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Article by DailyStocks_admin    (02-14-13 01:44 AM)

Description

Igate Corporation. 10% Owner VII-B, L.P. Apax Europe bought 16,243 shares on 02-12-2013 at $ 17.52

BUSINESS OVERVIEW

Business Overview
We are a worldwide outsourcing provider of integrated end-to-end offshore centric information technology (“IT”) and IT-enabled operations solutions and services. We deliver a comprehensive range of IT services through globally integrated onsite and offshore delivery locations primarily in India. We offer our services to customers through industry focused practices, including insurance and healthcare (“IHC”), manufacturing, retail and logistics (“MRDL”), banking and financial services (“BFS”), communications and utilities (“CEU”), and media and entertainment (“MELT”) and through technology focused practices. IT services include application development, application maintenance and support, verification and validation, enterprise application solutions, business intelligence and data warehousing (“BI & DW”), packaged software implementation, infrastructure management services, quality assurance services and product engineering services. IT-enabled services include business process outsourcing (“BPO”) transaction processing services and customer interaction services (“CIS”)
We were founded in 1986 and our principal executive office is located in Fremont, California. We have operations in India, Canada, the United States, Europe, Mexico, Singapore, Malaysia, Japan, Australia, the United Arab Emirates, South Africa, Turkey, South Korea, China, Switzerland and the United Kingdom.
We completed the acquisition of Patni Computer Systems Limited (“Patni”) on May 12, 2011, from which date the two companies have been operating as a new brand, iGATE Patni. This new go-to-market position was based largely on the iGATE positions of the business outcomes, using the Patni micro-vertical strategy.

iGATE Patni heralds the beginning of a new era by bringing together two companies — iGATE and Patni. Between the two, we provide full-spectrum consulting, technology and BPO and product engineering services. In a crowded and intensely competitive marketplace for such offerings, we have built a reputation and core differentiating attribute around our unique Business Outcomes-based model.
Through a blended strategy of “offerings tailored to customers’ and market needs” — referred to as our “outside-in approach” for problem-solving, experimenting and innovating business and technology platforms; we achieve results efficiently through rapid improvement and automation, resulting in reduced cycle times and costs over a period of time. Requiring accountability for results towards aligned goals, ensures that we continuously measure our progress against the goals, thus enabling us to deliver significant benefits to our customers with a lower risk profile.
With over three decades of IT Services experience and our distinctive philosophy of “Accountable for Clients’ Business” powered by our “Integrated Technology and Operations” platform (“iTOPS”), our multi-location global organization consistently delivers effective solutions to more than 360 Fortune 1000 clients.
A diversified, well-trained and motivated talent pool of more than 26,000 employees work cohesively to deliver solutions based around a mature global delivery model to clients across the Americas, Europe-Middle East-Africa (EMEA) and Asia-Pacific. The reach and global-spanning capabilities of our delivery centers, allows us to be resourceful, but we are also small enough to be flexible, making us one of the most dynamic and highly adaptable large IT service companies.
iGATE Patni capitalizes on the strength of our numerous combined synergies and core capabilities which enable us to be an effective and reliable transformation partner to our varied client base. Our synergies and capabilities include: deep domain and delivery expertise; focus on micro-verticals; suites of IP-led solutions, methodologies and frameworks; technology alliances and service partnerships; secure and scalable delivery infrastructure across geographies; and mature quality management based on ISO, SEI-CMMi, Six Sigma, ITIL and COPC standards.
Industry Background
The rise of global service providers has enabled companies to reduce costs and improve productivity. This growth has been driven by numerous factors, including the broad adoption of global communications, increased competition from globalization, and the organization and availability of highly-trained offshore workforces. Global demand for high quality, lower cost IT and IT-enabled services has created a significant opportunity for the service providers that can successfully leverage the benefits of, and address the challenges in using, an offshore talent pool. The effective use of offshore personnel can offer a variety of benefits, including lower costs, faster delivery of new IT solutions and innovations in vertical solutions, processes and technologies. India is a leader in IT services, and is regarded as having one of the largest and highest quality pools of talent in the world.
Historically, IT service providers have used offshore labor pools primarily to supplement the internal staffing needs of clients. However, evolving client demands have led to the increasing acceptance and use of offshore resources for a broad portfolio of higher value-added services, such as application development, integration and maintenance, as well as technology consulting.
India’s services and software exports continue to see significant growth. India’s National Association of Software & Services Companies (“NASSCOM”) reports indicate that India’s IT software and services and BPO sectors are expected to exceed $100 billion in revenues in 2012.
As global services have become more prevalent, many clients are now seeking tighter integration of their IT and business processes to maintain differentiation and cost efficiency. Additionally, as most BPO services depend upon client technology and infrastructure, many BPO clients are seeking to outsource their IT services.

We believe that this demand will require global service providers to offer converged IT and business solutions. We believe that those providers who are experts in their clients’ IT and business processes and who can best deliver converged services using a combination of onsite and offshore professionals will most benefit from these industry trends.
Global Delivery Model
Global demand for high quality, lower cost IT and IT-enabled services has created a significant opportunity for us, which we use to successfully leverage the benefits of, and address the challenges in using, an offshore talent pool. Our effective use of offshore personnel offers a variety of benefits, including lower costs, faster delivery of new IT solutions and innovations in vertical solutions, processes and technologies.
We have adopted a global delivery model for providing services to our clients. Our global delivery model includes on-site and offshore teams. We have offshore development centers located in Bangalore, Hyderabad, Chennai, Noida, Mumbai, Pune and Gandhinagar in India and have global development centers located in India, the United States Canada Australia, Mexico, China and Singapore. The centers can deliver both onsite and offshore services, depending on client location and preferences.
IT services that we deliver using our offshore centers include software application development and maintenance, implementation and support of enterprise applications, package evaluation and implementation, re-engineering, data warehousing, business intelligence, analytics, data management and integration, software testing and IT infrastructure management services. We believe that we deliver high quality solutions to our clients at substantial savings by using our global pool of highly talented people.
IT-enabled operations offshore outsourcing solutions and services offered include BPO, transaction processing services and call center services. BPO services are offered to clients that are looking to achieve converged IT and BPO solutions. The transaction processing services offered are focused on the mortgage banking, financial services, insurance and capital market industries, except for the delivery of finance and accounting functions such as accounts payable which can be performed for clients across all industries. The call center services are offered to clients in several industries and are not industry specific.
Competitive Strengths
We believe that we are well-positioned to capitalize on the following competitive strengths to achieve future growth:
Differentiated Business Model:
We are the first outsourcing solutions provider to offer our fully integrated technology and operations structure with global service delivery. By integrating IT and BPO services, our approach enables a business model that encourages continual innovation in all areas of business transformation. We offer end-to-end converged solutions, and this integration runs through our entire sales and delivery organization.
Commitment to Attracting and Retaining Top Talent:
Our strong corporate culture and work environments have received numerous awards, including the coveted #3 ranking as “Best Indian IT Employer” in 2011 by DataQuest-IDC. Our success depends in large part on our ability to attract, develop, motivate and retain highly skilled IT and IT-enabled service professionals. We recruit in a number of countries, including India, Canada, the United States, Mexico, Singapore, Japan, Australia and the United Kingdom. Our employees are a valuable recruiting tool and are actively involved in referring new employees and screening candidates for new positions. We have a focused retention strategy and extensive training infrastructure.

Deep Industry Expertise:
Our full lifecycle project experiences cover numerous industry verticals, having successfully met the stringent demands for many leading Fortune 1000 companies over the years. We offer specialized industry practices in areas such as financial services, insurance, manufacturing, retail, media and entertainment and healthcare. We understand the unique strategic and tactical challenges faced within each vertical allowing us to optimize and differentiate our solutions. We expect that the Patni Acquisition will enable us to expand and deepen our expertise in certain industry verticals, including insurance, manufacturing and product engineering services.
Successful Client Relationships
We have demonstrated the ability to build and manage our client relationships. Our long-term relationships typically develop from performing discrete projects to providing multiple service offerings spread across a client’s businesses. Through our flexible approach, we believe we offer services that respond to our clients’ needs regardless of their size. By leveraging our industry experience with our project management capabilities and breadth of technical expertise, we solidify and expand our client relationships.
Breadth of Solutions:
We provide a comprehensive range of IT services, including application development, application maintenance and support, packaged software implementation, infrastructure management services, product engineering, BPO and quality assurance services. Our knowledge and experience span multiple computing platforms and technologies, which enable us to address a range of business needs and to function as a virtual extension of our clients’ IT departments. We offer a broad spectrum of services in select industry sectors, which we leverage to capitalize on opportunities throughout our clients’ organizations.
Proven Global Delivery Model:
Our global delivery model enables us to offer flexible onsite and offshore services that are cost efficient and responsive to our clients’ preferences. We also offer access to knowledgeable personnel and best practices, deep resources and cost-efficient solutions. We have made substantial investments in our processes, infrastructure and systems, and we have refined our global delivery model to effectively integrate onsite and offshore technology services. Our processes and methodologies have achieved Capability Maturity Model Integrated (CMMi) Level 5, the highest attainable certification.
Leadership:
Our success is highly dependent on the efforts and abilities of our Chief Executive Officer, Phaneesh Murthy, and our senior management team. This senior management team includes well-known thought leaders in IT-enabled services and all members have significant experience with the onsite/offshore delivery model we employ.
Business Strategy
Our Vision:
Our vision is “Changing the rules to deliver high-impact outcomes for a new technology-enabled world ”. The combination of iGATE and Patni is an iTOPS enterprise with a global services model. We enable clients to optimize their business through a combination of process investment strategies, technology leverage and business process outsourcing and provisioning. We have leveraged our deep understanding of diverse business challenges faced by global enterprises, coupled with our thought leadership in IT, and process/operations excellence in building the iTOPS model. We characterize a clear value proposition around our Global Delivery Model (GDM) offering to deliver varied and complex IT-enabled services for clients’ global customers across multiple locations. The goal is to bring about business transformation for customers on a pioneering “pay for outcomes, not effort” premise. With a global presence and world-class delivery centers spanning the Americas, Europe-Middle East-Africa (EMEA) and Asia-Pacific, the iGATE GDM meshes a well-defined, single business management system with industry best practices, models and standards such as ISO, CMMI, ITIL and Six Sigma. Robust knowledge and responsibility transition across employees is seamless ensuring clockwork-like efficiency and effectiveness of provided services.
Penetrate and Grow Strategic Client Accounts
We have achieved strong revenue growth by focusing on select, long-term customer relationships which we call strategic accounts. We aim to expand the scope of our client relationships by leveraging our focused industry sector expertise with delivery excellence, responsive engagement models and breadth of services. We intend to focus on adding new strategic clients and further penetrate our existing customer relationships. We address the needs of our larger strategic relationships through dedicated account managers who have responsibility for increasing the size and scope of our service offerings to such clients. We aim to strengthen our sales and marketing teams, a majority of which are aligned to focus on specific industries.
Strengthen and Broaden our Industry Expertise with Micro Vertical Focus
We intend to strengthen our understanding of key industries by investing in building or acquiring intellectual property like platforms, tools, etc in chosen micro verticals within each industry segment that we operate. We shall also continue to invest in a strong base of industry experts, business analysts and solutions architects as well as considering select from targeted acquisitions. We believe we can create competitive differentiation and add more value than a general service provider through such investments by enhancing our understanding in specific industry and domain requirements of our clients.
Strengthen and Broaden our Service Lines
We aim to deepen our existing client relationships through new and more comprehensive service lines. In recent years we have added new capabilities in line with our growth and customer needs. We continually explore new initiatives through our internal centers of excellence, which focus on innovation in specific technology platforms or services. For example, we added quality assurance services as a new service line, and developed increased capabilities such as business intelligence, database administration and legacy system modernization in other service lines.
Optimize and Expand Delivery Capability
Our process and methodologies consolidate decades of software development and maintenance experience in delivering and supporting enterprise applications and products for our clients. We believe that our mature process frameworks effectively reduce risk and unpredictability across the software development life cycle and flexibly integrate with our clients’ processes. We further believe that our quality systems create strong predictive and diagnostic focus, delivering measurable performance to clients’ “critical to quality” parameters resulting in a faster turnaround, higher productivity, and on-time to first-time-right deliveries. We provide full visibility on our projects for our clients through integrated web-based project management and monitoring tools.
We are committed to enhancing the processes and methodologies that improve our efficiency. We aim to develop new productivity tools, refine our software engineering techniques and maximize reuse of our processes. To maximize improvements in our processes and methodologies we have expanded our infrastructure and we have constructed new knowledge park campuses in India to provide world-class infrastructure, high standards of quality and secure delivery.

Expand Geographically and Build our Brand Globally
While our “iGATE” brand is an established and recognized brand in India, we intend to increase recognition of our brand elsewhere in our client markets. We seek to achieve this through targeted analyst outreach programs, trade shows, white papers, sponsorships, workshops, road shows, speaking engagements and global public relations management. We believe that a stronger brand will facilitate our ability to gain new clients in new geographies and to attract and retain talented professionals.
Website Access to SEC Reports
The Company’s website address is http:// www.igatepatni.com . The Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, current reports on Form 8-K, Patni’s annual report on Form 20-F, current reports on Form 6-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 Securities and Exchange Commission (“SEC”). The information found on our website is not part of this or any other report we file with or furnish to the SEC.
Recent Developments
Consummation of the Patni Acquisition
On May 12, 2011, we completed the Patni Acquisition. Patni is a company incorporated in India under the Indian Companies Act, 1956. Patni is engaged in IT consulting, software development and BPO. It provides multiple service offerings to its clients across various industries including banking and insurance; manufacturing, retail and distribution; life sciences; product engineering; and communications, media and entertainment and utilities. Patni’s various service offerings include application development and maintenance, enterprise software and systems integration services, business and technology consulting, product engineering services, infrastructure management services, customer interaction services and BPO, quality assurance and engineering services. The Patni Acquisition was valued at $1.2 billion.
Since the actual results of operations from Patni from May 12, 2011 through May 15, 2011 were not material, we considered May 15, 2011 for convenience as the acquisition date . The results of operations of Patni for the period from May 16, 2011 through December 31, 2011 have been included in our consolidated results for the year ended December 31, 2011.
Preferred Stock Issuance
On January 10, 2011, we entered into a securities purchase agreement with Viscaria Limited, a company backed by funds advised by Apax Partners LLP and Apax Partners, L.P., to raise equity financing to pay a portion of the cash consideration for the Patni Acquisition. Under the securities purchase agreement, we agreed to sell to Viscaria Limited, 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, we issued 210,000 shares of Series B Preferred Stock to Viscaria Limited for a consideration of $210 million and on May 9, 2011 we issued an additional 120,000 shares for a consideration of $120 million.
On December 5, 2011 the Company filed a registration statement on Form S-3 relating to the registration and possible resale of up to 26,510,852 shares of common stock by Viscaria. The common stock represents the aggregate number of shares of common stock of the Company issuable to the selling stockholders upon the full conversion of the 330,000 shares of Series B Convertible Preferred Stock currently owned by them, assuming maximum accretion with respect to such shares of preferred stock in accordance with the Statement With Respect to Shares and the Investor Rights Agreement (in each case, assuming no breach thereof or event of non-compliance thereunder) through November 11, 2017 (i.e., the latest possible date upon which outstanding Series B Preferred Stock shall be required to be converted into shares of common stock in accordance with the terms of the Statement With Respect to Shares).
Debt issuance
On April 29, 2011, we issued $770 million of 9.0% senior notes, all of which are eligible to be exchanged for Exchange Notes, registered under the Securities Act of 1933, as amended, due May 1, 2016 (the “Notes”) through a private placement pursuant to an Indenture (the “Indenture”) by and among the Company, iGATE Technologies Inc., (“iGATE Technologies”) and Wilmington Trust FSB (now known as Wilmington Trust, National Association), as trustee (“Trustee”), as supplemented by the Supplemental Indenture, dated as of May 12, 2011, by and among the Company, iGATE Technologies, Inc, iGATE Holding Corporation and iGATE, Inc. (collectively, the “Guarantors”) and the Trustee. The interest is payable semi-annually in cash in arrears on May 1 and November 1 of each year, beginning on November 1, 2011. The Notes are senior unsecured obligations of the Company, guaranteed by the Company’s restricted subsidiaries, as defined in the Indenture.
The terms of the Indenture governing the Notes, among other things, limits our ability and our 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 Priority Debt Leverage Ratio and a Fixed Charge Coverage Ratio that we are required to comply with, when any of the above events occur. As of December 31, 2011, no such events have occurred.

CEO BACKGROUND

Martin G. McGuinn , age 69, was appointed as a director of the Company on July 6, 2009 and has over 25 years of experience at the former Mellon Financial Corporation, now The Bank of New York Mellon Corporation (“Mellon”), a global financial services company. He was the Chairman of the Board and Chief Executive Officer of Mellon from 1999 to 2006. Under Mr. McGuinn’s leadership, Mellon was able to narrow its strategic focus and transform from a broad-based commercial bank to a global leader in asset management and asset servicing. During this same period, Mellon became the fifth largest global custodian and the twelfth largest asset manager in the world. Based on the organic growth of its asset management and asset servicing businesses, Mellon was able to significantly expand its global presence. Mr. McGuinn also serves on the Board of Directors of the Celanese Corporation (NYSE: CE) and the Chubb Corporation (NYSE: CB). He is also a member of the Advisory Board of CapGen Financial, a private equity fund. Mr. McGuinn holds both a bachelor’s degree and a juris doctor degree from Villanova University.
W. Roy Dunbar , age 50, was appointed as a director of the Company on November 3, 2010 and has over 25 years of leadership experience in business. Mr. Dunbar served as Chairman and Chief Executive Officer of Network Solutions Inc. from January 2008 to November 2009 when he relinquished the CEO role and continued as Chairman until April 2010. Mr. Dunbar also served as the President of Global Technology and Operations of MasterCard Worldwide (formerly known as MasterCard International Inc.) from September 2004 to January 2008. MasterCard Worldwide is a leading global payments company. Previously, Mr. Dunbar worked at Eli Lilly and Company, a pharmaceutical company, for 14 years where he last served as President of Eli Lilly’s Intercontinental Region, with responsibility for operations in Africa, the Middle East, the Commonwealth of Independent States, Asia, Latin America, and the Caribbean. Prior to that position, he was Chief Information Officer and Vice President of Information Technology. Mr. Dunbar presently serves on the Board of Directors of Lexmark International Inc. (NYSE: LKX) and Humana Inc. (NYSE: HUM), and previously served as a Director of Electronic Data Systems Corporation prior to its sale to Hewlett-Packard in 2008. He is a Member of the Royal Pharmaceutical Society of Great Britain and serves on the Board of the Executive Leadership Council Foundation. Mr. Dunbar is also a member of the National Association of Corporate Directors. Mr. Dunbar graduated from Manchester University in the United Kingdom with a degree in Pharmacy in 1982. He later received a Master’s of Business Administration from Manchester Business School.

MANAGEMENT DISCUSSION FROM LATEST 10K

Overview
iGATE Corporation (“iGATE” or “the Company”) is a leading provider of IT and IT-enabled operations offshore outsourcing solutions services to large and medium-size organizations. iGATE provides end-to-end business solutions that leverage technology, thus enabling its clients to enhance business performance.
On May 12, 2011, we completed the acquisition of a majority stake in Patni Computer Systems Limited (the “Patni Acquisition”). Patni is a company incorporated in India under the Indian Companies Act, 1956. Patni is engaged in IT consulting, software development and BPO. It provides multiple service offerings to its clients across various industries including banking and insurance; manufacturing, retail and distribution; life sciences; product engineering; and communications, media and entertainment and utilities. Patni’s various service offerings include application development and maintenance, enterprise software and systems integration services, business and technology consulting, product engineering services, infrastructure management services, customer interaction services and BPO, quality assurance and engineering services. The Patni Acquisition was valued at $1.2 billion.

Industry Background
The rise of global service providers has enabled companies to reduce costs and improve productivity. This growth has been driven by numerous factors, including the broad adoption of global communications, increased competition from globalization, and the organization and availability of highly-trained offshore workforces. While many of the initial global providers focused on IT services, numerous other players have arisen to offer business services as well, including BPO.
IT and business services are typically managed as separate offerings by service providers. The two offerings have very different workflows and infrastructure requirements. Additionally, whereas IT services require highly trained professionals, many offshore business services, such as BPO, generally require only graduates with foreign language skills. As a result, many large service providers, who offer both IT and business services, manage them through separate internal organizations. Many clients have also separated these functions. Unfortunately, this separation often results in competing interests between IT and business operations.
As global services has become mainstream, many clients are now seeking tighter integration of their IT and business processes to maintain differentiation and cost effectiveness. Additionally, as most BPO services depend upon client technology and infrastructure, many BPO clients are seeking to outsource their IT services as well. We believe that this demand will require global service providers to offer converged IT and business solutions. We believe that those providers who are experts in their clients’ IT and businesses processes and who can best deliver converged services using a combination of onsite and offshore professionals will most benefit from these industry trends.
Economic Trends and Outlook
According to Gartner Inc., an IT research and advisory company, the IT Services industry worldwide IT spending is forecasted to total $874.0 billion in 2012, a 3.1 % increase from 2011 revenue of nearly $848 billion.
If the global economic recovery continues, modest growth in IT spending is expected. However, the potential for event-driven disruptions such as the recent earthquake and tsunami in Japan, or general global economic slowdowns would likely have an adverse impact on IT spending. The IT industry is aggressively pursuing innovations that it expects to stimulate demand beyond such modest growth. Besides organic growth, IT service providers are also aggressively pursuing mergers and acquisitions to stimulate growth. We believe that our business model is diversified, both geographically and operationally — we serve both IT and IT-enabled solutions. We believe our strategy of a global delivery model and the Patni Acquisition positions us well to provide a greater breadth of services in catering to market needs and opportunities.
Recent events impacting future operations
Proposed acquisition of balance stake of Patni and delisting from the Stock exchanges
If the delisting is successful and all the shares of Common Stock are tendered, iGATE’s beneficial ownership in Patni is expected to increase from approximately 81.2% to 100%. Upon the delisting being successful, public trading of the Patni shares of Common Stock on the BSE and the NSE and ADSs on the NYSE will cease. The promoters also will seek to cause the Common Stock of Patni to be deregistered under the Exchange Act. As the sole shareholder of Patni, iGATE will receive the benefit of the right to participate in any and all future increases in Patni’s value and will bear the complete risk of any and all losses incurred in the operation of Patni and any decreases in Patni’s value.
Upon completion of the delisting, Patni’s public shareholders who tender their shares of Common Stock will not bear the risks of potential decreases in the value of their holdings in Patni based on any downturns in Patni’s future performance. Under the delisting, Patni’s public shareholders will receive a single cash price for their shares of Common Stock (including those represented by ADSs which are converted into Common Stock).

Financing arrangement
On March 8, 2012 (the “Closing Date”), Pan-Asia iGATE Solutions (“Pan-Asia”) entered into a credit agreement (the “Credit Facility”) for a secured term loan facility with the lenders named therein and DBS Bank Ltd., Singapore, as administrative agent (the “Administrative Agent”).
The Credit Facility has a commitment amount of $215.0 million and matures on May 8, 2014. The Credit Facility contains customary representations and warranties, events of default and affirmative and negative covenants, and does not contain any financial covenants. The borrowing under the Credit Facility carries an annual interest rate of LIBOR plus applicable margin varying from 2.8% to 3.2% for terms extending from 0 to 27 months. The facility is secured through a pledge of iGATE Technologies’ equity interests in Pan-Asia representing an indirect interest in Patni of up to 65%. The Company, along with several of its wholly owned subsidiaries, has entered into a Guaranty (the “Guaranty”) with the Administrative Agent, under which the Company has guaranteed all of the obligations of Pan-Asia under the Credit Facility.
After the Closing Date, the Credit Facility will be available to finance Pan-Asia’s purchase of the remaining publicly traded equity shares of Patni.
Critical Accounting Policies and Estimates
The following explains our most critical accounting policies and estimates. See Note 1 to our Consolidated Financial Statements set forth on pages 65 to 74 of this Form 10-K for a complete description of our significant accounting policies.
Revenue Recognition
Revenue is recognized when there is persuasive evidence of a contractual arrangement with customers, services have been rendered, the fee is fixed or determinable and collectability is reasonably assured. The Company has concluded that it has persuasive evidence of an arrangement when it enters into an agreement with its clients with terms and conditions which describe the services and the related payments are legally enforceable. When the terms of the agreement specify service level parameters that must be met, the Company monitors such service level parameters and determines if there are any service credits or penalties which need to be accounted for. Revenue is recognized net of any service credits that are due to a client and net of applicable taxes and includes reimbursements of out-of- pocket expenses, with the corresponding cost for out-of- pocket expenses included in cost of revenue.
IT services are provided either on a fixed-price, fixed time frame or on a time and material basis. Revenue with respect to time-and-material contracts is recognized as the related services are performed. Time-and-material contracts typically bill at an agreed upon hourly or daily rate. The Company’s fixed price contracts include application maintenance and support services, on which revenue is recognized ratably over the term of maintenance. Revenues related to fixed-price contracts that provide for highly complex information technology application development services are recognized as the services are performed using the percentage of completion method with input (cost to cost) method while contracts that do not provide for highly complex information technology development services are recognized as the services are performed using proportional performance basis with input (efforts expended) method. The Company considers the input method the best available measure of progress on these contracts as there is a direct relationship between input and productivity. Costs are recorded as incurred over the contract period. Provisions for estimated losses, if any, on uncompleted contracts are recorded in the period in which such losses become probable based on the current contract estimates.
Significant judgment is required to estimate the time and cost to complete the project. Our project delivery personnel continually review the labor hours incurred and the estimated total labor hours, which may result in revisions to the amount of revenue recognized for the contract. Changes in estimates are accounted for in the period of change. Any estimation process, including that used in preparing contract accounting models, involves inherent risk. We reduce the inherent risk relating to revenue and cost estimates through approval and monitoring processes. Risks relating to service delivery, usage, productivity and other factors are considered in the estimation process.
Goodwill
Goodwill represents the cost of the acquired businesses in excess of the fair value of identifiable tangible and intangible net assets purchased. We review goodwill for impairment annually and whenever events or changes in circumstances indicate its carrying value may not be recoverable in accordance with ASC 350, Intangible Assets including Goodwill and Amortization.
The provisions of ASC 350 requires that recoverability of goodwill be evaluated using a two-step process. Under the first step, the estimated fair value of the reporting unit in which the goodwill resides is compared with its carrying value of the assets and liabilities (including goodwill). If the fair value of the reporting unit exceeds its carrying value, step two does not need to be performed. If the fair value of the reporting unit is less than its carrying value, an indication of goodwill impairment exists for the reporting unit and the step two of the impairment test (measurement) is performed. Under step two, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of that goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation, in a business combination. The residual fair value after this allocation is the implied fair value of the reporting unit goodwill.
The fair values used in this evaluation are estimated based upon the market capitalization adjusted for a control premium and discounted future cash flow analysis. The discounted future cash flow analysis is based upon a number of estimates and assumptions including operating results and business plans. The Company has applied a control premium of 20%, which was arrived at based on historical acquisition trends of listed companies in India. The Company performs its annual impairment review of goodwill on November 30, and when a triggering event occurs between annual impairment tests. Based on the results of its annual impairment tests, the Company determined that no impairment of goodwill existed as of December 31, 2011, and 2010.

Income taxes
Determining the consolidated provision for income tax expense, income tax liabilities and deferred tax assets and liabilities involves judgment. As a global company, we calculate and provide for income taxes in each of the tax jurisdictions in which we operate. This involves estimating current tax exposures in each jurisdiction as well as making judgments regarding the recoverability of deferred tax assets. Tax exposures can involve complex issues and may require an extended period to resolve. In assessing the realizability of deferred tax assets, we consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized and adjust the valuation allowances accordingly. Factors considered in making this determination include the period of expiration of the tax asset, planned use of the tax asset, tax planning strategies and historical and projected taxable income as well as tax liabilities for the tax jurisdiction in which the tax asset is located. Valuation allowances will be subject to change in each future reporting period as a result of changes in one or more of these factors. Changes in the geographic mix or estimated level of annual income before taxes can affect the overall effective tax rate.
We apply an estimated annual effective tax rate to our quarterly operating results to determine the interim provision for income tax expense. In accordance with FASB guidance on uncertainty in income taxes, a change in judgment that impacts the measurement of a tax position taken in a prior year is recognized as a discrete item in the interim period in which the change occurs. In the event there is a significant unusual or infrequent item recognized in our quarterly operating results, the tax attributable to that item is recorded in the interim period in which it occurs.
Derivative instruments and hedging activities
The Company enters into foreign currency forward and option contracts (“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 derivative contracts that are designated effective and that qualify as cash flow hedges under ASC Topic 815, “ Derivatives and Hedging ”.
As part of hedge strategy, the Company also enters into 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 is recognized in consolidated statements of income and are included in foreign exchange gain (loss).
In respect of derivative contracts which hedge the foreign currency risk associated with the both anticipated sales transaction and the collection thereof (dual purpose hedges), the hedge effectiveness is assessed based on overall changes in fair value with the effective portion of gains or losses included in accumulated other comprehensive income (loss). The effective portion of gain or loss attributable to forecasted sales are reclassified from accumulated other comprehensive income (loss) and recognized in consolidated statements of income when the sales transaction occurs. Post the date of sales transaction, the Company reclassifies an amount from accumulated other comprehensive income (loss) to earnings to offset foreign currency translation gain (loss) recorded for the respective receivable during the period. In addition, the Company determines the amount of cost to be ascribed to each period of the hedging relationship based on the functional currency interest rate implicit in the hedging relationship and recognizes this cost by reclassifying it from accumulated other comprehensive income (loss) to consolidated statements of income for recognized receivables based on the pro rata method.
Changes in the fair value of cash flow hedges deemed ineffective are recognized in the consolidated statement of income and are included in foreign exchange gain (loss). The Company also uses derivatives contracts not designated as hedging instruments under ASC No. 815 to hedge intercompany and end customer accounts receivables and other monetary assets denominated in currencies other than the functional currency. Changes in the fair value of these derivatives are recognized in the consolidated statements of income and are included in foreign exchange gain (loss).
Stock-based compensation
FASB ASC Topic 718-10-25, “ Accounting for Stock — Based Compensation” , requires all share-based payments, including grants of stock options, restricted stock units and employee stock purchase rights, to be recognized in our financial statements based on their respective grant date fair values. Under this standard, the fair value of each employee stock option and employee stock purchase right is estimated on the date of grant using an option pricing model that meets certain requirements.
We currently use the Black-Scholes option pricing model to estimate the fair value of our share-based payments. The determination of the fair value of share-based payment awards utilizing the Black-Scholes model is affected by our stock price and a number of assumptions, including expected volatility, expected life, risk-free interest rate and expected dividends. We estimate the expected volatility of our stock options at grant date based on the historical traded prices of our stock as the expected volatility assumption required in the Black-Scholes model. The expected life of the stock options is based on historical and other data including life of the option and vesting period.
The risk-free interest rate assumption is the implied yield currently available on zero-coupon government issues with a remaining term equal to the expected term. The dividend yield assumption is based on our history and expectation of dividend payouts.
We evaluate the assumptions used to value stock-based awards on a periodic basis. If factors change and we employ different assumptions, stock-based compensation expense may differ significantly from what we have recorded in the past. If there are any modifications or cancellations of the underlying unvested securities, we may be required to accelerate, increase or cancel any remaining unearned stock-based compensation expense. To the extent that we grant additional equity securities to employees or we assume unvested securities in connection with any acquisitions, our stock-based compensation expense will be increased by the additional unearned compensation resulting from those additional grants or acquisitions.

Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Significant items subject to such estimates and assumptions include the useful lives of property and equipment, carrying amount of property and equipment, intangibles and goodwill, valuation allowance for receivables and deferred tax assets, valuation of derivative instruments, valuation of share-based compensation, assets and obligations related to employee benefits, income tax uncertainties and other contingencies and commitments. Management believes that the estimates used in the preparation of the consolidated financial statements are prudent and reasonable. Although these estimates are based upon management’s best knowledge of current events and actions, actual results could differ from these estimates.
Presentation of Supplemental Non-GAAP Financial Measures
In this management’s discussion and analysis, we use supplemental non-GAAP financial measures as defined by the Securities and Exchange Commission. These non-GAAP measures are not in accordance with, or an alternative for measures prepared in accordance with, U.S. 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 set forth on pages 49 and 50 of this Form 10-K.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

Business Overview
We are a worldwide outsourcing provider of integrated end-to-end offshore centric information technology (“IT”) and IT-enabled operations solutions and services. Our clients are primarily Global 2000 customers from the financial, insurance, manufacturing, retail and distribution, healthcare, communications, media and entertainment, utilities and product engineering industries. We work with clients to optimize their businesses, secure year-on-year cost benefits, and tie costs to business needs and results. We deliver a comprehensive range of IT services through globally integrated onsite and offshore delivery locations primarily in India. We offer our services to customers through industry focused practices, including insurance and healthcare (“IHC”), manufacturing, retail and logistics (“MRDL”), banking and financial services (“BFS”), communications and utilities (“CEU”), and media and entertainment (“MELT”) and through technology focused practices. IT services include application development, application maintenance and support, verification and validation, enterprise application solutions, business intelligence and data warehousing (“BI & DW”), packaged software implementation, infrastructure management services, quality assurance services and product engineering services. IT-enabled services include business process outsourcing (“BPO”), transaction processing services and customer interaction services (“CIS”).
We also offer Integrated Technology and Operations (“iTOPS”) solutions that integrate IT outsourcing and IT-enabled operations, offshore outsourcing solutions and services seamlessly. In addition to cost savings, the iTOPS model provides clients with innovative ways to enhance the quality and performance of their operations through better alignment of business processes to IT infrastructure.
We believe our innovative approach of integrating IT and IT-enabled operations and our ability to leverage a global delivery model provide our clients with clearly differentiated and demonstrated value. We employ an offshore/nearshore delivery model with 27,543 employees and 27 offices worldwide. Our global delivery model leverages both onsite delivery and comprehensive offshore services, depending upon a client’s location and preferences. We target large and medium-sized organizations across a diverse set of industries, including financial services, insurance, manufacturing, retail, healthcare and media and entertainment.

We were founded in 1986 and our principal executive office is located in Fremont, California. We have operations in India, Canada, the United States, Europe, Mexico, Singapore, Malaysia, Japan, Australia, the United Arab Emirates, South Africa, Turkey, South Korea, China, Switzerland and the United Kingdom.
A majority of our clients have headquarters in North America and operate internationally. iGATE has 27,543 employees as of September 30, 2012.
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 13% and 11% of revenues for the nine months ended September 30, 2012 and 2011, respectively. Our second largest customer, Royal Bank of Canada (“RBC”), accounted for approximately 10% and 17% of revenues for the nine months ended September 30, 2012 and 2011, respectively. iGATE is a Global Preferred Partner of RBC.
Recent Developments
Delisting of Patni American Depository Shares (“ADSs”) from the New York Stock Exchange (the “NYSE”)
The ADSs were delisted from the NYSE after the close of trading on September 28, 2012 and are tradable on the U.S. over-the-counter market beginning on October 1, 2012. Patni filed Form 15, deregistering the ADSs from the SEC’s reporting requirements on October 1, 2012, which is automatically effective 90 days later subject to the SEC’s queries, if any.
Merger of Patni with iGATE Global Solutions Limited
On October 11, 2012, the Company’s Board of Directors approved a plan where it was decided to merge Patni with iGATE Global Solutions Limited (“iGATE Global”), The merger scheme was further approved by the Board of Directors of Patni and iGATE Global on October 26, 2012 and was subsequently filed with the High Court of Judicature at Mumbai on October 29, 2012. Pursuant to the merger, the shareholders of Patni shall receive 5 (five) equity shares of the face value of Rs 10/- (Rupees Ten) each (credited as fully paid up) of iGATE Global for 22 (twenty two) equity shares of the face value of Rs 2/- (Rupees Two) each (credited as fully paid-up) held by such shareholder or his/her/its respective legal heirs, executors or successors in Patni. Patni expects to terminate the ADR program and the ADRs issued by it will be converted into underlying shares of Patni or liquidated for cash pursuant to the terms of the deposit agreement entered into amongst Patni, the Bank of New York and the owners and holders of ADRs prior to the merger becoming effective. The merger is subject to the receipt of various approvals including from the shareholders and creditors of both companies, the High Court of Judicature at Mumbai and the Competition Commission of India.
Reportable Financial Segments
Following the delisting of Patni from the BSE and NSE in May 2012, the Company’s Chief Executive Officer, who is the chief decision making officer, determined that the Company’s business will be operated and managed as a single segment.
Critical Accounting Policies
Our critical accounting policies are described in the summary of significant accounting policies as discussed in Note 1 of our Form 10-K.
Recently Issued Accounting Pronouncements
In December 2011, the FASB issued ASU No. 2011-11 “Disclosure about Offsetting Assets and Liabilities”, which requires entities to disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. The scope would include derivatives, sale and repurchase agreements and reverse sale and repurchase agreements, and securities borrowing and securities lending arrangements. The objective of this disclosure is to facilitate comparison between those entities that prepare their financial statements on the basis of U.S. generally accepted accounting principles (“GAAP”) and those entities that prepare their financial statements on the basis of IFRS. In addition, the standard requires disclosure of collateral received and posted in connection with master netting agreements or similar arrangements. The ASU is effective for annual and interim period for fiscal years beginning on or after January 1, 2013. The Company is currently evaluating this ASU.
In July 2012, the FASB issued ASU No. 2012-02- “Intangibles–Goodwill and Others- Testing Indefinite-Lived Intangible Assets for Impairment”, which is intended to reduce the cost and complexity of the annual impairment test for indefinite-lived intangible assets other than goodwill, by providing entities an option to perform a “qualitative” assessment to determine whether further impairment testing is necessary. The ASU is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. An entity has the option to first assess qualitative factors to determine whether it is necessary to perform the current two-step test. If an entity believes, as a result of its qualitative assessment, that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test is required. Otherwise, no further testing is required. The Company is currently evaluating whether or not to take the option available in the ASU.

Revenues
Revenues for the three months ended September 30, 2012 increased by 2%, as compared to the three months ended September 30, 2011. Our revenue increase for this period is directly attributable to the combination of increased business with new customers and recurring customers but was partly offset by the discontinuation of business with some of our existing customers. Revenues increased due to addition of new customers by 2.1% and increased business with our recurring customers by 1.6%, which were partly offset by the discontinuation of business with some of our existing customers by 1.7% for the three months ended September 30, 2012 as compared to the three months ended September 30, 2011.
Our top five customers accounted for 38% and 37% of our revenues for the three months ended September 30, 2012 and 2011, respectively. The strengthening of USD during the three months ended September 30, 2012 as compared to the corresponding period in the previous year, against EUROs, GBP and INR adversely impacted our revenues by 0.6% .
Gross margin
The gross margin as a percentage of revenues (“Gross Margin Percentage”) was 39.8% for the three months ended September 30, 2012, as compared to 36.9% for the three months ended September 30, 2011. The increase in the Gross Margin Percentage was primarily due to favorable movement of USD against INR during the current period as compared to the three months ended September 30, 2011 that resulted in a lower cost of revenues in dollar terms yielding a higher gross margin by 4.5% which was partly offset by adverse impact of currency movement on revenues by 0.6%, increase in salaries due to an increase in the number of employees.
Selling, general and administrative expenses
Selling, general and administrative expenses (“SG&A”) include all costs that are not directly associated with revenue-generating activities. SG&A expenses include employee costs, corporate costs and facilities costs. Employee costs include selling, marketing and administrative salaries and related employee benefits, travel, recruiting and training costs. Corporate costs include costs such as delisting and reorganization costs, legal, accounting and outside consulting fees. Facilities costs primarily include rent and communications costs.
SG&A costs for the three months ended September 30, 2012 were 16.3% of revenues, as compared to 17.6% of revenues for the three months ended September 30, 2011. SG&A costs for the three months ended September 30, 2012 decreased by $2.7 million as compared to the three months ended September 30, 2011. Net employee cost decreased by $4.0 million for the three months ended September 30, 2012, as compared to the three months ended September 30, 2011, mainly due to a decrease in salaries, overhead and benefits of $4.8 million and staff welfare expense by $0.6 million which were partly offset by an increase in travel expense and related costs of $1.4 million. The decrease in salaries was mainly due to decrease in average headcount by 111 and the lower bonus provision by $2.0 million and lower employee stock based compensation cost provision by $0.9 million for the three months ended September 30, 2012 as compared to the three months ended September 30, 2011. Net corporate cost increased by $0.3 million for the three months ended September 30, 2012 mainly due to the increase in marketing expenses by $0.7 million, reorganization expenses by $0.7 million, delisting costs by $0.3 million, outside professional services by $0.3 million, which were partly offset by decrease in integration expenses by $0.5 million, legal expenses by $0.5 million and public costs by $0.7 million. Net facilities costs increased by $1.0 million for the three months ended September 30, 2012, due to an increase in communication related expenses by $0.8 million and insurance and maintenance costs by $0.7 million which were partly offset by decrease in electricity charges by $0.4 million and rent by $0.1 million.
The currency movements in the foreign exchange market favorably impacted our SG&A costs by 1.4% for the three months ended September 30, 2012 as compared to three months ended September 30, 2011.
Depreciation and amortization costs
Depreciation and amortization cost for the three months ended September 30, 2012 were 3.7% of revenue, as compared to 5.1% of revenue for the three months ended September 30, 2011 representing a decrease of $3.6 million. The decrease in absolute terms is mainly due to one year schedule of certain depreciable assets attributable to Patni Acquisition which was fully depreciated in the second quarter of 2012.

Operating income
Operating income percentage was 19.8% for the three months ended September 30, 2012 as compared to 14.2% for the three months ended September 30, 2011. The increase in operating income percentage was mainly due to the increased gross margin and reduction in selling, general and administration expenses and depreciation and amortization.
Interest expense
Interest expenses were 8.1% of revenues for the three months ended September 30, 2012, as compared to 7.4% for the three months ended September 30, 2011. We issued 9% senior notes on April 29, 2011 and recorded interest expense of $17.3 million for the three months ended September 30, 2012, as compared to $17.4 million for the three months ended September 30, 2011. We also amortized the debt issuance costs of $1.5 million for each of the three months ended September 30, 2012 and 2011. The interest expense recorded on our $352.5 million line of credit and term loan amounted to $2.2 million for the three months ended September 30, 2012 as compared to $0.2 million on our line of credit of $52 million for the three months ended September 30, 2011.
Foreign exchange (loss) gain, net
Foreign exchange loss was $3.8 million for the three months ended September 30, 2012 as compared to loss of $7.9 million for the three months ended September 30, 2011.
The Company recognized foreign currency gain of $2.2 million on all derivative contracts for the three months ended September 30, 2012, as compared to an unfavorable foreign currency movement resulting in the loss of $13.1 million for the three months ended September 30, 2011.
We also recognized a foreign currency gain of $0.1 million on remeasurement of escrow account balance, foreign currency gain of $3.5 million on remeasurement of packing credit facility borrowed under our line of credit, foreign currency loss of $7.5 million related to other monetary and non monetary assets and liabilities and foreign currency loss of $2.1 million on remeasurement of the redeemable non controlling interest for the three months ended September 30, 2012, as compared to a loss of $4.4 million on remeasurement of packing credit facility borrowed under our line of credit and $9.6 million of gain related to other monetary and non monetary assets and liabilities for the three months ended September 30, 2011, respectively.
Other income, net
Our investment income for the three months ended September 30, 2012 totaled $8.6 million, as compared to $3.7 million for the three months ended September 30, 2011. The investments increased by $103 million as of September 30, 2012 as compared to the investments as of September 30, 2011. A sizable part of investments in 2011 were in dividend yielding mutual funds whereas in 2012 the investments were mainly in growth plans of mutual funds and certificates of deposits. The higher level of investments, switch from dividend yielding mutual funds to growth plans of mutual funds and investments in high yield certificate of deposits primarily contributed to the increase in investment income.
Interest refund from tax authorities amounted to $0.1 million for the three months ended September 30, 2012.
Income taxes
Our ETR was 23.1% and (19.4) % during the three months ended September 30, 2012 and 2011, respectively.
The negative reported ETR during the three months ended September 30, 2011 was mainly due to deferred tax benefit of $3.9 million and $1.2 million relating to net operating losses brought forward from prior years and foreign tax credit, respectively. The ETR excluding the above items (“normalized ETR”) will be 16.0% for the three months ended September 30, 2011.
The estimated annual ETR takes into account the tax of approximately $7.4 million due to the deemed repatriation of Patni India’s profits during the period.
Subsequent to the acquisition of iAI by iTI in August 2012 iAI is now be included with iTI while filing the consolidated return. Filing of the consolidated return is considered a change in the tax strategy to realize deferred tax asset in a tax effective manner and resulting in an assessment that the deferred tax asset will more-likely-than-not be realized prior to their expiration as a result of increase in future taxable income. The Company anticipates generating such taxable income due to a substantial number of new contracts being entered into the entities included in the new consolidated group for tax return purposes. As a result of this tax planning strategy, we have released $4.0 million of the deferred tax asset valuation allowance relating to iTI existing as of December 31, 2011. The valuation allowance related to the deferred tax assets on temporary differences of iTI where it was more likely than not that all or some portion of the asset will not be realized due to the inability to generate sufficient taxable income in the period and/or of the character necessary to utilize the benefit of the deferred tax asset as on December 31, 2011. The release as stated above, was triggered as a result of the acquisition of iAI by iTI in August 2012.
The impact of the above items and additional taxes in iTI Canada during the three months ended September 30, 2012 increased the ETR by approximately 7.1% over prior period’s normalized ETR of 16.0% resulting in an ETR of 23.1%.
Non-controlling interest
For the three months ended September 30, 2011, we recorded $3 million share of profits of non-controlling interest in Patni representing 17.88% share of net income of $16.5 million of Patni.
On March 14, 2012, Pan-Asia along with iGATE Global and iGATE issued a public announcement regarding the proposed acquisition of the remaining 15.82% of Patni’s outstanding share capital (excluding ADSs) from Patni’s public shareholders and the delisting of the fully paid-up equity shares of Patni having a face value of INR 2 each in accordance with Regulation 10 of the Securities and Exchange Board of India (Delisting of Equity Shares) Regulations, 2009. As of September 30, 2012, the Company purchased 22.5 million shares of Patni’s outstanding shares and recorded a redeemable non controlling interest liability for the balance of 4.0 million shares amounting to $39.6 million, valued at an exit price of INR 520 per share. The redeemable non controlling interest holders are not entitled to any share of Patni profits.
Preferred dividend
On February 1, 2011, pursuant to the securities purchase agreement with Viscaria Limited dated January 10, 2011, we issued 210,000 shares of Series B Preferred Stock for a consideration of $210 million and an additional 120,000 shares were issued on May 9, 2011 for a consideration of $120 million. We have accrued for cumulative dividends of $7.4 million at a rate of 8.00% per annum, compounded quarterly, for the three months ended September 30, 2012 as compared to $6.8 million for the three months ended September 30, 2011.

Revenues
Revenues for the nine months ended September 30, 2012 increased by 56.7%, as compared to the nine months ended September 30, 2011. Our revenue increase for the periods presented is directly attributable to the Patni Acquisition and a combination of increased business with our recurring customers and business with new customers which were partly offset by the discontinuation of business with some of our existing customers. Revenues increased due to the Patni Acquisition by 54.6%, recurring customers by 0.8% and new customers by 2.3% which were partly offset by the discontinuation of business with some of our existing customers by 1.0% for the nine months ended September 30, 2012 as compared to the nine months ended September 30, 2011.
Our top five customers accounted for 37% and 42% of the revenues for the nine months ended September 30, 2012 and 2011, respectively. The strengthening of USD during the nine months ended September 30, 2012 as compared to the corresponding period in the previous year, against EUROs, GBP, CAD and INR adversely impacted our revenues by 0.8%.
Gross margin
The Gross Margin Percentage was 39.1% for the nine months ended September 30, 2012 as compared to 36.8% for the nine months ended September 30, 2011. The increase in the Gross Margin Percentage was primarily due to favorable movement of USD against INR during the current period as compared to the nine months ended September 30, 2011 that resulted in a lower cost of revenues in dollar terms yielding a higher gross margin by 4.2% which was partly offset by adverse impact of currency movement on revenues by 0.8%, increase in salaries due to an increase in the number of employees.
Selling, general and administrative expenses
Selling, general and administrative expenses (“SG&A”) include all costs that are not directly associated with revenue-generating activities. SG&A expenses include employee costs, corporate costs and facilities costs. Employee costs include selling, marketing and administrative salaries and related employee benefits, travel, recruiting and training costs. Corporate costs include costs such as acquisition, delisting and reorganization costs, legal, accounting and outside consulting fees. Facilities costs primarily include rent and communications costs.
SG&A costs for the nine months ended September 30, 2012 were 15.9% of revenues, as compared to 21.3% of revenues for the nine months ended September 30, 2011. SG&A costs for the nine months ended September 30, 2012 increased by $18.4 million as compared to the nine months ended September 30, 2011. SG&A costs increased mainly due to Patni Acquisition which accounted for a full nine months in the current reporting period as compared to four and half months in the previous period. Net employee costs increased by $9.0 million for the nine months ended September 30, 2012, as compared to the nine months ended September 30, 2011, resulting from increase in salaries, overheads and benefits of $6.0 million, travel expense by $2.7 million and staff welfare expense by $0.3 million. The increase in salaries was mainly due to the Patni Acquisition and increase in average headcount by 303, which were partly offset by the lower bonus provision by $2.8 million and lower employee stock based compensation cost provision by $0.4 million for the nine months ended September 30, 2012 as compared to the nine months ended September 30, 2011. Net corporate costs increased by $9.5 million for the nine months ended September 30, 2012 mainly due to delisting expense of $3.5 million during the current reporting period, increase in professional services and accounting charges by $2.7 million, marketing expenses by $0.8 million, reorganization expenses by $0.8 million, legal fees by $0.8 million, recruitment expenses by $0.7 million and bad debt expense by $0.2 million. We incurred around $11.0 million of acquisition costs during the nine months ended September 30, 2011. Net facilities costs increased by $10.9 million for the nine months ended September 30, 2012, due to increase in insurance and maintenance costs by $4.3 million, communication related expenses by $2.9 million, rent by $1.9 million and electricity charges by $1.8 million.
The currency movements in the foreign exchange market favorably impacted our SG&A costs by 1.9% for the nine months ended September 30, 2012 as compared to nine months ended September 30, 2011.
Depreciation and amortization costs
Depreciation and amortization cost for the nine months ended September 30, 2012 were 4.6% of revenue, as compared to 4.9% of revenue for the nine months ended September 30, 2011 representing an increase of $11.7 million. The increase in absolute terms was mainly due to the increase in the depreciable and amortizable assets attributable to the Patni Acquisition on May 12, 2011.
Operating income
Operating income percentage was 18.7% for the nine months ended September 30, 2012, as compared to 10.6% for the nine months ended September 30, 2011. The increase in operating income percentage was mainly due to the increased gross margin which was partly offset by increased selling, general and administration expenses and depreciation and amortization.
Interest expense
Interest expenses were 7.7% of revenues for the nine months ended September 30, 2012 as compared to 6.4% for the nine months ended September 30, 2011. We issued 9% senior notes on April 29, 2011 and recorded interest expense of $52 million for the nine months ended September 30, 2012 as compared to $29.4 million for the nine months ended September 30, 2011. We also amortized the debt issuance costs of $4.3 million for the nine months ended September 30, 2012 as compared to $2.3 million for the nine months ended September 30, 2011. The interest expense recorded on our $352.5 million line of credit and term loan amounted to $4.2 million for the nine months ended September 30, 2012 as compared to $0.5 million on our line of credit of $52 million for the nine months ended September 30, 2011.
Foreign exchange (loss) gain, net
Foreign exchange loss was $18.2 million for the nine months ended September 30, 2012, as compared to gain of $16.8 million for the nine months ended September 30, 2011.
The foreign currency movement related to foreign currency derivative contracts entered into in connection with the Patni Acquisition resulted in a realized gain of $15.0 million on settled contracts for the nine months ended September 30, 2011.
We recognized foreign currency loss of $14 million on all derivative contracts for the nine months ended September 30, 2012, as compared to a loss of $9.7 million for the nine months ended September 30, 2011.
We also recognized a foreign currency loss of $4.1 million on remeasurement of escrow account balance, loss of $1.5 million related to other monetary and non monetary assets and liabilities and loss of $2.1 million on the remeasurement of redeemable non controlling interest for the nine months ended September 30, 2012, as compared to a gain of $5.1 million on remeasurement of escrow account balance and $10.6 million of favorable foreign currency gain related to other monetary and non monetary assets and liabilities for the nine months ended September 30, 2011, respectively. We also recorded a foreign currency gain of $3.5 million and a loss of $4.2 million on the remeasurement of the packing credit facility borrowed under our line of credit for the nine months ended September 30, 2012 and 2011, respectively.
Other income, net
Our investment income for the nine months ended September 30, 2012 totaled $22 million as compared to $7.9 million for the nine months ended September 30, 2011. The investment income increased as investment amounts increased significantly due to Patni Acquisition. The investments increased by $103 million as of September 30, 2012 as compared to the investments as of September 30, 2011. A sizable part of investments in 2011 were in dividend yielding mutual funds whereas in 2012 the investments were mainly in growth funds and certificate of deposits. The higher level of investments, switch from dividend yielding funds to growth plans of mutual funds and investments in high yield certificate of deposits primarily contributed to the increase in investment income.
Interest refund from tax authorities amounted to $1.6 million for the nine months ended September 30, 2012.

CONF CALL

Araceli Roiz - IR, Manager
Thank you. Good morning and thank you for joining our call to discuss our 2012 full year and fourth quarter financial results. With me today are Phaneesh Murthy, iGATE’s President and Chief Executive Officer and Sujit Sircar, iGATE’s Chief Financial Officer. A copy of today’s press release and supplemental financial information are posted on iGATE’s Investor Relations website at www.igate.com. Today’s call is being recorded, and a copy of the transcript will be available later today on our website.

Before we begin, I would like to remind everyone that some of the statements made during today’s discussion may be forward-looking in nature and may involve some risks and uncertainties. These risks and uncertainties may cause actual results to differ materially from those set forth in the statements. Additional information concerning these risks and uncertainties can be found in the company’s recently issued press release also available on our corporate website as well as our latest 10-K. iGATE Corporation assumes no obligation to update any forward-looking statements.

I will now turn the floor over to Phaneesh.

Phaneesh Murthy - President & CEO
Thank you, Araceli and good morning to all of you in the US. I want to just talk a little bit about both the fourth quarter and the full year. I think from the fourth quarter perspective the highlights are that we actually did $271.6 million in revenues. We had a marginal increase or relatively flat on the revenue side. The adjusted EBITDA went up quite nicely to $71.9 million in the quarter up from $68.6 million in the third quarter of 2012.

I think the bigger story is for the quarter and for the year are slightly different though; we didn't do very well on the revenue side. Clearly, it was a difficult year for us from an integration perspective, protection perspective, all of those things and transforming the sales force perspective. So from a revenue point of view we didn't do well, but I think what went very well for us is the fact that we have increased our pipeline very dramatically, increased the pipeline in iTOPS for business outcomes very dramatically, one of few very nice large deals.

If you remember, I had spoken in the previous quarter about having one large deal in the insurance space. At that point of time I had also said that we are in play for another fairly large deal in excess of $200 million, I am pleased to report that we have been given the go ahead to do due diligence and basically work on the contract to close that particular project out. The times for all of this have obviously got significantly elongated and we are now looking at cycles for transformation deals which are 18 months, 15 months to 18 months. But I am just pleased that the deal really has finally come to some kind of a closure.

The second big story of course in the quarter is the fact that we continue to be in our winning record on among the best IT employers. We ranked number one this year on the Dataquest Survey. And the third big story actually for the quarter is really the fact that on both quarter, is the fact that we added 14 new customers which was quite strange for us in the fourth quarter; typically, seven of which were Fortune 1000 kinds of customer.

So going into the next year, you know, IT, better and stronger pipeline, stronger iTOPS kinds of deals already in the bag, revenues for which will start flowing much later. So the first deal that we won, you know, we anticipate revenues to start actually flowing from Q2 of this year and this deal if you remember was won in Q4 of last year, so that just gives you the kind of the time which is happening for various activities, you know, including contracting and transition. And we're anticipating that the deal which we just got agreement to go ahead and do the due diligence and translate into contract, we expect that the revenues from this will start contributing in Q3 for (inaudible).

So that’s one of the large deals. Overall on the macro environment, we are starting to see signals that 2013 spending will largely be in line with 2013 budget. 2013 budgets are relatively flat compared to 2012 budget, but we believe that 2012 spending was actually lower than 2012 budget. So because of this we are actually probably going to see a little bit of an uptick in spent.

The discretionary spent is largely around customer facing apps, so if you just look at that overall picture, it does augur for a slightly better year and certainly it’s difficult for us to have oversee it from a revenue perspective; it was a 1% revenue growth if you look at it from one perspective and clearly most of the effort was on internal maturity, so we now believe that when we are acquired Patni we came $1 billion strong in revenue, but really what we have become in 2012, I generally believe is $1 billion matured. In addition to those deals that we won, we are also seeing several deals in the tens of millions of dollars which are there in our pipeline; tens of millions of dollars of order book and a couple of these we actually won in the fourth quarter which will start translating into revenues in probably late Q1 or early Q2.

So overall, if I just look at the scenario, not happy scenario from a revenue perspective; great scenario from an earnings perspective, excellent scenario from iTOPS pipeline building and acceptance in the marketplace, our solutions are really, really making a difference and we can see the inflection point in our minds starting to happen a little here. So that’s kind of a little bit on the quarter and the year.

Going forward, we anticipate that since many of these deals have larger, let me call it transition/ramp-up kind, we expect relatively flat kind of Q1, but growth starting after that as these deals starts cycling in revenue into our system.

I’ll hand over the floor to Sujit to do some color on the financials and then we will be happy to take any questions.

Sujit Sircar - EVP & CFO
Thank you, Phaneesh. Good morning and good evening everyone. And thank you for joining us on this call. I’ll take this opportunity to briefly discuss with you the key highlights of our financial performance for the fourth quarter and full year ended December 31, 2012.

Our revenues for the quarter were $271.6 million, compared to $271.1 million in the previous quarter. On a sequential basis growth remained flat as the 1% increase in volume was utilized by fewer billable days in Q4. This quarter our largest customer accounted for 12.7% of total revenue and our top 10 customers accounted for approximately 14.7% of total revenue. We ended the year with an active customer list of 304.

Gross profit margin was 40.6% better than the last quarter reported gross margin of 39.8%. The improvement was due to higher utilization rates and a slight bump-up in offshore average realized rates.

SG&A for the quarter excluding D&A was $41.2 million compared to $43 million last quarter, which excludes delisting cost of $2.2 million and $1.1 million respectively. The additional spend made as part of our marketing plan we launched in Q4 will increase the SG&A in absolute term an additional $1 million to $2 million per quarter for Q1 and Q2 of 2013.

Depreciation and amortization expenses for the quarter were $9.6 million, flat as compared to the previous quarter of $10 million. D&A will continue to trend near these figures for the next few quarters on an absolute dollar basis.

For the quarter, GAAP EBITDA was $66.7 million or 24.6% while non-GAAP EBITDA which excludes stock-based compensation and delisting expenses was $71.9 million or 26.5%. This quarter saw ForEx impact of $1.9 million compared to an impact of $3.8 million in the previous quarter. ForEx losses, net of gain of $1.5 million on revaluation of delisting related assets and minority interests. Having finalized the Patni acquisition process, ForEx should reflect our P&L neutral core hedging [risk] factors.

Tax amount for the quarter was $6.6 million compared to $8.5 million in the previous quarter. The decrease was mainly due to reverse loss of (inaudible) tax liability with an aggregate low effective tax rates. For the quarter, our non-GAAP net income which I expect amortization stock-based compensation delisting costs and ForEx impact on delisting limited assets and liabilities. Net of tax was $36.3 million or $0.47 per diluted shares compared to $35.6 million or $0.46 per diluted shares in the previous quarter.

Moving on to our annual results, our reported revenue for the fiscal year ended 2012 were $1.07 billion compared to last year $1.05 billion on pro forma basis or 1.4% year-on-year increase. The reported gross margin for the year was 39.5% compared to pro forma gross margin of 37.5% last year.

While SG&A accounted for $164.3 million excluding acquisitions and severance. Depreciation and amortization expenses for the year were $43.3 million. For the year GAAP EBITDA was $253.3 million or 23.6% while non-GAAP EBITDA was $272.1 million or 25.3%.

Due to (inaudible), total ForEx loss for the year was $20.1 million while our interest expense for the year was $83.4 million. The ForEx loss includes $4.1 million on account of revaluation of delisting related assets. Full year 2012 tax amounted to $30.6 million coming to an effective tax rate of 43%.

As part of the corporate streamlining, we were able to utilize tax loss evaluation allowances of various geographies which impacted to lower ETI. The normalized effective tax rate moving forward for the following year is expected to be between 26% to 28%. For the year, non-GAAP net income was $122.4 million or $1.58 on fully diluted shares.

Now moving on to the balance sheet, for the year cash generated from operating activities was $100 million net of interest payout. CapEx was $32 million. As of December 31, 2012; cash and cash equivalent were $609 million, with most of our cash balance is residing in India it is subject to translation gain and losses.

For the year the translation losses on account of this was $20 million. Our DSO stood at 70 as against 77 last quarter and we ended with a headcount of 27,554. Now exercise to streamline our legal entity structure we have merged iGATE and Patni effective December 31, 2012 and we have filed a petition for a merger of Patni legal entities with the [higher] courts in India.

With this, I will now turn the call back to Araceli.

Araceli Roiz - IR, Manager
Thank you, for (inaudible) for questions.

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