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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Amendment No. 1)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
for the quarterly period ended March 31, 2000
or
[ ] 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 CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 25-1802235
------------ ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1004 McKee Road
Oakdale, Pennsylvania 15071
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (412) 787-2100
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 [ ]
The number of shares of the registrant's Common Stock, par value $0.01 per share
("iGate Common Stock"), outstanding as of April 20, 2000 was 49,469,167.
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iGATE CAPITAL CORPORATION
QUARTERLY REPORT ON FORM 10-Q/A
FOR THE QUARTER ENDED MARCH 31, 2000
TABLE OF CONTENTS
PAGE
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PART I. FINANCIAL INFORMATION 1
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1
(a) UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR EACH OF THE THREE MONTH PERIODS ENDED MARCH 31, 2000
AND MARCH 31, 1999 1
(b) CONDENSED CONSOLIDATED BALANCE SHEETS AS OF MARCH 31,
2000 (UNAUDITED) AND DECEMBER 31, 1999 2
(c) UNAUDITED CONSOLIDATED STATEMENT OF SHAREHOLDERS'
EQUITY AS OF MARCH 31, 2000 3
(d) UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS FOR THE THREE MONTH PERIODS ENDED MARCH 31, 2000
AND MARCH 31, 1999 4
(e) NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS 4
(f) REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 8
SIGNATURE 8
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PART 1 FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(a)
iGate Capital Corporation
Condensed Consolidated Statements of Income
(dollars in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
2000 1999
-----------------------------------------
<S> <C> <C>
Revenues $85,551 $58,984
Cost of revenues 56,020 32,730
-----------------------------------------
Gross profit 29,531 26,254
Selling, general and administrative 31,758 18,666
-----------------------------------------
(Loss)/income from operations (2,227) 7,588
Equity in losses of affiliated companies 2,072 -
Other expense/(income) 60 (751)
Minority Interest (31) -
Merger-related expenses - 1,727
-----------------------------------------
(Loss)/income before income taxes (4,328) 6,612
Income tax (benefit)/provision (1,731) 2,438
-----------------------------------------
(Loss)/income from continuing operations (2,597) 4,174
(Loss)/income from discontinued operations,
net of income taxes (1,421) 5,930
-----------------------------------------
Net (loss)/income $(4,018) $10,104
=========================================
Net (loss)/income per common share, basic:
From continuing operations $(0.05) $ 0.08
From discontinued operations (0.03) 0.12
-----------------------------------------
Total $(0.08) $ 0.20
=========================================
Net (loss)/income per common share, diluted:
From continuing operations $(0.05) $ 0.08
From discontinued operations (0.03) 0.12
-----------------------------------------
Total $(0.08) $ 0.20
=========================================
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
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(b)
iGate Capital Corporation
Condensed Consolidated Balance Sheets
(dollars in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
(unaudited) (audited)
--------------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents (cost approximates market) $ 27,103 $ 23,575
Investments in marketable securities 67,904 74,846
Accounts Receivable, net 76,063 67,626
Prepaid and other assets 20,527 11,197
Deferred income taxes 2,136 1,676
Net current assets of discontinued operations 14,624 21,752
--------------------------------------
Total current assets 208,357 200,672
Equipment and leasehold improvements, net 19,731 17,911
Intangible assets, net 42,065 35,920
Investments in unconsolidated affiliates 33,312 790
Net noncurrent assets of discontinued operations 8,046 8,619
--------------------------------------
Total assets $311,511 $263,912
======================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Revolving credit facility $ 33,500 $ -
Accounts payable 6,489 8,177
Accrued payroll and related costs 24,912 25,373
Other accrued liabilities 7,573 8,243
--------------------------------------
Total current liabilities 72,474 41,793
Long-term debt 30,000 30,000
Other long-term liabilities 1,479 982
Minority interest 528 -
Deferred income taxes 7,883 6,975
--------------------------------------
Total liabilities 112,364 79,750
Shareholders' equity
Preferred stock, without par value - -
Common stock, par value $0.01 per share 511 505
Additional paid-in capital 133,320 115,722
Retained earnings 79,289 83,307
Common stock in treasury, at cost (14,095) (14,095)
Accumulated other comprehensive income 122 (1,277)
--------------------------------------
Total shareholders' equity 199,147 184,162
--------------------------------------
Total liabilities and shareholders' equity $311,511 $263,912
======================================
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
2
<PAGE>
(c)
iGate Capital Corporation
Condensed Consolidated Statements of Shareholders' Equity
(dollars in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Accumulated
Series A Additional Other Total
Common Stock preferred Paid-in Retained Treasury Comprehensive Shareholders' Comprehensive
- ----------------------------------------------------------------------------------------------------------------------------------
Par Par
Shares Value Shares Value Capital Earnings Shares Income Equity Income
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
December 31,1999 50,506,141 $505 1 $- 115,722 $83,307 $(14,095) $(1,277) $184,162
- ----------------------------------------------------------------------------------------------------------------------------------
Exercise of stock
options, net of
tax benefit 641,844 6 17,598 17,604
- ----------------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
- ----------------------------------------------------------------------------------------------------------------------------------
Net unrealized gain on
investments, net
of tax 1,465 1,465 $ 1,465
- ----------------------------------------------------------------------------------------------------------------------------------
Currency translation
adjustment (66) (66) (66)
- ----------------------------------------------------------------------------------------------------------------------------------
Net (loss) (4,018) (4,018) (4,018)
- ----------------------------------------------------------------------------------------------------------------------------------
$(2,619)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance
March 31, 2000 51,147,985 511 1 $- $133,320 $79,289 $(14,095) $ 122 $199,147
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
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(d)
iGate Capital Corporation
Condensed Consolidated Statements of Cash Flows
(dollars in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
2000 1999
---------------------------------------
<S> <C> <C>
Net cash flows (used in)/provided by continuing operations $(13,156) $ 5,229
Net cash flows (used in)/provided by discontinued operations 6,281 (3,622)
---------------------------------------
(6,875) 1,607
Cash flows used in investing activities:
Acquisitions, net of cash acquired (6,968) (9,055)
Investments in unconsolidated affiliates (34,594) -
Additions to equipment and leasehold improvements (2,852) (2,270)
Sales of marketable securities 8,407 -
---------------------------------------
Net cash flows used in investing activities (36,007) (11,325)
Cash flows provided by financing activities:
Net borrowings on revolving line of credit 33,500 -
Proceeds from exercise of stock options 12,810 1,944
Other 100 136
---------------------------------------
Net cash provided by financing activities 46,410 2,080
Increase/(decrease) in cash and cash equivalents 3,528 (7,638)
Cash and cash equivalents, beginning of period 23,575 35,493
---------------------------------------
Cash and cash equivalents, end of period $ 27,103 $ 27,855
=======================================
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
(e) NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The unaudited condensed consolidated financial statements included herein have
been prepared by iGate Capital Corporation (the "Company") in accordance with
generally accepted accounting principles for interim financial information and
Article 10 of Regulation S-X under the Securities Exchange Act of 1934, as
amended. The condensed consolidated financial statements as of and for the three
months ended March 31, 2000 should be read in conjunction with the Company's
consolidated financial statements (and notes thereto) included in the Company's
Annual Report filed on Form 10-K for the year ended December 31, 1999, as
amended (the "1999 Form 10-K"). Accordingly, the accompanying condensed
consolidated financial statements do not include all of the information and
notes required by generally accepted accounting principles for complete
financial statements. In the opinion of the Company's management, all
adjustments considered necessary for a fair presentation of the accompanying
condensed consolidated financial statements have been included, and all
adjustments unless otherwise discussed in the notes to the condensed
consolidated financial statements are of a normal and recurring nature. The
information contained herein is not a comprehensive management overview and
analysis of the financial condition and results of operations of the Company,
but rather updates disclosures made in the 1999 Form 10-K. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Operating
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results for the three months ended March 31, 2000 are not necessarily indicative
of the results that may be expected for the year ending December 31, 2000.
The use of generally accepted accounting principles requires management to make
estimates and assumptions that affect reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
2. INVESTMENTS
The Company accounts for its investments in marketable securities in accordance
with Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." The Company has determined
that certain of its investments in marketable securities are to be classified as
available-for-sale and recorded at fair value. These investments are carried at
market value, with the unrealized gains or losses, net of tax, reported as a
component of comprehensive income in the statement of shareholders' equity.
Realized gains or losses on securities sold are based upon the specific
identification method.
If the Company acquires between 20% - 50% of another company's equity, the
investment is accounted for under equity accounting rules prescribed by
Accounting Principles Board Opinion No. 18, "The equity method of accounting
for investments in common stock." If the Company acquires less than a 20%
interest, the investment is either carried at cost or, if publicly traded, as
available for sale securities. The Company's proportionate share of investment
income or loss in affiliates accounted for under the equity method is recorded
as part of equity in income/losses of affiliated companies.
There were neither dividends declared nor transactions between affiliates for
either of the three-month periods ended March 31, 2000 and March 31, 1999.
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3. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
Three Months Ended March 31
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
2000 1999
- ------------------------------------------------------------------------------------------------------------
Basic earnings per share:
Loss/(income) from continuing operations $ (2,597) $ 4,174
(Loss)/income from discontinued operations (1,421) 5,930
- ------------------------------------------------------------------------------------------------------------
Net (loss)/income $ (4,018) $ 10,104
=============================================================================================================
Divided by:
Weighted average shares outstanding 49,950,000 50,314,000
=============================================================================================================
(Loss)/earnings per share - Basic:
(Loss)/ income per share from continuing
operations $ (0.05) $ 0.08
(Loss)/income per share from discontinued
operations (0.03) 0.12
- ------------------------------------------------------------------------------------------------------------
Total earnings per share-Basic $ (0.08) $ 0.20
============================================================================================================
Diluted earnings per share:
Income from continuing operations $ (2,597) $ 4,174
Income from discontinued operations (1,421) 5,930
- ------------------------------------------------------------------------------------------------------------
Net income $ (4,018) $ 10,104
============================================================================================================
Divided by:
Weighted average shares outstanding - 50,314,000
Dilutive effect of common stock
equivalents - 736,000
- ------------------------------------------------------------------------------------------------------------
Diluted average common shares 51,050,000
============================================================================================================
Diluted earnings per share:
From continuing operations $ (0.05) $ 0.08
From discontinued operations (0.03) 0.12
- ------------------------------------------------------------------------------------------------------------
Total diluted earnings per share $ (0.08) $ 0.20
============================================================================================================
</TABLE>
Options for 1,528,900 shares and 1,387,000 shares related to the Company's debt
under a convertible promissory note have not been included in the diluted
calculation of earnings per share as their effect would be antidilutive.
4. BUSINESS COMBINATIONS
Purchases
- ---------
The following is a discussion of the Company's acquisitions in 2000 accounted
for as purchases. Operating results for each of the respective acquisitions
have been included in the Company's operations since the date of acquisition.
Pro forma disclosures regarding these purchase acquisitions have not been
provided because they are not material on either an individual or an aggregate
basis.
On March 2, 2000, the Company acquired 75% of the outstanding common stock of
IRG, Inc. ("IRG") for $4,687,500. The amount of the purchase price allocated to
goodwill and purchased intangible assets is
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being amortized over a five-year life. If certain performance targets are
satisfied, the selling shareholders of IRG will be entitled to receive future
payments over the next three years that in the aggregate will not exceed $3.6
million.
On January 24, 2000, the Company acquired 89% of the outstanding common stock of
Ex-tra-net Applications Inc. for $5,020,000. The amount of the purchase price
allocated to goodwill and purchased intangible assets is being amortized over a
five-year life.
Pooling of Interests
- --------------------
On January 4, 1999 the Company acquired all the issued and outstanding stock of
The Amber Group ("Amber") in exchange for 1,095,001 of the Company's common
stock. In connection with the merger, the Company incurred approximately $1.7
million of merger-related costs ($0.03 per diluted share) which were expensed in
the first quarter of 1999. These expenses consisted primarily of severance
payments, office closures, and related professional fees. The Company assessed
its workforce as part of the acquisition of Amber and concluded that the
additional layer of management that would have been formed was not consistent
with the Company's long-range business plan.
5. SEGMENT INFORMATION
In accordance with Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS
131"), the Company has two reportable operating segments, the Solutions segment
and the Staffing segment, which have been defined by management based primarily
on the scope of services offered by each segment. During April 2000, the
Company's board of directors approved and implemented a plan to sell its
Staffing business; therefore, the Staffing segment is being treated as a
discontinued operation for financial reporting purposes.
The Solutions division develops, manages and staffs information technology
("IT") and electronic commerce services ("eServices") projects for its
customers. The Solutions division employs highly trained and skilled IT
professionals trained in enterprise resource planning ("ERP") implementation,
network services, eServices consulting, data mining and warehousing, with
additional focuses on web design and integration with vendors and customers.
The majority of Solutions projects are coordinated by project managers who work
directly with end user clients to develop IT and eServices projects to meet
client needs. The Solutions division benefits from affiliations with a number
of software companies, ranging from ERP to supply-chain and customer-interaction
vendors, and from the Company's subsidiary Mascot Systems Ltd.'s ("Mascot Ltd.")
offshore software development centers, which are connected via secure, high
speed satellite links to the Company's headquarters and directly to the client
sites.
The Staffing division provides the services of IT professionals to assist in the
completion of client-managed projects. All professionals within the Staffing
division take direction by the clients for the duration of each project, and do
not undertake to manage projects. The Staffing division focuses on developing
national and global relationships with major system integrators and assists
these integrators in meeting their customers' needs by providing technical
expertise and complementary capabilities.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. The Company evaluates segment
performance based upon profit or loss from operations. The Company does not
allocate income taxes, other income or expense and non-recurring charges to
segments.
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6. DISCONTINUED OPERATIONS
In April of 2000 the Company's board of directors approved a plan to divest the
Company of the Staffing business segment. Accordingly, the Staffing business
segment is being reported as a discontinued operation in the consolidated
statement of income.
The Staffing business segment operates in the United States, Canada and
Australia. Primary assets consist of a staff of more than 1,200 IT
professionals, existing client relationships and support infrastructure.
(f) REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of iGate Capital Corporation:
We have reviewed the accompanying condensed consolidated balance sheet of iGate
Capital Corporation (a Pennsylvania Corporation) and its subsidiaries as of
March 31, 2000, and the related condensed consolidated statements of income,
shareholders' equity and cash flows for the three-month periods ended March 31,
2000 and March 31, 1999. These condensed consolidated financial statements are
the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with auditing standards generally accepted in the United States, the objective
of which is the expression of an opinion regarding the financial statements
taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying condensed consolidated financial statements referred
to above for them to be in conformity with accounting principles generally
accepted in the United States.
We have previously audited, in accordance with auditing standards generally
accepted in the United States, the consolidated balance sheet of iGate Capital
Corporation and its subsidiaries as of December 31, 1999, (not presented
herein), and, in our report dated January 27, 2000. In our opinion, the
information set forth in the accompanying condensed consolidated balance sheet
as of December 31, 1999, is fairly stated, in all material respects, in relation
to the consolidated balance sheet from which it has been derived.
/S/ ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania,
May 12, 2000
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
iGATE CAPITAL CORPORATION
Dated: May 26, 2000 /s/ Bruce E. Haney
--------------------------------------------
Managing Director, Chief Financial Officer,
Treasurer and Secretary
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