10-Q 1 g-10q_20180630.htm 10-Q g-10q_20180630.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, 2018

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 August 2, 2018 was 189,949,196.

 

 

 

 


 

TABLE OF CONTENTS

 

 

 

Item No.

 

 

 

Page No.

 

 

 

 

 

PART I

 

 

 

Financial Statements

 

 

 

 

1.

 

Unaudited Consolidated Financial Statements

 

 

 

 

 

 

Consolidated Balance Sheets as of December 31, 2017 and June 30, 2018

 

1

 

 

 

 

Consolidated Statements of Income for the three months and six months ended June 30, 2017 and 2018

 

2

 

 

 

 

Consolidated Statements of Comprehensive Income (Loss) for the six months ended June 30, 2017 and 2018

 

3

 

 

 

 

Consolidated Statements of Equity and Redeemable Non-controlling Interest for the six months ended June 30, 2017 and 2018

 

5

 

 

 

 

Consolidated Statements of Cash Flows for the six months ended June 30, 2017 and 2018

 

6

 

 

 

 

Notes to the Consolidated Financial Statements

 

7

 

 

2.

 

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

 

56

 

 

3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

73

 

 

4.

 

Controls and Procedures

 

73

 

 

 

 

 

 

 

PART II

 

 

 

Other Information

 

 

 

 

1.

 

Legal Proceedings

 

74

 

 

1A.

 

Risk Factors

 

74

 

 

2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

74

 

 

3.

 

Defaults upon Senior Securities

 

74

 

 

5.

 

Other Information

 

74

 

 

6.

 

Exhibits

 

75

 

 

 

 

 

 

 

SIGNATURES

 

77

 

 

 

 


 

GENPACT LIMITED AND ITS SUBSIDIARIES

Consolidated Balance Sheets

(Unaudited)

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

 

 

 

Notes

 

As of December 31,

2017

 

 

As of June 30,

2018

 

Assets

 

 

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

4

 

$

504,468

 

 

$

333,903

 

Accounts receivable, net

 

5

 

 

693,085

 

 

 

691,347

 

Prepaid expenses and other current assets

 

8

 

 

236,342

 

 

 

207,334

 

Total current assets

 

 

 

$

1,433,895

 

 

$

1,232,584

 

 

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment, net

 

9

 

 

207,030

 

 

 

202,669

 

Deferred tax assets

 

24

 

 

76,929

 

 

 

88,278

 

Investment in equity affiliates

 

25

 

 

886

 

 

 

834

 

Intangible assets, net

 

10

 

 

131,590

 

 

 

120,624

 

Goodwill

 

10

 

 

1,337,122

 

 

 

1,311,361

 

Contract cost assets

 

19

 

 

 

 

 

162,178

 

Other assets

 

 

 

 

262,169

 

 

 

147,550

 

Total assets

 

 

 

$

3,449,621

 

 

$

3,266,078

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and equity

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

 

 

Short-term borrowings

 

11

 

$

170,000

 

 

$

215,000

 

Current portion of long-term debt

 

12

 

 

39,226

 

 

 

39,249

 

Accounts payable

 

 

 

 

15,050

 

 

 

20,942

 

Income taxes payable

 

24

 

 

30,026

 

 

 

54,513

 

           Accrued expenses and other current liabilities

 

13

 

 

584,482

 

 

 

483,241

 

Total current liabilities

 

 

 

$

838,784

 

 

$

812,945

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt, less current portion

 

12

 

 

1,006,687

 

 

 

987,314

 

Deferred tax liabilities

 

24

 

 

6,747

 

 

 

7,036

 

      Other liabilities

 

14

 

 

168,609

 

 

 

162,358

 

Total liabilities

 

 

 

$

2,020,827

 

 

$

1,969,653

 

 

 

 

 

 

 

 

 

 

 

 

Redeemable non-controlling interest

 

 

 

 

4,750

 

 

 

 

Shareholders' equity

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

Common shares, $0.01 par value, 500,000,000 authorized, 192,825,207 and  189,876,061 issued and outstanding as of December 31, 2017 and June 30, 2018, respectively

 

 

 

 

1,924

 

 

 

1,895

 

Additional paid-in capital

 

 

 

 

1,421,368

 

 

 

1,438,072

 

Retained earnings

 

 

 

 

355,982

 

 

 

338,120

 

Accumulated other comprehensive income (loss)

 

 

 

 

(355,230

)

 

 

(481,662

)

Total equity

 

 

 

$

1,424,044

 

 

$

1,296,425

 

Commitments and contingencies

 

27

 

 

 

 

 

 

 

 

Total liabilities, redeemable non-controlling interest and equity

 

 

 

$

3,449,621

 

 

$

3,266,078

 

 

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

2017 (1)

 

 

2018 (1)

 

 

 

2017 (1)

 

 

2018 (1)

 

Net revenues

19

$

670,697

 

 

$

728,561

 

 

 

$

1,293,692

 

 

$

1,417,473

 

Cost of revenue

20, 25

 

414,508

 

 

 

462,898

 

 

 

 

797,845

 

 

 

907,222

 

Gross profit

 

$

256,189

 

 

$

265,663

 

 

 

$

495,847

 

 

$

510,251

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

21, 25

 

167,758

 

 

 

176,166

 

 

 

 

328,616

 

 

 

347,275

 

Amortization of acquired intangible assets

10

 

8,387

 

 

 

9,826

 

 

 

 

15,629

 

 

 

19,762

 

Other operating (income) expense, net

22

 

(915

)

 

 

149

 

 

 

 

(8,453

)

 

 

(69

)

Income from operations

 

$

80,959

 

 

$

79,522

 

 

 

$

160,055

 

 

$

143,283

 

Foreign exchange gains (losses), net

 

 

1,913

 

 

 

2,805

 

 

 

 

(3,000

)

 

 

7,603

 

Interest income (expense), net

23

 

(9,850

)

 

 

(10,407

)

 

 

 

(15,343

)

 

 

(18,507

)

Other income (expense), net

26

 

11,560

 

 

 

9,748

 

 

 

 

12,113

 

 

 

25,298

 

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

 

$

84,582

 

 

$

81,668

 

 

 

$

153,825

 

 

$

157,677

 

Equity-method investment activity, net

 

 

(9

)

 

 

(15

)

 

 

 

(4,567

)

 

 

(15

)

Income before income tax expense

 

$

84,573

 

 

$

81,653

 

 

 

$

149,258

 

 

$

157,662

 

Income tax expense

24

 

15,471

 

 

 

17,079

 

 

 

 

27,716

 

 

 

29,154

 

Net income

 

$

69,102

 

 

$

64,574

 

 

 

$

121,542

 

 

$

128,508

 

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

 

 

(156

)

 

 

-

 

 

 

 

742

 

 

 

761

 

Net income attributable to Genpact Limited shareholders

 

$

68,946

 

 

$

64,574

 

 

 

$

122,284

 

 

$

129,269

 

Net income available to Genpact Limited common shareholders

 

$

68,946

 

 

$

64,574

 

 

 

$

122,284

 

 

$

129,269

 

Earnings per common share attributable to Genpact Limited common shareholders

18

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.36

 

 

$

0.34

 

 

 

$

0.63

 

 

$

0.68

 

Diluted

 

$

0.36

 

 

$

0.33

 

 

 

$

0.62

 

 

$

0.66

 

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

18

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

191,469,593

 

 

 

190,132,664

 

 

 

 

195,269,561

 

 

 

191,474,645

 

Diluted

 

 

193,732,406

 

 

 

193,365,974

 

 

 

 

198,194,172

 

 

 

194,827,272

 

(1) Cost of revenue, selling and administrative expenses, other income (expense) and income from operations for the three and six months ended June 30, 2017 have been restated due to the adoption of ASU No. 2017-07 with effect from January 1, 2018.

 

 

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,

 

 

2017

 

 

2018

 

 

2017

 

 

2018

 

 

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)

$

68,946

 

 

$

156

 

 

$

64,574

 

 

$

 

 

$

122,284

 

 

$

(742

)

 

$

129,269

 

 

$

(761

)

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Currency translation  adjustments

 

20,085

 

 

 

(66

)

 

 

(73,681

)

 

 

 

 

 

71,712

 

 

 

(78

)

 

 

(83,016

)

 

 

(424

)

Net income (loss) on cash flow hedging derivatives, net of taxes (Note 7)

 

(9,611

)

 

 

 

 

 

(27,879

)

 

 

 

 

 

9,247

 

 

 

 

 

 

(46,811

)

 

 

 

Retirement benefits, net of taxes

 

223

 

 

 

 

 

 

617

 

 

 

 

 

 

342

 

 

 

 

 

 

1,130

 

 

 

 

Other comprehensive income (loss)

 

10,697

 

 

 

(66

)

 

 

(100,943

)

 

 

 

 

 

81,301

 

 

 

(78

)

 

 

(128,697

)

 

 

(424

)

Comprehensive income (loss)

$

79,643

 

 

$

90

 

 

$

(36,369

)

 

$

 

 

$

203,585

 

 

$

(820

)

 

$

572

 

 

$

(1,185

)

 

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

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

Redeemable

 

 

 

No. of Shares

 

 

Amount

 

 

Additional Paid-

in Capital

 

 

Retained

Earnings

 

 

Comprehensive

Income (Loss)

 

 

Total

Equity

 

 

non-controlling

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 (Note 17)

 

 

(7,387,240

)

 

 

(74

)

 

 

(40,000

)

 

 

(179,710

)

 

 

 

 

 

(219,784

)

 

 

 

Expenses related to stock repurchase (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 (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

122,284

 

 

 

 

 

 

122,284

 

 

 

(742

)

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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.

4


 

GENPACT LIMITED AND ITS SUBSIDIARIES

Consolidated Statements of Equity and Redeemable Non-controlling Interest

(Unaudited)

(In thousands, except share count)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

Common shares

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

Redeemable

 

 

 

No. of

Shares

 

 

Amount

 

 

Additional Paid-

in Capital

 

 

Retained

Earnings

 

 

Comprehensive

Income (Loss)

 

 

Total

Equity

 

 

non-controlling

interest

 

Balance as of January 1, 2018, as previously reported

 

 

192,825,207

 

 

$

1,924

 

 

$

1,421,368

 

 

$

355,982

 

 

$

(355,230

)

 

$

1,424,044

 

 

$

4,750

 

Adoption of ASU 2014-09  (Note 2(f))

 

 

 

 

 

 

 

 

 

 

 

17,924

 

 

 

 

 

 

17,924

 

 

 

 

Adjusted balance as of January 1, 2018

 

 

192,825,207

 

 

$

1,924

 

 

$

1,421,368

 

 

$

373,906

 

 

$

(355,230

)

 

$

1,441,968

 

 

$

4,750

 

Adoption of ASU 2018-02 (Note 7, 24)

 

 

 

 

 

 

 

 

 

 

 

(2,265

)

 

 

2,265

 

 

 

 

 

 

 

Issuance of common shares on exercise of options (Note 16)

 

 

366,382

 

 

 

4

 

 

 

6,207

 

 

 

 

 

 

 

 

 

6,211

 

 

 

 

Issuance of common shares under the employee stock purchase plan (Note 16)

 

 

114,951

 

 

 

1

 

 

 

3,176

 

 

 

 

 

 

 

 

 

3,177

 

 

 

 

Net settlement on vesting of restricted share units (Note 16)

 

 

156,420

 

 

 

2

 

 

 

(947

)

 

 

 

 

 

 

 

 

(945

)

 

 

 

Net settlement on vesting of performance units (Note 16)

 

 

691,958

 

 

 

7

 

 

 

(13,291

)

 

 

 

 

 

 

 

 

(13,284

)

 

 

 

Stock repurchased and retired (Note 17)

 

 

(4,278,857

)

 

 

(43

)

 

 

4,000

 

 

 

(134,060

)

 

 

 

 

 

(130,103

)

 

 

 

Expenses related to stock repurchase (Note 17)

 

 

 

 

 

 

 

 

 

 

 

(82

)

 

 

 

 

 

(82

)

 

 

 

Stock-based compensation expense (Note 16)

 

 

 

 

 

 

 

 

18,724

 

 

 

 

 

 

 

 

 

18,724

 

 

 

 

Payment for purchase of redeemable non-controlling interest

 

 

 

 

 

 

 

 

(1,165

)

 

 

 

 

 

 

 

 

(1,165

)

 

 

(3,565

)

Comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

      Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

129,269

 

 

 

 

 

 

129,269

 

 

 

(761

)

      Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(128,697

)

 

 

(128,697

)

 

 

(424

)

Dividend (Note 17)

 

 

 

 

 

 

 

 

 

 

 

(28,648

)

 

 

 

 

 

(28,648

)

 

 

 

Balance as of  June 30, 2018

 

 

189,876,061

 

 

$

1,895

 

 

$

1,438,072

 

 

$

338,120

 

 

$

(481,662

)

 

$

1,296,425

 

 

$

 

 

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,

 

 

 

 

2017

 

 

 

2018

 

Operating activities

 

 

 

 

 

 

 

 

Net income attributable to Genpact Limited shareholders

 

$

122,284

 

 

$

129,269

 

Net loss attributable to redeemable non-controlling interest

 

 

(742

)

 

 

(761

)

Net income

 

$

121,542

 

 

$

128,508

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

27,312

 

 

 

31,613

 

Amortization of debt issuance costs

 

 

877

 

 

 

979

 

Amortization of acquired intangible assets

 

 

15,629

 

 

 

19,762

 

Write-down of intangible assets and property, plant and equipment

 

 

-

 

 

 

850

 

Reserve for doubtful receivables

 

 

1,793

 

 

 

1,347

 

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

 

 

2,956

 

 

 

(7,350

)

Equity-method investment activity, net

 

 

4,567

 

 

 

15

 

Stock-based compensation expense

 

 

12,351

 

 

 

18,724

 

Deferred income taxes

 

 

(5,260

)

 

 

(4,194

)

Others, net

 

 

(4,816

)

 

 

294

 

Change in operating assets and liabilities:

 

 

 

 

 

 

 

 

Increase in accounts receivable

 

 

(1,958

)

 

 

(4,548

)

Increase in prepaid expenses, other current assets, contract cost assets and other assets

 

 

(35,248

)

 

 

(71,559

)

Increase in accounts payable

 

 

1,624

 

 

 

6,289

 

Decrease in accrued expenses, other current liabilities and other liabilities

 

 

(52,022

)

 

 

(96,965

)

Increase in income taxes payable

 

 

25,977

 

 

 

25,719

 

Net cash provided by operating activities

 

$

115,324

 

 

$

49,484

 

Investing activities

 

 

 

 

 

 

 

 

Purchase of property, plant and equipment

 

 

(29,350

)

 

 

(37,703

)

Payment for internally generated intangible assets (including intangibles under development)

 

 

(8,950

)

 

 

(11,544

)

Proceeds from sale of property, plant and equipment

 

 

566

 

 

 

309

 

Investment in equity affiliates

 

 

(496

)

 

 

 

Payment for business acquisitions, net of cash acquired

 

 

(207,181

)

 

 

(728

)

Payment for purchase of redeemable non-controlling interest

 

 

 

 

 

(4,730

)

Net cash used for investing activities

 

$

(245,411

)

 

$

(54,396

)

Financing activities

 

 

 

 

 

 

 

 

Repayment of capital lease obligations

 

 

(1,106