10-Q 1 g-10q_20170930.htm 10-Q g-10q_20170930.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 September 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 October 27, 2017 was 193,042,398.

 

 

 


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 September 30, 2017

 

1

 

 

 

 

Consolidated Statements of Income for the three months and nine months ended September 30, 2016 and 2017

 

2

 

 

 

 

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

 

3

 

 

 

 

Consolidated Statements of Equity and Redeemable Non-controlling Interest for the nine months ended September 30, 2016 and 2017

 

5

 

 

 

 

Consolidated Statements of Cash Flows for the nine months ended September 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

 

35

 

 

3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

52

 

 

4.

 

Controls and Procedures

 

52

 

 

 

 

 

 

 

PART II

 

 

 

Other Information

 

 

 

 

1.

 

Legal Proceedings

 

53

 

 

1A.

 

Risk Factors

 

53

 

 

2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

53

 

 

3.

 

Defaults upon Senior Securities

 

53

 

 

5.

 

Other Information

 

53

 

 

6.

 

Exhibits

 

53

 

 

 

 

 

 

 

SIGNATURES

 

55

 

 

 


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 September 30,

2017

 

Assets

 

 

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

4

 

$

422,623

 

 

$

440,055

 

Accounts receivable, net

 

5

 

 

615,265

 

 

 

670,692

 

Prepaid expenses and other current assets

 

8

 

 

189,149

 

 

 

243,867

 

Total current assets

 

 

 

$

1,227,037

 

 

$

1,354,614

 

 

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment, net

 

9

 

 

193,218

 

 

 

205,623

 

Deferred tax assets

 

23

 

 

70,143

 

 

 

75,273

 

Investment in equity affiliates

 

24

 

 

4,800

 

 

 

833

 

Intangible assets, net

 

10

 

 

78,946

 

 

 

138,215

 

Goodwill

 

10

 

 

1,069,408

 

 

 

1,315,312

 

Other assets

 

 

 

 

242,328

 

 

 

260,021

 

Total assets

 

 

 

$

2,885,880

 

 

$

3,349,891

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and equity

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

 

 

Short-term borrowings

 

11

 

$

160,000

 

 

$

160,000

 

Current portion of long-term debt

 

12

 

 

39,181

 

 

 

39,224

 

Accounts payable

 

 

 

 

9,768

 

 

 

16,858

 

Income taxes payable

 

23

 

 

24,159

 

 

 

66,328

 

Accrued expenses and other current liabilities

 

13

 

 

498,247

 

 

 

540,743

 

Total current liabilities

 

 

 

$

731,355

 

 

$

823,153

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt, less current portion

 

12

 

 

698,152

 

 

 

1,016,371

 

Deferred tax liabilities

 

23

 

 

2,415

 

 

 

7,210

 

Other liabilities

 

14

 

 

162,790

 

 

 

184,965

 

Total liabilities

 

 

 

$

1,594,712

 

 

$

2,031,699

 

 

 

 

 

 

 

 

 

 

 

 

Redeemable non-controlling interest

 

 

 

 

4,520

 

 

 

3,839

 

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  193,033,898 issued and outstanding as of December 31, 2016

   and September 30, 2017, respectively

 

 

 

 

1,984

 

 

 

1,926

 

Additional paid-in capital

 

 

 

 

1,384,468

 

 

 

1,369,392

 

Retained earnings

 

 

 

 

358,121

 

 

 

338,349

 

Accumulated other comprehensive income (loss)

 

 

 

 

(457,925

)

 

 

(395,314

)

Total equity

 

 

 

$

1,286,648

 

 

$

1,314,353

 

Commitments and contingencies

 

25

 

 

 

 

 

 

 

 

Total liabilities, redeemable non-controlling interest and equity

 

 

 

$

2,885,880

 

 

$

3,349,891

 

 

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 September 30,

 

 

 

 

Nine months ended September 30,

 

 

Notes

2016 (1)

 

 

2017

 

 

 

 

2016 (1)

 

 

2017

 

Net revenues

 

$

648,783

 

 

$

708,824

 

 

 

 

$

1,889,009

 

 

$

2,002,516

 

Cost of revenue

19, 24

 

392,432

 

 

 

429,191

 

 

 

 

 

1,149,035

 

 

 

1,227,821

 

Gross profit

 

$

256,351

 

 

$

279,633

 

 

 

 

$

739,974

 

 

$

774,695

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

20, 24

 

156,969

 

 

 

172,095

 

 

 

 

 

482,315

 

 

 

500,854

 

Amortization of  acquired intangible assets

10

 

7,126

 

 

 

10,151

 

 

 

 

 

19,764

 

 

 

25,780

 

Other operating (income) expense, net

21

 

5,132

 

 

 

(64

)

 

 

 

 

(4,791

)

 

 

(8,517

)

Income from operations

 

$

87,124

 

 

$

97,451

 

 

 

 

$

242,686

 

 

$

256,578

 

Foreign exchange gains (losses), net

 

 

(654

)

 

 

5,045

 

 

 

 

 

3,156

 

 

 

2,045

 

Interest income (expense), net

22

 

(4,901

)

 

 

(8,724

)

 

 

 

 

(11,172

)

 

 

(24,067

)

Other income (expense), net

 

 

5,791

 

 

 

(4,030

)

 

 

 

 

7,172

 

 

 

9,011

 

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

 

$

87,360

 

 

$

89,742

 

 

 

 

$

241,842

 

 

$

243,567

 

Equity-method investment activity, net

 

 

(2,117

)

 

 

 

 

 

 

 

(6,336

)

 

 

(4,567

)

Income before income tax expense

 

$

85,243

 

 

$

89,742

 

 

 

 

$

235,506

 

 

$

239,000

 

Income tax expense

23

 

17,055

 

 

 

16,581

 

 

 

 

 

44,026

 

 

 

44,297

 

Net income

 

$

68,188

 

 

$

73,161

 

 

 

 

$

191,480

 

 

$

194,703

 

Net loss attributable to redeemable non-controlling interest

 

 

734

 

 

 

584

 

 

 

 

 

1,905

 

 

 

1,326

 

Net income attributable to Genpact Limited shareholders

 

$

68,922

 

 

$

73,745

 

 

 

 

$

193,385

 

 

$

196,029

 

Net income available to Genpact Limited common shareholders

18

$

68,922

 

 

$

73,745

 

 

 

 

$

193,385

 

 

$

196,029

 

Earnings per common share attributable to Genpact Limited common shareholders

18

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.33

 

 

$

0.38

 

 

 

 

$

0.93

 

 

$

1.01

 

Diluted

 

$

0.33

 

 

$

0.38

 

 

 

 

$

0.91

 

 

$

0.99

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

206,146,007

 

 

 

192,124,366

 

 

 

 

 

209,034,741

 

 

 

194,221,162

 

Diluted

 

 

209,376,683

 

 

 

194,947,699

 

 

 

 

 

212,357,594

 

 

 

197,112,014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Income taxes, net income and basic and diluted net income per common share for the three and nine months ended September 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 September 30,

 

 

Nine months ended September 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)

$

68,922

 

 

$

(734

)

 

$

73,745

 

 

$

(584

)

 

$

193,385

 

 

$

(1,905

)

 

$

196,029

 

 

$

(1,326

)

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Currency translation  adjustments

 

11,224

 

 

 

14

 

 

 

(4,185

)

 

 

(256

)

 

 

(8,614

)

 

 

53

 

 

 

67,527

 

 

 

(334

)

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

(Note 7)

 

19,772

 

 

 

 

 

 

(14,874

)

 

 

 

 

 

18,187

 

 

 

 

 

 

(5,627

)

 

 

 

Retirement benefits, net of taxes

 

561

 

 

 

 

 

 

369

 

 

 

 

 

 

701

 

 

 

 

 

 

711

 

 

 

 

Other comprehensive income (loss)

$

31,557

 

 

$

14

 

 

$

(18,690

)

 

$

(256

)

 

$

10,274

 

 

$

53

 

 

$

62,611

 

 

$

(334

)

Comprehensive income (loss)

$

100,479

 

 

$

(720

)

 

$

55,055

 

 

$

(840

)

 

$

203,659

 

 

$

(1,852

)

 

$

258,640

 

 

$

(1,660

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Net income for the three months and nine months ended September 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.

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)

 

 

655,717

 

 

 

7

 

 

 

10,348

 

 

 

 

 

 

 

 

 

10,355

 

 

 

 

Issuance of common shares under the

   employee stock purchase plan

   (Note 16)

 

 

105,856

 

 

 

1

 

 

 

2,452

 

 

 

 

 

 

 

 

 

2,453

 

 

 

 

Net settlement on vesting of

   restricted share units (Note 16)

 

 

120,307

 

 

 

1

 

 

 

(462

)

 

 

 

 

 

 

 

 

(461

)

 

 

 

Net settlement on vesting of performance units (Note 16)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock repurchased and retired

   (Note 17)

 

 

(9,615,323

)

 

 

(96

)

 

 

 

 

 

(242,456

)

 

 

 

 

 

(242,552

)

 

 

 

Deferred tax assets recognized on early adoption of ASU

2016-09

 

 

 

 

 

 

 

 

 

 

 

24,912

 

 

 

 

 

 

24,912

 

 

 

 

Expenses related to stock purchase

   (Note 17)

 

 

 

 

 

 

 

 

 

 

 

(192

)

 

 

 

 

 

(192

)

 

 

 

Stock-based compensation expense

   (Note 16)

 

 

 

 

 

 

 

 

18,344

 

 

 

 

 

 

 

 

 

18,344

 

 

 

 

Acquisition of redeemable non

   controlling interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-

 

 

 

3,910

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

 

 

 

 

193,385

 

 

 

 

 

 

193,385

 

 

 

(1,905

)

      Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10,274

 

 

 

10,274

 

 

 

53

 

Balance as of  September 30, 2016

 

 

202,738,869

 

 

$

2,024

 

 

$

1,372,704

 

 

$

387,157

 

 

$

(441,011

)

 

$

1,320,874

 

 

$

2,058

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Net income, additional paid-in capital and retained earnings for the three and nine months ended September 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)

 

 

641,900

 

 

 

6

 

 

 

9,237

 

 

 

 

 

 

 

 

 

9,243

 

 

 

 

Issuance of common shares under the

   employee stock purchase plan

   (Note 16)

 

 

150,265

 

 

 

2

 

 

 

3,589

 

 

 

 

 

 

 

 

 

3,591

 

 

 

 

Net settlement on vesting of

   restricted share units (Note 16)

 

 

103,220

 

 

 

1

 

 

 

(358

)

 

 

 

 

 

 

 

 

(357

)

 

 

 

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)

 

 

 

 

 

 

 

 

22,402

 

 

 

 

 

 

 

 

 

22,402

 

 

 

 

Change in fair value of redeemable non-controlling interest

 

 

 

 

 

 

 

 

 

 

 

(979

)

 

 

 

 

 

(979

)

 

 

979

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

 

 

 

 

196,029

 

 

 

 

 

 

196,029

 

 

 

(1,326

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

62,611

 

 

 

62,611

 

 

 

(334

)

Dividend (Note 17)

 

 

 

 

 

 

 

 

 

 

 

(35,096

)

 

 

 

 

 

(35,096

)

 

 

-

 

Balance as of September 30, 2017

 

 

193,033,898

 

 

$

1,926

 

 

$

1,369,392

 

 

$

338,349

 

 

$

(395,314

)

 

$

1,314,353

 

 

$

3,839

 

 

See accompanying notes to the Consolidated Financial Statements.

5


GENPACT LIMITED AND ITS SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

 

 

Nine months ended September 30,

 

 

 

2016 (1)

 

 

 

2017

 

Operating activities

 

 

 

 

 

 

 

 

Net income attributable to Genpact Limited shareholders

 

$

193,385

 

 

$

196,029

 

Net loss attributable to redeemable non-controlling interest

 

 

(1,905

)

 

 

(1,326

)

Net income

 

$

191,480

 

 

$

194,703

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

40,366

 

 

 

42,271

 

Amortization of debt issuance costs

 

 

1,150

 

 

 

1,382

 

Amortization of acquired intangible assets

 

 

19,764

 

 

 

25,780

 

Intangible assets write-down

 

 

11,195

 

 

 

 

Reserve  for doubtful receivables

 

 

7,307

 

 

 

4,871

 

Unrealized loss (gain) on revaluation of foreign currency asset/liability

 

 

1,304

 

 

 

(9,296

)

Equity-method investment activity, net

 

 

6,336

 

 

 

4,567

 

Stock-based compensation expense

 

 

18,344

 

 

 

22,402

 

Deferred income taxes

 

 

20,729

 

 

 

(4,589

)

Gain on divestiture

 

 

(5,214

)

 

 

 

Provision for expected loss on divestiture

 

 

 

 

 

5,195

 

Others, net

 

 

29

 

 

 

(5,261

)

Change in operating assets and liabilities:

 

 

 

 

 

 

 

 

         Increase in accounts receivable

 

 

(33,760

)

 

 

(30,687

)

  Increase in prepaid expenses, other current assets and other assets

 

 

(64,252

)