10-Q 1 g-10q_20170630.htm 10-Q g-10q_20170630.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

(Mark One)

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period ended June 30, 2017

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: 001-33626

 

GENPACT LIMITED

(Exact name of registrant as specified in its charter)

 

 

Bermuda

 

98-0533350

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

Canon’s Court

22 Victoria Street

Hamilton HM 12

Bermuda

(441) 295-2244

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive office)

 

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      No  

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of “accelerated filer”, “large accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer

 

Accelerated filer

 

 

 

 

 

Non-accelerated filer

(Do not check if a smaller reporting company)

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section l3(a) of the Exchange Act.          

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

The number of the registrant’s common shares, par value $0.01 per share, outstanding as of July 28, 2017 was 192,903,452.

 

 

 

 


 

TABLE OF CONTENTS

 

 

 

Item No.

 

 

 

Page No.

 

 

 

 

 

PART I

 

 

 

Financial Statements

 

 

 

 

1.

 

Unaudited Consolidated Financial Statements

 

 

 

 

 

 

Consolidated Balance Sheets as of December 31, 2016 and June 30, 2017

 

1

 

 

 

 

Consolidated Statements of Income for the three months and six months ended June 30, 2016 and 2017

 

2

 

 

 

 

Consolidated Statements of Comprehensive Income (Loss) for the three months and six months ended June 30, 2016 and 2017

 

3

 

 

 

 

Consolidated Statements of Equity and Redeemable Non-controlling Interest for the three months and six months ended June 30, 2016 and 2017

 

5

 

 

 

 

Consolidated Statements of Cash Flows for the six months ended June 30, 2016 and 2017

 

6

 

 

 

 

Notes to the Consolidated Financial Statements

 

7

 

 

2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

32

 

 

3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

50

 

 

4.

 

Controls and Procedures

 

50

 

 

 

 

 

 

 

PART II

 

 

 

Other Information

 

 

 

 

1.

 

Legal Proceedings

 

51

 

 

1A.

 

Risk Factors

 

51

 

 

2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

51

 

 

3.

 

Defaults upon Senior Securities

 

51

 

 

5.

 

Other Information

 

51

 

 

6.

 

Exhibits

 

51

 

 

 

 

 

 

 

SIGNATURES

 

53

 

 

 

 


 

GENPACT LIMITED AND ITS SUBSIDIARIES

Consolidated Balance Sheets

(Unaudited)

(In thousands, except per share data and share count)

 

 

 

Notes

 

As of December 31,

2016

 

 

As of June 30,

2017

 

Assets

 

 

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

4

 

$

422,623

 

 

$

441,064

 

Accounts receivable, net

 

5

 

 

615,265

 

 

 

637,613

 

Prepaid expenses and other current assets

 

8

 

 

189,149

 

 

 

246,277

 

Total current assets

 

 

 

$

1,227,037

 

 

$

1,324,954

 

 

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment, net

 

9

 

 

193,218

 

 

 

208,658

 

Deferred tax assets

 

23

 

 

70,143

 

 

 

67,568

 

Investment in equity affiliates

 

24

 

 

4,800

 

 

 

809

 

Intangible assets, net

 

10

 

 

78,946

 

 

 

127,068

 

Goodwill

 

10

 

 

1,069,408

 

 

 

1,260,511

 

Other assets

 

 

 

 

242,328

 

 

 

249,866

 

Total assets

 

 

 

$

2,885,880

 

 

$

3,239,434

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and equity

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

 

 

Short-term borrowings

 

11

 

$

160,000

 

 

$

205,000

 

Current portion of long-term debt

 

12

 

 

39,181

 

 

 

39,213

 

Accounts payable

 

 

 

 

9,768

 

 

 

18,317

 

Income taxes payable

 

23

 

 

24,159

 

 

 

51,226

 

Accrued expenses and other current liabilities

 

13

 

 

498,247

 

 

 

452,364

 

Total current liabilities

 

 

 

$

731,355

 

 

$

766,120

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt, less current portion

 

12

 

 

698,152

 

 

 

1,026,047

 

Deferred tax liabilities

 

23

 

 

2,415

 

 

 

6,621

 

Other liabilities

 

14

 

 

162,790

 

 

 

177,546

 

Total liabilities

 

 

 

$

1,594,712

 

 

$

1,976,334

 

 

 

 

 

 

 

 

 

 

 

 

Redeemable non-controlling interest

 

 

 

 

4,520

 

 

 

4,680

 

Shareholders' equity

 

 

 

 

 

 

 

 

 

 

Preferred shares, $0.01 par value, 250,000,000 authorized, none issued

 

 

 

 

 

 

 

 

Common shares, $0.01 par value, 500,000,000 authorized, 198,794,052

   and  192,868,427 issued and outstanding as of December 31, 2016

   and June 30, 2017, respectively

 

 

 

 

1,984

 

 

 

1,924

 

Additional paid-in capital

 

 

 

 

1,384,468

 

 

 

1,356,936

 

Retained earnings

 

 

 

 

358,121

 

 

 

276,184

 

Accumulated other comprehensive income (loss)

 

 

 

 

(457,925

)

 

 

(376,624

)

Total equity

 

 

 

$

1,286,648

 

 

$

1,258,420

 

Commitments and contingencies

 

25

 

 

 

 

 

 

 

 

Total liabilities, redeemable non-controlling interest and equity

 

 

 

$

2,885,880

 

 

$

3,239,434

 

 

See accompanying notes to the Consolidated Financial Statements.

1


 

GENPACT LIMITED AND ITS SUBSIDIARIES

Consolidated Statements of Income

(Unaudited)

(In thousands, except per share data and share count)

 

 

 

Three months ended June 30,

 

 

 

 

Six months ended June 30,

 

 

Notes

2016 (1)

 

 

2017

 

 

 

 

2016 (1)

 

 

2017

 

Net revenues

 

$

630,523

 

 

$

670,697

 

 

 

 

$

1,240,226

 

 

$

1,293,692

 

Cost of revenue

19, 24

 

383,755

 

 

 

415,293

 

 

 

 

 

756,603

 

 

 

798,630

 

Gross profit

 

$

246,768

 

 

$

255,404

 

 

 

 

$

483,623

 

 

$

495,062

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

20, 24

 

165,197

 

 

 

167,901

 

 

 

 

 

325,346

 

 

 

328,759

 

Amortization of  acquired intangible assets

10

 

6,493

 

 

 

8,387

 

 

 

 

 

12,638

 

 

 

15,629

 

Other operating (income) expense, net

21

 

(4,862

)

 

 

(915

)

 

 

 

 

(9,923

)

 

 

(8,453

)

Income from operations

 

$

79,940

 

 

$

80,031

 

 

 

 

$

155,562

 

 

$

159,127

 

Foreign exchange gains (losses), net

 

 

4,808

 

 

 

1,913

 

 

 

 

 

3,810

 

 

 

(3,000

)

Interest income (expense), net

22

 

(3,433

)

 

 

(9,850

)

 

 

 

 

(6,271

)

 

 

(15,343

)

Other income (expense), net

 

 

503

 

 

 

12,488

 

 

 

 

 

1,381

 

 

 

13,041

 

Income before equity-method investment activity, net and income tax expense

 

$

81,818

 

 

$

84,582

 

 

 

 

$

154,482

 

 

$

153,825

 

Equity-method investment activity, net

 

 

(2,074

)

 

 

(9

)

 

 

 

 

(4,219

)

 

 

(4,567

)

Income before income tax expense

 

$

79,744

 

 

$

84,573

 

 

 

 

$

150,263

 

 

$

149,258

 

Income tax expense

23

 

14,956

 

 

 

15,471

 

 

 

 

 

26,971

 

 

 

27,716

 

Net income

 

$

64,788

 

 

$

69,102

 

 

 

 

$

123,292

 

 

$

121,542

 

Net loss (income) attributable to redeemable non-controlling interest

 

 

882

 

 

 

(156

)

 

 

 

 

1,171

 

 

 

742

 

Net income attributable to Genpact Limited shareholders

 

$

65,670

 

 

$

68,946

 

 

 

 

$

124,463

 

 

$

122,284

 

Net income available to Genpact Limited common shareholders

18

$

65,670

 

 

$

68,946

 

 

 

 

$

124,463

 

 

$

122,284

 

Earnings per common share attributable to Genpact Limited common shareholders

18

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.31

 

 

$

0.36

 

 

 

 

$

0.59

 

 

$

0.63

 

Diluted

 

$

0.31

 

 

$

0.36

 

 

 

 

$

0.58

 

 

$

0.62

 

Weighted average number of common shares used  in computing earnings per common share attributable to Genpact Limited common shareholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

210,178,050

 

 

 

191,469,593

 

 

 

 

 

210,479,108

 

 

 

195,269,561

 

Diluted

 

 

213,803,134

 

 

 

193,732,406

 

 

 

 

 

213,848,050

 

 

 

198,194,172

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Income taxes, net income and basic and diluted net income per common share for the three months and the six months ended June 30, 2016 have been restated due to the adoption of ASU No. 2016-09 in 2016 with effect from January 1, 2016.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to the Consolidated Financial Statements.

2


 

GENPACT LIMITED AND ITS SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

(In thousands, except per share data and share count)

 

 

Three months ended June 30,

 

 

Six months ended June 30,

 

 

2016 (1)

 

 

2017

 

 

2016 (1)

 

 

2017

 

 

Genpact Limited Shareholders

 

 

Redeemable Non-controlling interest

 

 

Genpact Limited Shareholders

 

 

Redeemable Non-controlling interest

 

 

Genpact

Limited

Shareholders

 

 

Redeemable

Non-

controlling

interest

 

 

Genpact

Limited

Shareholders

 

 

Redeemable

Non-

controlling

interest

 

Net Income (loss)

$

65,670

 

 

$

(882

)

 

$

68,946

 

 

$

156

 

 

$

124,463

 

 

$

(1,171

)

 

$

122,284

 

 

$

(742

)

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Currency translation  adjustments

 

(25,055

)

 

 

39

 

 

 

20,085

 

 

 

(66

)

 

 

(19,838

)

 

 

39

 

 

 

71,712

 

 

 

(78

)

Net income (loss) on cash flow hedging derivatives, net of taxes

(Note 7)

 

(3,555

)

 

 

 

 

 

(9,611

)

 

 

 

 

 

(1,585

)

 

 

 

 

 

9,247

 

 

 

 

Retirement benefits, net of taxes

 

(13

)

 

 

 

 

 

223

 

 

 

 

 

 

140

 

 

 

 

 

 

342

 

 

 

 

Other comprehensive income (loss)

$

(28,623

)

 

$

39

 

 

$

10,697

 

 

$

(66

)

 

$

(21,283

)

 

$

39

 

 

$

81,301

 

 

$

(78

)

Comprehensive income (loss)

$

37,047

 

 

$

(843

)

 

$

79,643

 

 

$

90

 

 

$

103,180

 

 

$

(1,132

)

 

$

203,585

 

 

$

(820

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Net income for the three months and six months ended June 30, 2016 has been restated due to the adoption of ASU No. 2016-09 in 2016 with effect from January 1, 2016.

 

 

See accompanying notes to the Consolidated Financial Statements.

3


 

GENPACT LIMITED AND ITS SUBSIDIARIES

Consolidated Statements of Equity and Redeemable Non-controlling Interest

(Unaudited)

(In thousands, except share count)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

Common shares

 

 

Additional Paid-

 

 

Retained

 

 

Other

Comprehensive

 

 

Total

 

 

Redeemable

non-controlling

 

 

 

No. of Shares

 

 

Amount

 

 

in Capital (1)

 

 

Earnings (1)

 

 

Income (Loss)

 

 

Equity

 

 

interest

 

Balance as of January 1, 2016

 

 

211,472,312

 

 

$

2,111

 

 

$

1,342,022

 

 

$

411,508

 

 

$

(451,285

)

 

$

1,304,356

 

 

$

             —

 

Issuance of common shares on

   exercise of options (Note 16)

 

 

631,422

 

 

 

6

 

 

 

10,051

 

 

 

 

 

 

 

 

 

10,057

 

 

 

 

Issuance of common shares under the

   employee stock purchase plan

   (Note 16)

 

 

60,636

 

 

 

1

 

 

 

1,489

 

 

 

 

 

 

 

 

 

1,490

 

 

 

 

Net settlement on vesting of

   restricted share units (Note 16)

 

 

102,954

 

 

 

1

 

 

 

(98

)

 

 

 

 

 

 

 

 

(97

)

 

 

 

Stock repurchased and retired

   (Note 17)

 

 

(3,314,035

)

 

 

(33

)

 

 

 

 

 

(86,371

)

 

 

 

 

 

(86,404

)

 

 

 

Deferred tax assets recognized on early adoption of ASU

2016-09

 

 

 

 

 

 

 

 

 

 

 

24,912

 

 

 

 

 

 

24,912

 

 

 

 

Expenses related to stock purchase

   (Note 17)

 

 

 

 

 

 

 

 

 

 

 

(66

)

 

 

 

 

 

(66

)

 

 

 

Stock-based compensation expense

   (Note 16)

 

 

 

 

 

 

 

 

13,516

 

 

 

 

 

 

 

 

 

13,516

 

 

 

 

Acquisition of redeemable non-

   controlling interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,910

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

 

 

 

 

124,463

 

 

 

 

 

 

124,463

 

 

 

(1,171

)

     Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(21,283

)

 

 

(21,283

)

 

 

39

 

Balance as of  June 30, 2016

 

 

208,953,290

 

 

$

2,086

 

 

$

1,366,980

 

 

$

474,446

 

 

$

(472,568

)

 

$

1,370,944

 

 

$

2,778

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Net income, additional paid-in capital and retained earnings for the three months and six months ended June 30, 2016 have been restated due to the adoption of ASU No. 2016-09 in 2016 with effect from January 1, 2016.

 

 

See accompanying notes to the Consolidated Financial Statements.

4


 

GENPACT LIMITED AND ITS SUBSIDIARIES

Consolidated Statements of Equity and Redeemable Non-controlling Interest

(Unaudited)

(In thousands, except share count)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

Common shares

 

 

Additional Paid-

 

 

Retained

 

 

Other

Comprehensive

 

 

Total

 

 

Redeemable

non-controlling

 

 

 

No. of Shares

 

 

Amount

 

 

in Capital

 

 

Earnings

 

 

Income (Loss)

 

 

Equity

 

 

interest

 

Balance as of January 1, 2017

 

 

198,794,052

 

 

$

1,984

 

 

$

1,384,468

 

 

$

358,121

 

 

$

(457,925

)

 

$

1,286,648

 

 

$

4,520

 

Issuance of common shares on

   exercise of options (Note 16)

 

 

548,086

 

 

 

5

 

 

 

7,762

 

 

 

 

 

 

 

 

 

7,767

 

 

 

 

Issuance of common shares under the

   employee stock purchase plan

   (Note 16)

 

 

100,357

 

 

 

1

 

 

 

2,312

 

 

 

 

 

 

 

 

 

2,313

 

 

 

 

Net settlement on vesting of

   restricted share units (Note 16)

 

 

81,471

 

 

 

1

 

 

 

(11

)

 

 

 

 

 

 

 

 

(10

)

 

 

 

Net settlement on vesting of

   performance units (Note 16)

 

 

731,701

 

 

 

7

 

 

 

(9,946

)

 

 

 

 

 

 

 

 

(9,939

)

 

 

 

Stock repurchased and retired (Note17)

 

 

(7,387,240

)

 

 

(74

)

 

 

(40,000

)

 

 

(179,710

)

 

 

 

 

 

(219,784

)

 

 

 

Expenses related to stock purchase

   (Note 17)

 

 

 

 

 

 

 

 

 

 

 

(16

)

 

 

 

 

 

(16

)

 

 

 

Stock-based compensation expense

   (Note 16)

 

 

 

 

 

 

 

 

12,351

 

 

 

 

 

 

 

 

 

12,351

 

 

 

 

Change in fair value of redeemable non-controlling interest

 

 

 

 

 

 

 

 

 

 

 

(980

)

 

 

 

 

 

(980

)

 

 

980

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

 

 

 

 

122,284

 

 

 

 

 

 

122,284

 

 

 

(742

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

81,301

 

 

 

81,301

 

 

 

(78

)

Dividend (Note 17)

 

 

 

 

 

 

 

 

 

 

 

(23,515

)

 

 

 

 

 

(23,515

)

 

 

-

 

Balance as of  June 30, 2017

 

 

192,868,427

 

 

$

1,924

 

 

$

1,356,936

 

 

$

276,184

 

 

$

(376,624

)

 

$

1,258,420

 

 

$

4,680

 

 

See accompanying notes to the Consolidated Financial Statements.

5


 

GENPACT LIMITED AND ITS SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

 

 

 

Six months ended June 30,

 

 

 

2016 (1)

 

 

 

2017

 

Operating activities

 

 

 

 

 

 

 

 

Net income attributable to Genpact Limited shareholders

 

$

124,463

 

 

$

122,284

 

Net income (loss) attributable to redeemable non-controlling interest

 

 

(1,171

)

 

 

(742

)

Net income

 

$

123,292

 

 

$

121,542

 

Adjustments to reconcile net income to net cash provided by (used for) operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

26,997

 

 

 

27,312

 

Amortization of debt issuance costs

 

 

767

 

 

 

877

 

Amortization of acquired intangible assets

 

 

12,638

 

 

 

15,629

 

Intangible assets write-down

 

 

5,814

 

 

 

-

 

Reserve  for doubtful receivables

 

 

4,467

 

 

 

1,793

 

Unrealized loss on revaluation of foreign currency asset/liability

 

 

2,055

 

 

 

2,956

 

Equity-method investment activity, net

 

 

4,219

 

 

 

4,567

 

Stock-based compensation expense

 

 

13,516

 

 

 

12,351

 

Deferred income taxes

 

 

23,902

 

 

 

(5,260

)

Others, net

 

 

54

 

 

 

(4,816

)

Change in operating assets and liabilities:

 

 

 

 

 

 

 

 

Increase in accounts receivable

 

 

(15,137

)

 

 

(1,958

)

Increase in prepaid expenses, other current assets and other assets

 

 

(62,414

)

 

 

(35,248

)

Increase in accounts payable

 

 

2,881

 

 

 

1,624

 

Decrease in accrued expenses, other current liabilities and other liabilities

 

 

(76,806

)

 

 

(52,022

)

Increase in income taxes payable

 

 

19,642

 

 

 

25,977

 

Net cash provided by operating activities

 

$

85,887

 

 

$

115,324

 

Investing activities