim and annual period. The ASU applies to all entities and is effective for the annual period ending after December 15, 2016. Early application is permitted. 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 Company’s condensed consolidated balance sheet or statement of income.

ITEM 2.

MANAGEMENT’S 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 Company’s website is http://www.igate.com. The Company’s 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 Company’s website as soon as reasonably practicable after the reports are filed electronically with the SEC. The inclusion of our website address above is 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, as of September 30, 2014, our global operations had 34,455 employees (consisting of 32,414 IT and IT-enabled service professionals and 2,041 individuals working in sales, recruiting, general and administrative roles, of which 28,262 employees were located at offshore and 6,193 employees were located at onsite premises). We have 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. The increase in headcount over the last few quarters demonstrates our ability to attract talent and the anticipation of ramp up of our key deals and clients. We are currently operating under a hire-for-growth model as opposed to our old just-in-time model and we have hired 4,722 employees during the nine months ended September 30, 2014. We expect our hiring numbers to be moderate in the future due to the increase in the adoption of our business model, technology automation and stable retention rates.

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 17% and 16% of revenues for the three and nine months ended September 30, 2014 and 13% of revenues for each of the three and nine months ended September 30, 2013. Our second largest customer, Royal Bank of Canada (“RBC”), accounted for approximately 10% of revenues for the three and nine months ended September 30, 2014 and 11% for the three and nine months ended September 30, 2013. IGATE is a Global Preferred Partner of RBC.

Recent Developments

Commencement of Exchange Offer of Notes

On September 19, 2014, the Company offered to exchange all of its outstanding 4.75% Senior Notes due 2019 in the aggregate principal amount of $325,000,000 (which we refer to as the “Old Notes”) for an equal aggregate principal amount of 4.75% Senior Notes due 2019 which have been registered under the Securities Act (which we refer to as the “Exchange Notes”). The exchange offer is designed to provide holders of Old Notes with an opportunity to acquire Exchange Notes which, unlike the Old Notes, will be freely transferable, subject to certain restrictions. The terms of the Exchange Notes will be substantially identical to those of the outstanding Old Notes, except the transfer restrictions, registration rights and additional interest provisions relating to the Old Notes will not apply to the Exchange Notes. The exchange offer expired on October 17, 2014 and all the Notes were tendered by the Note holders.

Reportable Financial Segments

The Company’s Chief Executive Officer, who is also the Chief Operating Decision Maker, has 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 Board’s 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:

•

Revenue recognition.

•

Income taxes.

•

Derivative instruments and hedging activities.

•

Stock-based compensation.

•

Intangible assets.

During the nine months ended September 30, 2014, there were no significant changes to our critical accounting policies and estimates. Management’s 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

Results of Operations for the Three Months Ended September 30, 2014 as Compared to the Three Months Ended September 30, 2013 (dollars in thousands):


	Three Months Ended September 30,
	2014						2013						% change of amount from comparable period
	Amount			% of Revenues			Amount			% of Revenues
Revenues	$	322,774			100.0	%	$	293,406			100.0	%		10.0	%
Cost of revenues^(a)		208,801			64.7			172,063			58.6			21.4

Gross margin		113,973			35.3			121,343			41.4			(6.1	)
Selling, general and administrative expense		49,934			15.5			46,862			16.0			6.6
Depreciation and amortization		9,384			2.9			8,439			2.9			11.2

Income from operations		54,655			16.9			66,042			22.5			(17.2	)
Interest expense		(7,492	)		(2.3	)		(20,256	)		(6.9	)		(63.0	)
Foreign exchange gain (loss), net		3,169			1.0			(4,372	)		(1.5	)		172.5
Other income		4,153			1.3			5,213			1.8			(20.3	)

Income before income taxes		54,485			16.9			46,627			15.9			16.9
Income tax expense ^(b)		17,088			5.3			14,634			5.0			—

Net income		37,397			11.6			31,993			10.9			16.9
Non-controlling interest		89			0.0			97			0.0			(8.2	)

Net income attributable to IGATE Corporation		37,308			11.6			31,896			10.9			17.0
Accretion to preferred stock		152			0.1			126			0.1			20.6
Preferred dividend		8,653			2.7			7,994			2.7			8.2

Net income (loss) attributable to IGATE common shareholders	$	28,503			8.8	%	$	23,776			8.1	%		19.9	%

(a)

Cost of revenues is exclusive of depreciation and amortization.

(b)

As the effective tax rate is a better comparable measure, the percent change from comparable period is not computed.

Revenues

Revenues increased by 10.0% for the three months ended September 30, 2014 as compared to the three months ended September 30, 2013. The increase is directly attributable to the combination of increased business with our recurring customers by 8.8% and business with new customers by 2.1%, which was partly offset by the cessation of business with certain existing customers by 0.9%. We have strategized our priority of expanding our relationships with our existing clients. There was an immaterial currency impact during the three months ended September 30, 2014 as compared to the corresponding period as the cross currency movements offset each other.

Our top five customers accounted for 39.0% and 40.0% of the revenues for the three months ended September 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 on customer geography (in thousands):


	Three Months Ended September 30,
	2014				2013
	Amount		%		Amount		%
Revenues:
United States	$	225,565		69.9	$	202,591		69.0
Canada		31,331		9.7		32,158		11.0
EMEA⁽¹⁾		47,789		14.8		41,293		14.1
Asia Pacific		18,089		5.6		17,364		5.9

Total revenues	$	322,774		100.0	$	293,406		100.0

(1)

Comprises of Europe, Middle East and African countries.

United States revenues increased to $225.6 million for the three months ended September 30, 2014, or 69.9% of total revenues, from $202.6 million, or 69.0% of total revenues, for the three months ended September 30, 2013. The $23.0 million increase was primarily attributable to increased business with our recurring customers contributing $19.3 million, which is offset by $1.3 million in lost revenues as a result of projects completed and a $5.0 million increase in revenues from new customers.

Canada revenues decreased to $31.3 million for the three months ended September 30, 2014, or 9.7% of total revenues, from $32.1 million, or 11.0% of total revenues, for the three months ended September 30, 2013. The $0.8 million decrease was primarily attributable to decreased business with our recurring customers contributing $0.8 million.

EMEA revenues increased to $47.8 million for the three months ended September 30, 2014, or 14.8% of total revenues, from $41.3 million, or 14.1% of total revenues, for the three months ended September 30, 2013. The $6.5 million increase was primarily attributable to increased business with our recurring customers contributing $6.6 million, which is offset by $0.6 million in lost revenues as a result of projects completed and a $0.5 million increase in revenues from new customers. The revenue growth in Europe was driven by our increased focus and strong traction in existing markets.

Asia Pacific revenues increased to $18.1 million for the three months ended September 30, 2014, or 5.6% of total revenues, from $17.4 million, or 5.9% of total revenues, for the three months ended September 30, 2013. The $0.7 million increase was primarily attributable to increased business with our recurring customers contributing $0.8 million, which is offset by $0.7 million in lost revenues as a result of projects completed and $0.6 million increase in revenues from new customers.

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 September 30,
	2014				2013
	Amount		%		Amount		%
Revenues:
Banking and financial services	$	74,412		23.0	$	64,520		22.0
Insurance		62,186		19.3		66,019		22.5
Healthcare and life sciences		30,406		9.4		26,217		8.9
Manufacturing		90,940		28.2		78,091		26.6
Retail and consumer packaged goods		27,083		8.4		26,186		9.0
Services		37,747		11.7		32,373		11.0

Total revenues	$	322,774		100.0	$	293,406		100.0

Banking and financial services revenues increased to $74.4 million for the three months ended September 30, 2014, or 23.0% of total revenues, from $64.5 million, or 22.0% of total revenues, for the three months ended September 30, 2013. The $9.9 million increase was primarily attributable to increased business with our recurring customers contributing $10.2 million, which is offset by $0.4 million in lost revenues as a result of projects completed and $0.1 million increase in revenues from new customers. We continue to see strength in banking and financial services and our Reference Data Management Solution designed for clients continue to gain traction.

Insurance revenues decreased to $62.2 million for the three months ended September 30, 2014, or 19.3% of total revenues, from $66.0 million, or 22.5% of total revenues, for the three months ended September 30, 2013. The $3.8 million decrease was primarily attributable to a $3.5 million decrease in business with our recurring customers, and $0.4 million in lost revenues as a result of projects completed partly offset by $0.1 million increase in revenues from new customers.

Healthcare and life sciences revenues increased to $30.4 million for the three months ended September 30, 2014, or 9.4% of total revenues, from $26.2 million, or 8.9% of total revenues, for the three months ended September 30, 2013. The $4.2 million increase was primarily attributable to increased business with our recurring customers contributing $1.3 million, which is offset by $0.2 million in lost revenues as a result of projects completed and $3.1 million increase in revenues from new customers.

Manufacturing revenues increased to $90.9 million for the three months ended September 30, 2014, or 28.2% of total revenues, from $78.1 million, or 26.6% of total revenues, for the three months ended September 30, 2013. The $12.8 million increase was primarily attributable to increased business with our recurring customers contributing $12.4 million, which is offset by $1.0 million in lost revenues as a result of projects completed and $1.4 million increase in revenues from new customers.

Retail and consumer packaged goods revenues increased to $27.1 million for the three months ended September 30, 2014, or 8.4% of total revenues, from $26.2 million, or 9.0% of total revenues, for the three months ended September 30, 2013. The $0.9 million increase was primarily attributable to increased business with our recurring customers contributing $1.1 million, which is offset by $0.2 million in lost revenues as a result of projects completed.

Services revenues increased to $37.7 million for the three months ended September 30, 2014, or 11.7% of total revenues, from $32.4 million, or 11.0% of total revenues, for the three months ended September 30, 2013. The $5.4 million increase was primarily attributable to increased business with our recurring customers contributing $5.7 million, which is offset by $0.7 million in lost revenues as a result of projects completed and a $0.4 million increase in revenues from 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 September 30,
	2014				2013
	Amount		%		Amount		%
Revenues:
Fixed price	$	213,149		66.0	$	187,535		63.9
Time and material		109,625		34.0		105,871		36.1

Total revenues	$	322,774		100.0	$	293,406		100.0

Fixed price revenues primarily represents annual maintenance contract/fixed time frame contracts, which include application maintenance and support services, on which revenue is recognized ratably over the term of maintenance. Revenues increased to $213.1 million for the three months ended September 30, 2014, or 66.0% of total revenues, from $187.5 million, or 63.9% of total revenues, for the three months ended September 30, 2013. The $25.6 million increase was primarily attributable to increased business with our recurring customers contributing $22.2 million, which is offset by $1.1 million in lost revenues as a result of projects completed and a $4.5 million increase in revenues from new customers.

Time and material projects are projects wherein contract payments are based on the number of consultant hours worked on the project. Revenues increased to $109.6 million for the three months ended September 30, 2014, or 34.0% of total revenues, from $105.9 million, or 36.1% of total revenues, for the three months ended September 30, 2013. The $3.8 million increase was primarily attributable to increased business with our recurring customers contributing $3.7 million, which is offset by $1.5 million in lost revenues as a result of projects completed and a $1.6 million increase in revenues from new customers.

Revenue Mix and Utilization

The following table presents percentages of our revenue mix and utilization:


	Three Months Ended September 30,
	2014		2013
	%		%
Efforts:
Onsite		22.8		21.5
Offshore		77.2		78.5
Revenue Mix:
Onsite		50.3		48.9
Offshore		49.7		51.1
Realized Rate *(IT and Consulting Services)*:
Onsite		64.8		67.9
Offshore		19.5		20.2
Utilization:
Utilization (IT and Consulting Services)		71.0		79.4
Utilization (BPO)		91.2		95.8
Utilization		74.2		82.3

During the three months ended September 30, 2014, there was an increase in revenue from onsite directly attributable to an increase in the use of onsite resources. During the quarter ended September 30, 2014, we increased our investments in building talent capital, leadership, and learning and solution development with a view to build long term value and thereby strengthen our competitive position. The increased investments were also directly responsible for a decrease in realized and utilization rates during the three months ended September 30, 2014. We believe our increased on-site presence, stable future hiring, increased automation and other scale benefits will improve utilization rates.

Gross margin

Our Gross margin percentage was 35.3% for the three months ended September 30, 2014, as compared to 41.4% for the three months ended September 30, 2013. In addition to our increased hiring, investments in business tools, methodology and capabilities and the initial set up and conversion costs associated with ramping up for our large deals have resulted in lower margins during the quarter. However, our continuous investments in people, capabilities and infrastructure will enable us to strengthen our position as a transformational ITOPS solutions provider and drive our revenue growth. The details of our gross margin are as follows (in thousands):

Gross Margin Metrics:


	Three Months Ended September 30,
	2014		2013
Revenue	$	322,774	$	293,406
Cost of revenues:
Direct salary costs		179,094		144,921
Direct travel costs		9,385		7,438
Direct other costs		20,322		19,704

Gross Margin	$	113,973	$	121,343

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 September 30, 2014, the decrease in gross margin percentage was directly attributable to an decrease in utilization by 2.2%, increase in salaries and other costs directly associated with billable professionals, including payroll taxes by 2.8%, increase in travel and immigration costs including visa fees by 0.4%. The decrease was also impacted by adverse movement of the USD against other currencies by 0.7%.

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. Our SG&A percentage was 15.5% for the three months ended September 30, 2014, as compared to 16.0% for the three months ended September 30, 2013. The SG&A expense details are as follows (in thousands):


	Three Months Ended September 30,
	2014		2013
Employee costs	$	25,666	$	23,341
Travel costs		3,200		3,084
Corporate costs:
- Marketing costs		1,066		1,164
- Legal costs		1,094		1,680
- Other corporate costs		5,784		5,404

Total Corporate costs		7,944		8,248
Facility costs		13,124		12,189

Selling, general and administrative expenses	$	49,934	$	46,862

Total SG&A expenses for the three months ended September 30, 2014 increased by $3.1 million as compared to the three months ended September 30, 2013.

Employee costs increased by $2.3 million for the three months ended September 30, 2014, as compared to the three months ended September 30, 2013, due to increase in stock-based compensation expenses by $0.9 million, higher staff welfare expenses by $0.8 million and higher salary, overhead expenses and benefits by $0.6 million.

Our corporate costs decreased by $0.3 million for the three months ended September 30, 2014 as compared to the three months ended September 30, 2013. The decrease was primarily attributable to the decrease in legal fees by $0.6 million related to ongoing general litigation matters which was partly offset by an increase in subscription fees by $0.3 million.

Facilities costs increased by $1.0 million for the three months ended September 30, 2014 as compared to the three months ended September 30, 2013. The increase was primarily on account of increase in rent and related expenses by $0.8 million.

Depreciation and amortization costs

Depreciation and amortization costs were 2.9% of revenue for each of the three months ended September 30, 2014 and 2013, respectively.

Operating income

Our operating margin (operating income as a percentage of revenue) was 16.9% and 22.5% for the three months ended September 30, 2014 and 2013, respectively. The decrease was mainly due to decrease in margins and an increase in selling, general and administrative expenses.

Interest expense

Interest expenses were 2.3% and 6.9% of revenues for the three months ended September 30, 2014 and 2013, respectively. The details of interest expense are as follows (in thousands):


	Three Months Ended September 30,
	2014		2013
Interest on Senior Notes (including amortization of debt issuance costs)	$	4,110	$	18,950
Interest expense on line of credit and term loans (including amortization of debt issuance costs)		3,142		1,187
Interest on uncertain tax position		75		99
Other interest charges		165		20

	$	7,492	$	20,256

The decrease in interest expense of $12.8 million for the three months ended September 30, 2014 as compared to the three months ended September 30, 2013 was primarily on account of lower interest of 4.75% on the new Senior Notes as compared to 9.00% on the extinguished Senior Notes.

Foreign exchange gain (loss), net

Foreign exchange gain was $3.2 million for the three months ended September 30, 2014 as compared to a loss of $4.4 million for the three months ended September 30, 2013, respectively.

We recognized foreign currency gain of $4.4 million and loss of $9.4 million on foreign exchange derivative contracts related to inter-company and customer receivables and forecasted revenues for the three months ended September 30, 2014 and 2013, respectively. During the three months ended September 30, 2013, we recognized net unrealized gain of $0.3 million on a foreign exchange forward contract that was entered to hedge the exchange risk on our foreign currency denominated investments classified as available-for-sale securities.

We also recognized a foreign currency loss of $0.1 million on the re-measurement of other monetary assets and liabilities and loss of $1.3 million on the re-measurement of the unsecured revolving working credit facility for the three months ended September 30, 2014, as compared to a gain of $7.2 million on the re-measurement of other monetary assets and liabilities and a loss of $2.5 million on the re-measurement of unsecured revolving working credit facility for the three months ended September 30, 2013.

Other income, net

Other income was 1.3% and 1.8% of revenues for the three months ended September 30, 2014 and 2013, respectively. The details of other income are as follows (in thousands):


	Three Months Ended September 30,
	2014		2013
Investment income	$	3,455	$	4,088
Interest income		63		705
Gain on sale of fixed assets		64		8
Other		571		412

Other income, net	$	4,153	$	5,213

The decrease in other income is primarily due to the reduction in the investment income. Our investment base as of July 01, 2014 and 2013 was $150.9 million and $275.2 million, respectively.

Income taxes

Our reported effective tax rate (“ETR”), including discrete items, was 31.4% during each of the three months ended September 30, 2014 and 2013.

There are no major variances in the components of reported ETR during the three months ended September 2014 as compared to the three month ended September 2013.

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. The Company has 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 September 30, 2014 and 2013 represents approximately 0.5% of the outstanding share capital of IGATE Global.

For the three months ended September 30, 2014, we recorded $0.1 million share of profits and $0.2 million of accumulated other comprehensive loss attributable to non-controlling interest as compared to $0.1 million share of profits and $2.0 million of accumulated other comprehensive income attributable to non-controlling interest for the three months ended September 30, 2013.

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 cumulative dividends of $8.7 million and $8.0 million at a rate of 8.00% per annum, compounded quarterly, for the three months ended September 30, 2014 and 2013, respectively.

Results of Operations for the Nine Months Ended September 30, 2014 as Compared to the Nine Months Ended September 30, 2013 (dollars in thousands):


	Nine Months Ended September 30,
	2014						2013						% change of Amount from comparable period
	Amount			% of Revenues			Amount			% of Revenues
Revenues	$	936,725			100.0	%	$	851,592			100.0	%		10.0	%
Cost of revenues^(a)		595,314			63.6			518,073			60.8			14.9

Gross margin		341,411			36.4			333,519			39.2			2.4
Selling, general and administrative expense		140,103			15.0			139,004			16.3			0.8
Depreciation and amortization		27,660			2.9			26,305			3.1			5.2

Income from operations		173,648			18.5			168,210			19.8			3.2
Interest expense		(43,317	)		(4.6	)		(67,025	)		(7.9	)		(35.4	)
Foreign exchange gain, net		6,090			0.7			92			0.0			6519.6
Loss on extinguishment of debt ^(b)		(51,760	)		(5.5	)		—			—			—
Other income		15,147			1.6			39,910			4.7			(62.0	)

Income before income taxes		99,808			10.7			141,187			16.6			(29.3	)
Income tax expense ^(c)		27,486			2.9			44,461			5.2			—

Net income		72,322			7.8			96,726			11.4			(25.2	)
Non-controlling interest		282			0.1			97			0.0			190.7

Net income attributable to IGATE		72,040			7.7			96,629			11.4			(25.4	)
Accretion to preferred stock		436			0.0			361			0.1			20.8
Preferred dividend		25,182			2.7			23,246			2.7			8.3

Net income attributable to IGATE common shareholders	$	46,422			5.0	%	$	73,022			8.6	%		(36.4	)%

(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 10.0% for the nine months ended September 30, 2014 as compared to the nine months ended September 30, 2013. The increase is directly attributable to the combination of increased business with our recurring customers by 9.4% and business with new customers by 1.5%, which was partly offset by the cessation of business with certain existing customers by 0.7%. We have strategized our priority of expanding our relationships with our existing clients. The movement of the USD against various other currencies had a net adverse impact on our revenues of 0.2% during the nine months ended September 30, 2014 as compared to the corresponding period in the previous year.

Our top five customers accounted for 38.9% and 40.0% of the revenues for the nine months ended September 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):


	Nine Months Ended September 30,
	2014				2013
	Amount		%		Amount		%
Revenues:
United States	$	645,881		69.0	$	596,583		70.1
Canada		90,247		9.6		91,243		10.7
EMEA ⁽¹⁾		146,470		15.6		110,016		12.9
Asia Pacific		54,127		5.8		53,750		6.3

Total revenues	$	936,725		100.0	$	851,592		100.0

(1)

Comprises of Europe, Middle East and African countries.

United States revenues increased to $645.9 million for the nine months ended September 30, 2014, or 69.0% of total revenues, from $596.6 million, or 70.1% of total revenues, for the nine months ended September 30, 2013. The $49.3 million increase was primarily attributable to increased business with our recurring customers contributing $42.8 million, which is offset by $3.5 million in lost revenues as a result of projects completed and $10.0 million increase in revenues from new customers.

Canada revenues decreased to $90.2 million for the nine months ended September 30, 2014, or 9.6% of total revenues, from $91.2 million, or 10.7% of total revenues, for the nine months ended September 30, 2013. The $1.0 million decrease was primarily attributable to decreased business with our recurring customers contributing $0.9 million, which is offset by $0.1 million in lost revenues as a result of projects completed.

EMEA revenues increased to $146.5 million for the nine months ended September 30, 2014, or 15.6% of total revenues, from $110.0 million, or 12.9% of total revenues, for the nine months ended September 30, 2013. The $36.5 million increase was primarily attributable to increased business with our recurring customers contributing $36.3 million, which is offset by $1.2 million in lost revenues as a result of projects completed and a $1.4 million increase in revenues from new customers. The revenue growth in Europe was driven by our increased focus and strong traction in existing markets.

Asia Pacific revenues increased to $54.1 million for the nine months ended September 30, 2014, or 5.8% of total revenues, from $53.7 million, or 6.3% of total revenues, for the nine months ended September 30, 2013. The $0.4 million increase was primarily attributable to decreased business with our recurring customers contributing $0.2 million, which is offset by $0.7 million in lost revenues as a result of projects completed and $1.3 million increase in revenues from new customers.

Revenue by verticals

The following table presents our consolidated revenues as a percentage of consolidated revenues based on customer business verticals (in thousands):


	Nine Months Ended September 30,
	2014				2013
	Amount		%		Amount		%
Revenues:
Banking and financial services	$	216,573		23.1	$	184,947		21.7
Insurance		185,886		19.9		191,390		22.5
Healthcare and life sciences		85,872		9.2		81,174		9.5
Manufacturing		253,165		27.0		225,985		26.5
Retail and consumer packaged goods		81,004		8.6		74,699		8.8
Services		114,225		12.2		93,397		11.0

Total revenues	$	936,725		100.0	$	851,592		100.0

Banking and financial services revenues increased to $216.6 million for the nine months ended September 30, 2014, or 23.1% of total revenues, from $184.9 million, or 21.7% of total revenues, for the nine months ended September 30, 2013. The $31.6 million increase was primarily attributable to increased business with our recurring customers contributing $31.5 million, offset by $0.3 million in lost revenues as a result of projects completed and $0.4 million increase in revenue from new customers. We continue to see strength in banking and financial services and our Reference Data Management Solution designed for clients continue to gain traction.

Insurance revenues decreased to $185.9 million for the nine months ended September 30, 2014, or 19.9% of total revenues, from $191.4 million, or 22.5% of total revenues, for the nine months ended September 30, 2013. The $5.5 million decrease was primarily attributable to a $5.5 million decrease in business with our recurring customers, and $0.2 million in lost revenues as a result of projects completed partly offset by $0.2 million increase in revenues from new customers.

Healthcare and life sciences revenues increased to $85.9 million for the nine months ended September 30, 2014, or 9.2% of total revenues, from $81.2 million, or 9.5% of total revenues, for the nine months ended September 30, 2013. The $4.7 million increase was primarily attributable to revenues from new customers contributing $6.7 million, offset by $0.9 million in lost revenues as a result of projects completed and $1.1 million decrease in business with our recurring customers.

Manufacturing revenues increased to $253.2 million for the nine months ended September 30, 2014, or 27.0% of total revenues, from $226.0 million, or 26.5% of total revenues, for the nine months ended September 30, 2013. The $27.2 million increase was primarily attributable to increased business with our recurring customers contributing $27.1 million, offset by $2.8 million in lost revenues as a result of projects completed and $2.9 million increase in revenue from new customers.

Retail and consumer packaged goods revenues increased to $81.0 million for the nine months ended September 30, 2014, or 8.6% of total revenues, from $74.7 million, or 8.8% of total revenues, for the nine months ended September 30, 2013. The $6.3 million increase was primarily attributable to increased business with our recurring customers contributing $4.5 million, offset by $0.1 million in lost revenues as a result of projects completed and $1.9 million increase in revenue from new customers.

Services revenues increased to $114.2 million for the nine months ended September 30, 2014, or 12.2% of total revenues, from $93.4 million, or 11.0% of total revenues, for the nine months ended September 30, 2013. The $20.8 million increase was primarily attributable to revenues from new customers contributing $21.4 million, offset by $1.3 million in lost revenues as a result of projects completed and a $0.7 million increased business with our recurring customers.

Revenue by project type

The following table presents our consolidated revenues as a percentage of consolidated revenues based on project type (in thousands):


	Nine Months Ended September 30,
	2014				2013
	Amount		%		Amount		%
Revenues:
Fixed price	$	624,837		66.7	$	535,353		62.9
Time and material		311,888		33.3		316,239		37.1

Total revenues	$	936,725		100.0	$	851,592		100.0

Fixed price revenues primarily represents annual maintenance contract/fixed time frame contracts, which include application maintenance and support services, on which revenue is recognized ratably over the term of maintenance. Revenues increased to $624.8 million for the nine months ended September 30, 2014, or 66.7% of total revenues, from $535.4 million, or 62.9% of total revenues, for the nine months ended September 30, 2013. The $89.4 million increase was primarily attributable to increased business with our recurring customers contributing $83.4 million, which is offset by $2.4 million in lost revenues as a result of projects completed and a $8.4 million increase in revenues from new customers.

Time and material projects are projects wherein contract payments are based on the number of consultant hours worked on the project. Revenues decreased to $311.9 million for the nine months ended September 30, 2014, or 33.3% of total revenues, from $316.2 million, or 37.1% of total revenues, for the nine months ended September 30, 2013. The $4.3 million decrease was primarily attributable to decrease in business with our recurring customers contributing $5.5 million, which is offset by $3.1 million in lost revenues as a result of project completion and a $4.3 million increase in revenues from new customers.

Revenue Mix and Utilization – IT and Consulting Services

The following table presents our revenue mix and utilization percentages for IT and Consulting Services:


	Nine Months Ended September 30,
	2014		2013
	%		%
Efforts:
Onsite		22.3		21.8
Offshore		77.7		78.2
Revenue:
Onsite		49.7		48.8
Offshore		50.3		51.2
Realized Rate *(IT and Consulting Services)*:
Onsite		65.7		68.0
Offshore		19.5		20.0
Utilization:
Utilization (IT and Consulting Services)		72.9		77.1
Utilization (BPO)		94.1		94.8
Utilization		76.3		80.2

During the nine months ended September 30, 2014, there was an increase in revenue from onsite directly attributable to an increase in the use of onsite resources. During the recent quarters, we increased our investments in building talent capital, leadership, and learning and solution development with a view to build long term value and thereby strengthen our competitive position. The increased investments were also directly responsible for our decrease in realized and utilization rates during the nine months ended September 30, 2014. We believe our increased higher on-site presence, stable future hiring, increased automation and other scale benefits will improve utilization rates.

Gross margin

Our Gross margin percentage was 36.4% for the nine months ended September 30, 2014, as compared to 39.2% for the nine months ended September 30, 2013. In addition to our increased hiring, investments in business tools, methodology and capabilities and the initial set up and conversion costs associated with ramping up for our large deals have resulted in lower margin during the nine months ended September 30, 2014. However, our continuous investments in people, capabilities and infrastructure will enable us to strengthen our position as a transformational ITOPS solutions provider and drive our revenue growth. The details of our gross margin are as follows (in thousands):

Gross Margin Metrics:


	Nine Months Ended September 30,
	2014		2013
Revenue	$	936,725	$	851,592
Cost of revenues:
Direct salary costs		501,724		433,546
Direct travel costs		30,403		28,537
Direct other costs		63,187		55,990

Gross Margin	$	341,411	$	333,519

During the nine months ended September 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 2.6%, decrease in utilization by 1.2%, which was offset by favorable movement of the USD against the other currencies by 1.0%.

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. Our SG&A percentage was 15.0% for the nine months ended September 30, 2014, as compared to 16.3% for the nine months ended September 30, 2013. The SG&A expense details are as follows (in thousands):


	Nine Months Ended September 30,
	2014		2013
Employee costs	$	70,783	$	65,840
Travel costs		8,979		9,147
Corporate costs:
- Marketing costs		4,912		4,952
- Legal costs		1,835		4,604
- Other corporate costs		16,385		19,473

Total Corporate costs		23,132		29,029
Facility costs		37,209		34,988

Selling, general and administrative expenses	$	140,103	$	139,004

Total SG&A expenses for the nine months ended September 30, 2014 increased by $1.1 million as compared to the nine months ended September 30, 2013.

Employee costs increased by $4.9 million for the nine months ended September 30, 2014, as compared to the nine months ended September 30, 2013, resulting from an increase due to employee stock-based compensation expenses of $2.1 million, staff welfare expenses of $1.5 million and salary costs of $1.3 million.

Our corporate costs decreased by $5.9 million for the nine months ended September 30, 2014 as compared to the nine months ended September 30, 2013. Legal costs decreased by $2.8 million primarily due to decreased professional fees of $1.4 million related to ongoing general litigation matters and the Company also received from an insurance company a reimbursement of $1.4 million against the payment towards a claim brought against us by a former employee. Other corporate costs decreased by $3.1 million mainly due to decrease in merger and reorganization expenses of $5.0 million incurred in connection with implementation of structural changes, reversal of provision for doubtful debts by $0.7 million, professional and accounting fees by $0.5 million, which was partly offset by $2.3 million increase in service, state and withholding taxes and an increase in recruitment expenses by $0.9 million.

Facilities costs increased by $2.2 million for the nine months ended September 30, 2014 as compared to the nine months ended September 30, 2013. The increase was primarily on account of increase in rent and related expenses by $2.2 million.

Depreciation and amortization costs

Depreciation and amortization costs were consistent at 2.9% and 3.1% of revenue for the nine months ended September 30, 2014 and 2013, respectively.

Operating income

Our operating margin (operating income as a percentage of revenue) was 18.5% and 19.8% for the nine months ended September 30, 2014 and 2013, respectively. Although, the operating margin decreased marginally as a percentage of revenue due to the higher revenue base in 2014 as compared to 2013, it increased in absolute terms.

Interest expense

Interest expenses were 4.6% and 7.9% of revenues for the nine months ended September 30, 2014 and 2013, respectively. The details of interest expense are as follows (in thousands):


	Nine Months Ended September 30,
	2014		2013
Interest on Senior Notes (including amortization of debt issuance costs)	$	31,592	$	56,705
Interest expense on line of credit and term loans (including amortization of debt issuance costs)		10,334		9,930
Interest on uncertain tax position		1,142		316
Other interest charges		249		74

	$	43,317	$	67,025

The decrease in interest expense of $23.7 million for the nine months ended September 30, 2014 as compared to the nine months ended September 30, 2013 was primarily on account of lower interest of 4.75% on the new Senior Notes as compared to 9.00% on the extinguished Senior Notes.

Foreign exchange gain, net

Foreign exchange gain was $6.1 million and $0.1 million for the nine months ended September 30, 2014 and 2013, respectively.

We recognized foreign currency gain of $8.4 million and loss of $9.3 million on foreign exchange derivative contracts related to inter-company and customer receivables and forecasted revenues for the nine months ended September 30, 2014 and 2013, respectively. During the nine months ended September 30, 2013, we recognized net unrealized gain of $0.2 million on a foreign exchange forward contract that was entered to hedge the exchange risk on our foreign currency denominated investments classified as available-for-sale securities.

We also recognized a foreign currency loss of $2.4 million on the re-measurement of other monetary assets and liabilities and gain of $0.1 million on the re-measurement of the unsecured revolving working credit facility for the nine months ended September 30, 2014, as compared to a gain of $16.1 million on the re-measurement of other monetary assets and liabilities, a loss of $6.4 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 nine months ended September 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 second quarter of 2014. 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 1.6% and 4.7% of revenues for the nine months ended September 30, 2014 and 2013, respectively. The details of other income are as follows (in thousands):


	Nine Months Ended September 30,
	2014		2013
Investment income	$	10,995	$	30,057
Interest income		1,877		2,986
Gain (loss) on sale of fixed assets		82		2,248
Forfeiture of vested stock options		—		3,005
Other		2,193		1,614

Other income, net	$	15,147	$	39,910

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 nine months ended September 30, 2013.

Interest income received on tax refunds from tax authorities amounted to $0.7 million for the nine months ended September 30, 2014 as compared to $2.3 million for the nine months ended September 30, 2013. Interest received from customer as part of the receivables settlement is $0.7 million for the nine months ended September 30, 2014 and interest received on term and other bank deposits amounted to $0.4 million for the nine months ended September 30, 2014 as compared to $0.7 million for the nine months ended September 30, 2013.

Additionally, other income for the nine months ended September 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 reported ETR, including discrete items recorded during the period, was 27.5% and 31.5% during the nine months ended September 30, 2014 and 2013, respectively.

The Company recognized a tax benefit in the U.S. jurisdiction of $19.7 million during the nine months ended September 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 nine months ended September 30, 2014, the Company released valuation allowance of $2.3 million pertaining to its subsidiary in U.K. and Singapore jurisdiction. The Company weighed all evidences 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 that outweighed the negative evidences includes (i) three years cumulative income position; (ii) the strong positive trend in the subsidiary’s 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. 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 nine months ended September 30, 2014.

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 $4.1 million on account of merger of entities in India jurisdiction. This led to a net tax benefit of 1.1 million for nine months ended September 30, 2013 in the India jurisdiction.

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. 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 September 30, 2014 and 2013 represents approximately 0.5% of the outstanding share capital of IGATE Global.

For the nine months ended September 30, 2014, we recorded $0.3 million share of profits and $0.1 million of accumulated other comprehensive loss attributable to non-controlling interest as compared to $0.1 million share of profits and $2.0 million of accumulated other comprehensive income attributable to non-controlling interest for the nine months ended September 30, 2013.

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 cumulative dividends of $25.2 million and $23.2 million at a rate of 8.00% per annum, compounded quarterly, for the nine months ended September 30, 2014 and 2013, respectively.

Use of non-GAAP Financial Measures:

We believe that providing adjusted earnings before interest, taxes, depreciation and amortization (“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.

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 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.

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 nine months ended September 30, 2014 and 2013, respectively (in thousands, except for per share data):


	Three months ended September 30,						Nine months ended September 30,
	2014			2013			2014			2013
GAAP Net Income attributable to IGATE common shareholders	$	28,503		$	23,776		$	46,422		$	73,022
Adjustments:
Preferred dividend and accretion to preferred stock		8,805			8,120			25,618			23,607
Amortization of Intangible assets		2,715			2,540			7,996			7,980
Stock-based compensation		4,607			3,878			12,423			10,243
Delisting expenses		—			—			—			93
Merger and reorganization expenses		156			—			286			5,264
Foreign exchange loss on acquisition hedging and re-measurement		—			—			—			489
Loss on extinguishment of debt		—			—			51,760			—
Forfeiture of vested stock options		—			—			—			(3,005	)
Income tax adjustments		(2,253	)		(2,020	)		(26,070	)		(7,028	)

Non-GAAP Net income attributable to IGATE common shareholders	$	42,533		$	36,294		$	118,435		$	110,665

Basic EPS (GAAP) to Basic EPS (Non-GAAP):
BASIC EPS (GAAP)	$	0.35		$	0.30		$	0.58		$	0.94
Preferred dividend and accretion to preferred stock		0.11			0.11			0.32			0.31
Amortization of Intangible assets		0.04			0.03			0.10			0.10
Stock-based compensation		0.06			0.05			0.15			0.13
Delisting expenses		—			—			—			0.00
Merger and reorganization expenses		0.00			—			0.00			0.07
Foreign exchange loss on acquisition hedging and re-measurement		—			—			—			0.01
Loss on extinguishment of debt		—			—			0.64			—
Forfeiture of vested stock options		—			—			—			(0.04	)
Income tax adjustments		(0.03	)		(0.03	)		(0.32	)		(0.09	)

BASIC EPS (Non-GAAP)	$	0.53		$	0.46		$	1.47		$	1.43

Diluted EPS (GAAP) to Diluted EPS (Non-GAAP):
Diluted EPS (GAAP)	$	0.34		$	0.30		$	0.56		$	0.91
Preferred dividend and accretion to preferred stock		0.11			0.11			0.31			0.30
Amortization of Intangible assets		0.04			0.03			0.10			0.10
Stock-based compensation		0.06			0.05			0.16			0.13
Delisting expenses		—			—			—			0.00
Merger and reorganization expenses		0.00			—			0.00			0.07
Foreign exchange loss on acquisition hedging and re-measurement		—			—			—			0.01
Loss on extinguishment of debt		—			—			0.63			—
Forfeiture of vested stock options		—			—			—			(0.04	)
Income tax adjustments		(0.03	)		(0.03	)		(0.32	)		(0.09	)

Diluted EPS (Non-GAAP)	$	0.52		$	0.46		$	1.44		$	1.39

Weighted average shares outstanding, Basic		58,962			58,171			58,829			57,918
Add: Assumed preferred stock conversion		21,565			19,923			21,565			19,923

Non-GAAP weighted average shares outstanding, Basic		80,527			78,094			80,394			77,841

Weighted average dilutive common shares outstanding		60,867			59,836			60,709			59,564
Add: Assumed preferred stock conversion		21,565			19,923			21,565			19,923

Weighted average dilutive common equivalent shares outstanding		82,432			79,759			82,274			79,487

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 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 management’s 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 nine months ended September 30, 2014 and 2013, respectively (in thousands):


	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
Net income	$	37,397		$	31,993		$	72,322		$	96,726
Adjustments:
Depreciation and amortization		9,384			8,439			27,660			26,305
Interest expenses		7,492			20,256			43,317			67,025
Income tax expense		17,088			14,634			27,486			44,461
Other income, net		(4,153	)		(5,213	)		(15,147	)		(39,910	)
Foreign exchange (gain) loss		(3,169	)		4,372			(6,090	)		(92	)
Stock-based compensation		4,607			3,878			12,423			10,243
Loss on extinguishment of debt		—			—			51,760			—
Delisting expenses		—			—			—			93
Merger and reorganization expenses		156			—			286			5,264

Adjusted EBITDA (a non-GAAP measure)	$	68,802		$	78,359		$	214,017		$	210,115

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.

Liquidity and Capital Resources

Our cash balances are held in numerous locations throughout the world, of which we hold approximately $115 million of cash, cash equivalents and short-term investments in our foreign locations as of September 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 $171.2 million as of September 30, 2014.

The following table summarizes the sources and uses of cash from our condensed consolidated statements of cash flow (in thousands):


	Nine Months Ended September 30,
	2014			2013
Net cash provided by operating activities	$	84,544		$	128,293
Net cash provided by investing activities		88,878			141,920
Net cash used in financing activities		(245,337	)		(244,756	)
Effect of exchange rate changes		(2,717	)		21,367

Net change in cash and cash equivalents	$	(74,632	)	$	46,824

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 decreased by $43.7 million for the nine months ended September 30, 2014 as compared to the nine months ended September 30, 2013, primarily due to lower net income which was adjusted for higher non-cash charges such as depreciation, amortization of intangible assets 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 nine months ended September 30, 2014 was $88.9 million as compared to $141.9 million for the nine months ended September 30, 2013.

Our investment portfolio and other investments decreased by $159.9 million for the nine months ended September 30, 2014 as compared to $184.2 million for the nine months ended September 30, 2013. Our investment portfolio decreased during the current and previous reporting period as we redeemed investments to repay term loan facility.

During the nine months ended September 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 $70.9 million and $24.2 million for the nine months ended September 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.

Financing Activities

Cash used in financing activities was $245.3 million for the nine months ended September 30, 2014 as compared to $244.8 million for the nine months ended September 30, 2013.

The net proceeds from the exercise of employee stock options were $4.5 million and $3.6 million for the nine months ended September 30, 2014 and 2013, respectively.

The cash used in financing activities during the nine months ended September 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 nine months ended September 30, 2013, was primarily due to the net repayment of an outstanding term loan amounting to $228.5 million, which was undertaken to finance delisting related expenses and partial repayment of another term loan amounting to $17.5 million, which was undertaken to finance the purchase of a subsidiary. We also incurred a payment of debt related cost of $2.4 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 $9.8 million during the remainder of 2014 for interest associated with Senior Notes and bank borrowings.

•

Capital expenditures— We expect to spend approximately $45.7 million for new and existing facility expansion and new hardware and software during the remainder of 2014. Of this, we have open purchase obligations of $38.1 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 September 30, 2014, we had borrowed $52.0 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.

Based on past performance and current expectations, we expect our existing cash, cash equivalents and short-term investments of $163.0 million as of September 30, 2014, and our ongoing cash flows and external borrowings 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 September, 30, 2014, principal payments due under our indebtedness were $611 million, excluding capital lease obligations of $1.3 million. Our interest expense (excluding amortization) for the three and nine months ended September 30, 2014 was $6.4 million and $37.6 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, the new Senior Notes, and the revolving credit facilities.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk Factors

Market risk factors associated with our business are discussed in Item 7A in our Form 10-K for the year ended December 31, 2013. There have been no material changes from the market risk factors previously disclosed in the Form 10-K.

Effect of Hypothetical Currency Rate Fluctuations

Our primary net foreign currency exposure is the Indian Rupee (“INR”). The fair value of foreign exchange contracts is subject to changes in foreign currency exchange rates.

As of September 30, 2014, the potential gain or loss in the fair value of our outstanding foreign exchange derivative contracts assuming hypothetical 10%, 5%, 2% and 1% fluctuations in currency rates would be approximately:


									Fair Value
	Valuation given X% decrease In INR / USD rate								as of September 30, 2014		Valuation given X% increase in INR / USD rate
	(10%)		(5%)		(2%)		(1%)		as of September 30, 2014		1%		2%			5%			10%
INR to USD Rate		55.58		58.67		60.52		61.14		61.76		62.37		62.99			64.84			67.93
Derivative Instruments	$	38.2	$	20.1	$	10.1	$	6.9		$ 3.8	$	0.7	$	(2.3	)	$	(11.0	)	$	(24.5	)

Seasonality

Our operations are generally not affected by seasonal fluctuations. However, our consultants’ billable hours are affected by national holidays and vacation policies, which vary by country and by operating company.

Economic Trends and Outlook

According to Gartner Inc. (Source: Gartner Forecast Alert: IT Spending, Worldwide, 3Q14 Update, ID Number: G00269874), an IT research and advisory company, the IT Services industry worldwide IT spending is forecasted to total $967 billion in 2014, a 3.8% growth from 2013 spending of nearly $932 billion.

(Disclaimer: The Gartner Report described herein, represent(s) data, research opinion or viewpoints published, as part of a syndicated subscription service, by Gartner, Inc. (“Gartner”), and are not representations of fact. Each Gartner Report speaks as of its original publication date (and not as of the date of this Report) and the opinions expressed in the Gartner Report(s) are subject to change without notice.)

The global economic recovery continues and modest growth in IT spending is expected. However, uncertainties surrounding the prospects for an upturn in global economic growth remain major hindrances to IT growth. This uncertainty has caused pessimistic business and consumer sentiment throughout the world. The economy is experiencing a reduction in IT outsourcing specifically in collocation, hosting and data center outsourcing. The industry is aggressively pursuing innovations, by increasingly planning growth around cloud computing services that it expects to stimulate demand beyond such modest growth. Besides organic growth, industry players are also aggressively pursuing mergers and acquisitions to stimulate growth. We believe that our business model is somewhat diversified, both geographically and operationally as we serve both IT and IT-enabled solutions. We believe our strategy of a global delivery model positions us well to provide a greater breadth of services, expertise and solutions in catering to market needs and opportunities.

ITEM 4.

CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to the Exchange Act Rules 13a-15(b) and 15d-15(b). Based upon, and as of the date of this evaluation, our Chief Executive Officer and the Chief Financial Officer concluded that our disclosure controls and procedures were effective.

Changes in internal control over financial reporting

There were no changes in our internal control over financial reporting during the quarter ended September 30, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

On December 2, 2013, the Company’s former Chief Executive Officer, filed a complaint against the Company 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.

ITEM 1A. RISK FACTORS

There are no material changes from the risk factors previously disclosed in Item 1A “Risk Factors” in Part I of the Company’s Form 10-K and Part II of the Company’s Form 10-Q filed on July 28, 2014 for the three months ended June 30, 2014 (the “Second Quarter 2014 Form 10-Q”). In addition to the other information set forth in this Form 10-Q, you should carefully consider the factors discussed in Part 1, Item 1A “Risk Factors” of the Form 10-K and the Second Quarter 2014 Form 10-Q. The risks described in the Form 10-K and the Second Quarter 2014 Form 10-Q are not the only risks that we face. Additional risks not presently known to us or that we do not currently consider significant may also have an adverse effect on us. If any of the risks actually occur, our business, results of operations, cash flows or financial condition could suffer.

ITEM 6.

EXHIBITS

(a)

Exhibits


3.1		Third Amended and Restated Articles of Incorporation of IGATE, dated May 5, 2011, is incorporated by reference to Exhibit 3.1 to IGATE’s Form 8-K, filed on May 11, 2011.

3.2		Amended and Restated Bylaws of IGATE are incorporated by reference to Exhibit 3.2 to the Quarterly Report on Form 10-Q, filed on August 14, 2000.

3.3		Statement with Respect to Shares—8% Series B Convertible Participating Preferred Stock, no par value per share, is incorporated by reference to Exhibit 3.1 to IGATE’s Form 8-K, filed on February 4, 2011.

4.1		Indenture, dated April 2, 2014, by and among IGATE, IGATE Technologies, Inc., IGATE, Inc. and IGATE Holding Corporation and Wilmington Trust, National Association is incorporated by reference to Exhibit 4.1 to IGATE’s Form 8-K, filed on April 7, 2014.

4.2		Registration Rights Agreement, by and among IGATE Corporation, IGATE Technologies Inc., IGATE, Inc., IGATE Holding Corporation and RBC Capital Markets, LLC as the representative of the initial purchasers named in Schedule I thereto, dated April 2, 2014, is incorporated by reference to Exhibit 4.2 to IGATE’s Form 8-K, filed on April 7, 2014.

31.1		Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by the Chief Executive Officer is filed herewith.

31.2		Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by the Chief Financial Officer is filed herewith.

32.1		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by the Chief Executive Officer is filed herewith.

32.2		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by the Chief Financial Officer is filed herewith.

101.INS		XBRL Instance Document.

101.SCH		XBRL Taxonomy Extension Schema Document.

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB		XBRL Taxonomy Extension Label Linkbase Document.

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


						IGATE CORPORATION

October 22, 2014						/s/ ASHOK VEMURI
						Ashok Vemuri President, Chief Executive Officer and Director

						/s/ SUJIT SIRCAR
						Sujit Sircar Chief Financial Officer

EXHIBIT INDEX


3.1		Third Amended and Restated Articles of Incorporation of IGATE, dated May 5, 2011, is incorporated by reference to Exhibit 3.1 to IGATE’s Form 8-K, filed on May 11, 2011.

3.2		Amended and Restated Bylaws of IGATE are incorporated by reference to Exhibit 3.2 to the Quarterly Report on Form 10-Q, filed on August 14, 2000.

3.3		Statement with Respect to Shares—8% Series B Convertible Participating Preferred Stock, no par value per share, is incorporated by reference to Exhibit 3.1 to IGATE’s Form 8-K, filed on February 4, 2011.

4.1		Indenture, dated April 2, 2014, by and among IGATE, IGATE Technologies, Inc., IGATE, Inc. and IGATE Holding Corporation and Wilmington Trust, National Association is incorporated by reference to Exhibit 4.1 to IGATE’s Form 8-K, filed on April 7, 2014.

4.2		Registration Rights Agreement, by and among IGATE Corporation, IGATE Technologies Inc., IGATE, Inc., IGATE Holding Corporation and RBC Capital Markets, LLC as the representative of the initial purchasers named in Schedule I thereto, dated April 2, 2014, is incorporated by reference to Exhibit 4.2 to IGATE’s Form 8-K, filed on April 7, 2014.

31.1		Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by the Chief Executive Officer is filed herewith.

31.2		Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by the Chief Financial Officer is filed herewith.

32.1		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by the Chief Executive Officer is filed herewith.

32.2		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by the Chief Financial Officer is filed herewith.

101.INS		XBRL Instance Document.

101.SCH		XBRL Taxonomy Extension Schema Document.

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB		XBRL Taxonomy Extension Label Linkbase Document.

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document.

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