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 SeptemberJune 30, 20172019
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 CourtVictoria Place, 5th Floor
2231 Victoria Street
Hamilton HM 1210
Bermuda
(441) 295-2244294-8000
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive office)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common shares, par value $0.01 per share | G | New York Stock Exchange |
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 definitionthe definitions of “accelerated filer”, “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | ☒ |
| Accelerated filer | ☐ |
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Non-accelerated filer | ☐ |
| Smaller reporting company | ☐ |
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| 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)13(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 numberAs of the registrant’sAugust 2, 2019, there were 190,501,216 common shares, par value $0.01 per share, outstanding as of October 27, 2017 was 193,042,398.the registrant issued and outstanding.
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PART I |
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| Financial Statements |
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| Financial Information |
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| 1. |
| Unaudited Consolidated Financial Statements |
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| 1. |
| Unaudited Consolidated Financial Statements |
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| Consolidated Balance Sheets as of December 31, 2016 and September 30, 2017 |
| 1 |
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| Consolidated Balance Sheets as of December 31, 2018 and June 30, 2019 |
| 1 |
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| 2 |
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| Consolidated Statements of Income for the three and six months ended June 30, 2018 and 2019 |
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| Consolidated Statements of Cash Flows for the nine months ended September 30, 2016 and 2017 |
| 6 |
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| Consolidated Statements of Cash Flows for the six months ended June 30, 2018 and 2019 |
| 8 |
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| 7 |
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| 9 | ||
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| 2. |
| Management’s Discussion and Analysis of Financial Condition and Results of Operations |
| 35 |
| 2. |
| Management’s Discussion and Analysis of Financial Condition and Results of Operations |
| 58 |
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| 3. |
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| 52 |
| 3. |
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| 76 | ||
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| 4. |
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| 52 |
| 4. |
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PART II |
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| Other Information |
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| Other Information |
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| 1. |
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| 53 |
| 1. |
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| 77 | ||
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| 1A. |
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| 53 |
| 1A. |
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| 77 | ||
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| 2. |
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| 53 |
| 2. |
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| 78 | ||
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| 3. |
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| 6. |
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| 78 | ||
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| 5. |
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| 6. |
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| 55 |
| 80 |
GENPACT LIMITED AND ITS SUBSIDIARIES
(Unaudited)
(In thousands, except per share data and share count)
|
| Notes |
| As of December 31, 2016 |
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| As of September 30, 2017 |
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| Notes |
| As of December 31, 2018 |
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| As of June 30, 2019 |
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Assets |
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Current assets |
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Cash and cash equivalents |
| 4 |
| $ | 422,623 |
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| $ | 440,055 |
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| 4 |
| $ | 368,396 |
|
| $ | 378,030 |
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Accounts receivable, net |
| 5 |
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| 615,265 |
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| 670,692 |
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| 5 |
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| 774,184 |
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| 856,602 |
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Prepaid expenses and other current assets |
| 8 |
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| 189,149 |
|
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| 243,867 |
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| 8 |
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| 212,477 |
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| 225,163 |
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Total current assets |
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| $ | 1,227,037 |
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| $ | 1,354,614 |
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| $ | 1,355,057 |
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| $ | 1,459,795 |
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Property, plant and equipment, net |
| 9 |
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| 193,218 |
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| 205,623 |
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| 9 |
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| 212,715 |
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| 211,244 |
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Operating lease right-of-use assets |
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| — |
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| 297,068 |
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Deferred tax assets |
| 23 |
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| 70,143 |
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| 75,273 |
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| 24 |
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| 74,566 |
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| 78,807 |
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Investment in equity affiliates |
| 24 |
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| 4,800 |
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|
| 833 |
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| 25 |
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| 836 |
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| 842 |
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Intangible assets, net |
| 10 |
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| 78,946 |
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| 138,215 |
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| 10 |
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| 177,087 |
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| 165,751 |
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Goodwill |
| 10 |
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| 1,069,408 |
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| 1,315,312 |
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| 10 |
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| 1,393,832 |
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| 1,400,257 |
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Contract cost assets |
| 19 |
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| 160,193 |
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| 192,178 |
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Other assets |
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| 242,328 |
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| 260,021 |
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| 155,159 |
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| 206,815 |
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Total assets |
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| $ | 2,885,880 |
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| $ | 3,349,891 |
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| $ | 3,529,445 |
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| $ | 4,012,757 |
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Liabilities and equity |
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Current liabilities |
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Short-term borrowings |
| 11 |
| $ | 160,000 |
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| $ | 160,000 |
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| 11 |
| $ | 295,000 |
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| $ | 290,000 |
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Current portion of long-term debt |
| 12 |
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| 39,181 |
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| 39,224 |
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| 12 |
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| 33,483 |
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| 33,498 |
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Accounts payable |
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| 9,768 |
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| 16,858 |
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| 42,584 |
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| 24,398 |
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Income taxes payable |
| 23 |
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| 24,159 |
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| 66,328 |
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| 24 |
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| 33,895 |
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| 64,818 |
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Accrued expenses and other current liabilities |
| 13 |
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| 498,247 |
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| 540,743 |
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| 13 |
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| 571,350 |
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| 545,012 |
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Operating leases liability |
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| — |
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| 45,425 |
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Total current liabilities |
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| $ | 731,355 |
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| $ | 823,153 |
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| $ | 976,312 |
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| $ | 1,003,151 |
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Long-term debt, less current portion |
| 12 |
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| 698,152 |
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| 1,016,371 |
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| 12 |
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| 975,645 |
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| 959,151 |
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Operating leases liability |
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| — |
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| 279,927 |
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Deferred tax liabilities |
| 23 |
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| 2,415 |
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| 7,210 |
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| 24 |
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| 8,080 |
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| 8,332 |
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Other liabilities |
| 14 |
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| 162,790 |
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| 184,965 |
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| 14 |
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| 165,226 |
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| 178,826 |
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Total liabilities |
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| $ | 1,594,712 |
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| $ | 2,031,699 |
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| $ | 2,125,263 |
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| $ | 2,429,387 |
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Redeemable non-controlling interest |
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| 4,520 |
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| 3,839 |
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Shareholders' equity |
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Preferred shares, $0.01 par value, 250,000,000 authorized, none issued |
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| — |
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| — |
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| — |
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| — |
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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 |
|
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| 1,984 |
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| 1,926 |
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Common shares, $0.01 par value, 500,000,000 authorized, 189,346,101 and 190,486,041 issued and outstanding as of December 31, 2018 and June 30, 2019, respectively |
|
|
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| 1,888 |
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| 1,899 |
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Additional paid-in capital |
|
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| 1,384,468 |
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| 1,369,392 |
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|
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| 1,471,301 |
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| 1,520,025 |
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Retained earnings |
|
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| 358,121 |
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| 338,349 |
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| 438,453 |
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| 540,709 |
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Accumulated other comprehensive income (loss) |
|
|
|
| (457,925 | ) |
|
| (395,314 | ) | ||||||||||
Accumulated other comprehensive loss |
|
|
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| (507,460 | ) |
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| (479,263 | ) | ||||||||||
Total equity |
|
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| $ | 1,286,648 |
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| $ | 1,314,353 |
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| $ | 1,404,182 |
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| $ | 1,583,370 |
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Commitments and contingencies |
| 25 |
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| 27 |
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Total liabilities, redeemable non-controlling interest and equity |
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| $ | 2,885,880 |
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| $ | 3,349,891 |
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Total liabilities and equity |
|
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| $ | 3,529,445 |
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| $ | 4,012,757 |
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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, |
|
|
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| Nine months ended September 30, |
|
| Three months ended June 30, |
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| Six months ended June 30, |
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| Notes | 2016 (1) |
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| 2017 |
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| 2016 (1) |
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| 2017 |
| Notes | 2018 |
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| 2019 |
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| 2018 |
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| 2019 |
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Net revenues |
| $ | 648,783 |
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| $ | 708,824 |
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| $ | 1,889,009 |
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| $ | 2,002,516 |
| 19, 25 | $ | 728,561 |
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| $ | 881,799 |
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| $ | 1,417,473 |
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| $ | 1,691,005 |
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Cost of revenue | 19, 24 |
| 392,432 |
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| 429,191 |
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| 1,149,035 |
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| 1,227,821 |
| 20, 25 |
| 462,898 |
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| 571,244 |
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| 907,222 |
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| 1,090,381 |
| |
Gross profit |
| $ | 256,351 |
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| $ | 279,633 |
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| $ | 739,974 |
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| $ | 774,695 |
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| $ | 265,663 |
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| $ | 310,555 |
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| $ | 510,251 |
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| $ | 600,624 |
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Operating expenses: |
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Selling, general and administrative expenses | 20, 24 |
| 156,969 |
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| 172,095 |
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| 482,315 |
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| 500,854 |
| 21, 25 |
| 176,166 |
|
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| 196,312 |
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| 347,275 |
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| 387,714 |
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Amortization of acquired intangible assets | 10 |
| 7,126 |
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| 10,151 |
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|
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| 19,764 |
|
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| 25,780 |
| 10 |
| 9,826 |
|
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| 8,096 |
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| 19,762 |
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| 16,605 |
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Other operating (income) expense, net | 21 |
| 5,132 |
|
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| (64 | ) |
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|
| (4,791 | ) |
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| (8,517 | ) | 22 |
| 149 |
|
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| (55 | ) |
|
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| (69 | ) |
|
| 31 |
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Income from operations |
| $ | 87,124 |
|
| $ | 97,451 |
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| $ | 242,686 |
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| $ | 256,578 |
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| $ | 79,522 |
|
| $ | 106,202 |
|
|
| $ | 143,283 |
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| $ | 196,274 |
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Foreign exchange gains (losses), net |
|
| (654 | ) |
|
| 5,045 |
|
|
|
| 3,156 |
|
|
| 2,045 |
|
|
| 2,805 |
|
|
| 351 |
|
|
|
| 7,603 |
|
|
| (3,081 | ) | |
Interest income (expense), net | 22 |
| (4,901 | ) |
|
| (8,724 | ) |
|
|
| (11,172 | ) |
|
| (24,067 | ) | 23 |
| (10,407 | ) |
|
| (12,143 | ) |
|
|
| (18,507 | ) |
|
| (23,266 | ) | |
Other income (expense), net |
|
| 5,791 |
|
|
| (4,030 | ) |
|
|
| 7,172 |
|
|
| 9,011 |
| 26 |
| 9,748 |
|
|
| 560 |
|
|
|
| 25,298 |
|
|
| 4,363 |
| |
Income before equity-method investment activity, net and income tax expense |
| $ | 87,360 |
|
| $ | 89,742 |
|
|
|
| $ | 241,842 |
|
| $ | 243,567 |
|
| $ | 81,668 |
|
| $ | 94,970 |
|
|
| $ | 157,677 |
|
| $ | 174,290 |
|
Equity-method investment activity, net |
|
| (2,117 | ) |
|
| — |
|
|
|
|
| (6,336 | ) |
|
| (4,567 | ) |
|
| (15 | ) |
|
| (15 | ) |
|
|
| (15 | ) |
|
| (11 | ) |
Income before income tax expense |
| $ | 85,243 |
|
| $ | 89,742 |
|
|
|
| $ | 235,506 |
|
| $ | 239,000 |
|
| $ | 81,653 |
|
| $ | 94,955 |
|
|
| $ | 157,662 |
|
| $ | 174,279 |
|
Income tax expense | 23 |
| 17,055 |
|
|
| 16,581 |
|
|
|
|
| 44,026 |
|
|
| 44,297 |
| 24 |
| 17,079 |
|
|
| 21,233 |
|
|
|
| 29,154 |
|
|
| 39,716 |
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Net income |
| $ | 68,188 |
|
| $ | 73,161 |
|
|
|
| $ | 191,480 |
|
| $ | 194,703 |
|
| $ | 64,574 |
|
| $ | 73,722 |
|
|
| $ | 128,508 |
|
| $ | 134,563 |
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Net loss attributable to redeemable non-controlling interest |
|
| 734 |
|
|
| 584 |
|
|
|
|
| 1,905 |
|
|
| 1,326 |
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Net income attributable to redeemable non-controlling interest |
|
| - |
|
|
| - |
|
|
|
| 761 |
|
|
| - |
| ||||||||||||||||||
Net income attributable to Genpact Limited shareholders |
| $ | 68,922 |
|
| $ | 73,745 |
|
|
|
| $ | 193,385 |
|
| $ | 196,029 |
|
| $ | 64,574 |
|
| $ | 73,722 |
|
|
| $ | 129,269 |
|
| $ | 134,563 |
|
Net income available to Genpact Limited common shareholders | 18 | $ | 68,922 |
|
| $ | 73,745 |
|
|
| $ | 193,385 |
|
| $ | 196,029 |
|
| $ | 64,574 |
|
| $ | 73,722 |
|
|
| $ | 129,269 |
|
| $ | 134,563 |
| |
Earnings per common share attributable to Genpact Limited common shareholders | 18 |
|
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| 18 |
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| |
Basic |
| $ | 0.33 |
|
| $ | 0.38 |
|
|
|
| $ | 0.93 |
|
| $ | 1.01 |
|
| $ | 0.34 |
|
| $ | 0.39 |
|
|
| $ | 0.68 |
|
| $ | 0.71 |
|
Diluted |
| $ | 0.33 |
|
| $ | 0.38 |
|
|
|
| $ | 0.91 |
|
| $ | 0.99 |
|
| $ | 0.33 |
|
| $ | 0.38 |
|
|
| $ | 0.66 |
|
| $ | 0.69 |
|
Weighted average number of common shares used in computing earnings per common share attributable to Genpact Limited common shareholders |
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| 18 |
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|
|
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| |
Basic |
|
| 206,146,007 |
|
|
| 192,124,366 |
|
|
|
| 209,034,741 |
|
|
| 194,221,162 |
|
|
| 190,132,664 |
|
|
| 190,163,359 |
|
|
|
| 191,474,645 |
|
|
| 189,807,602 |
| |
Diluted |
|
| 209,376,683 |
|
|
| 194,947,699 |
|
|
|
| 212,357,594 |
|
|
| 197,112,014 |
|
|
| 193,365,974 |
|
|
| 194,766,047 |
|
|
|
| 194,827,272 |
|
|
| 194,080,127 |
| |
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| |||||||||||||||
(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. |
| ||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
| ||||||||||||||||||
|
|
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|
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|
|
|
|
|
|
|
|
|
|
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, |
| Three months ended June 30, |
|
| Six months ended June 30, |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2016 (1) |
|
| 2017 |
|
| 2016 (1) |
|
| 2017 |
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2019 |
| ||||||||||||||||||||||||||||||||||||||||
| 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 |
| 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 | ) | |||||||||||||||||||||||||||||||
Net income (loss) | $ | 64,574 |
|
| $ | — |
|
| $ | 73,722 |
|
| $ | — |
|
| $ | 129,269 |
|
| $ | (761 | ) |
| $ | 134,563 |
|
| $ | — |
| |||||||||||||||||||||||||||||||
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustments |
| 11,224 |
|
|
| 14 |
|
|
| (4,185 | ) |
|
| (256 | ) |
|
| (8,614 | ) |
|
| 53 |
|
|
| 67,527 |
|
|
| (334 | ) |
| (73,681 | ) |
|
| — |
|
|
| 4,236 |
|
|
| — |
|
|
| (83,016 | ) |
|
| (424 | ) |
|
| 14,727 |
|
|
| — |
|
Net income (loss) on cash flow hedging derivatives, net of taxes (Note 7) |
| 19,772 |
|
|
| — |
|
|
| (14,874 | ) |
|
| — |
|
|
| 18,187 |
|
|
| — |
|
|
| (5,627 | ) |
|
| — |
|
| (27,879 | ) |
|
| — |
|
|
| (113 | ) |
|
| — |
|
|
| (46,811 | ) |
|
| — |
|
|
| 13,043 |
|
|
| — |
|
Retirement benefits, net of taxes |
| 561 |
|
|
| — |
|
|
| 369 |
|
|
| — |
|
|
| 701 |
|
|
| — |
|
|
| 711 |
|
|
| — |
|
| 617 |
|
|
| — |
|
|
| 217 |
|
|
| — |
|
|
| 1,130 |
|
|
| — |
|
|
| 427 |
|
|
| — |
|
Other comprehensive income (loss) | $ | 31,557 |
|
| $ | 14 |
|
| $ | (18,690 | ) |
| $ | (256 | ) |
| $ | 10,274 |
|
| $ | 53 |
|
| $ | 62,611 |
|
| $ | (334 | ) |
| (100,943 | ) |
|
| — |
|
|
| 4,340 |
|
|
| — |
|
|
| (128,697 | ) |
|
| (424 | ) |
|
| 28,197 |
|
|
| — |
|
Comprehensive income (loss) | $ | 100,479 |
|
| $ | (720 | ) |
| $ | 55,055 |
|
| $ | (840 | ) |
| $ | 203,659 |
|
| $ | (1,852 | ) |
| $ | 258,640 |
|
| $ | (1,660 | ) | $ | (36,369 | ) |
| $ | — |
|
| $ | 78,062 |
|
| $ | — |
|
| $ | 572 |
|
| $ | (1,185 | ) |
| $ | 162,760 |
|
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
(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
For the six months ended June 30, 2018
(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. |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| Common shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
| No. of Shares |
|
| Amount |
|
| Additional Paid- in Capital |
|
| Retained Earnings |
|
| Accumulated Other Comprehensive Income (Loss) |
| Total Equity |
|
| Redeemable 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 2014-091 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 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) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (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 acquisition 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 ($0.15 per common share, 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 |
|
| $ | — |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
1 Pursuant to transition to topic 606, Revenue from contract with customers, effective January 1, 2018 |
|
See accompanying notes to the Consolidated Financial Statements.
4
GENPACT LIMITED AND ITS SUBSIDIARIES
Consolidated Statements of Equity and Redeemable Non-controlling Interest
For the three months ended June, 30 2018
(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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| Common shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
| No. of Shares |
|
| Amount |
|
| Additional Paid- in Capital |
|
| Retained Earnings |
|
| Accumulated Other Comprehensive Income (Loss) |
|
| Total Equity |
|
|
|
| Redeemable non-controlling interest |
| |||||||
Balance as of April 1, 2018 |
|
| 190,613,135 |
|
| $ | 1,903 |
|
| $ | 1,422,897 |
|
| $ | 321,916 |
|
| $ | (380,719 | ) |
| $ | 1,365,997 |
|
|
|
| $ | — |
|
Issuance of common shares on exercise of options (Note 16) |
|
| 204,545 |
|
|
| 2 |
|
|
| 3,658 |
|
|
| — |
|
|
| — |
|
|
| 3,660 |
|
|
|
|
| — |
|
Issuance of common shares under the employee stock purchase plan (Note 16) |
|
| 56,475 |
|
|
| — |
|
|
| 1,526 |
|
|
| — |
|
|
| — |
|
|
| 1,526 |
|
|
|
|
| — |
|
Net settlement on vesting of restricted share units (Note 16) |
|
| 100,789 |
|
|
| 1 |
|
|
| (946 | ) |
|
| — |
|
|
| — |
|
|
| (945 | ) |
|
|
|
| — |
|
Net settlement on vesting of performance units (Note 16) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
|
|
| — |
|
Stock repurchased and retired (Note 17) |
|
| (1,098,883 | ) |
|
| (11 | ) |
|
| — |
|
|
| (34,108 | ) |
|
| — |
|
|
| (34,119 | ) |
|
|
|
| — |
|
Expenses related to stock repurchase (Note 17) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (22 | ) |
|
| — |
|
|
| (22 | ) |
|
|
|
| — |
|
Stock-based compensation expense (Note 16) |
|
| — |
|
|
| — |
|
|
| 10,937 |
|
|
| — |
|
|
| — |
|
|
| 10,937 |
|
|
|
|
| — |
|
Payment for purchase of redeemable non-controlling interest |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
|
|
| — |
|
Comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 64,574 |
|
|
| — |
|
|
| 64,574 |
|
|
|
|
| — |
|
Other comprehensive income (loss) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (100,943 | ) |
|
| (100,943 | ) |
|
|
|
| — |
|
Dividend ($0.075 per common share, Note 17) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (14,240 | ) |
|
| — |
|
| $ | (14,240 | ) |
|
|
|
| — |
|
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 Equity and Redeemable Non-controlling Interest
For the six months ended June 30, 2019
(Unaudited)
(In thousands, except share count)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
| |
|
| Common shares |
|
|
|
|
|
|
|
|
|
| Other |
|
|
|
|
| ||||||
|
| No. of Shares |
|
| Amount |
|
| Additional Paid- in Capital |
|
| Retained Earnings |
|
| Comprehensive Income (Loss) |
|
| Total Equity |
| ||||||
Balance as of January 1, 2019 |
|
| 189,346,101 |
|
| $ | 1,888 |
|
| $ | 1,471,301 |
|
| $ | 438,453 |
|
| $ | (507,460 | ) |
| $ | 1,404,182 |
|
Issuance of common shares on exercise of options (Note 16) |
|
| 506,497 |
|
|
| 5 |
|
|
| 7,272 |
|
|
| — |
|
|
| — |
|
|
| 7,277 |
|
Issuance of common shares under the employee stock purchase plan (Note 16) |
|
| 134,346 |
|
|
| 1 |
|
|
| 4,199 |
|
|
| — |
|
|
| — |
|
|
| 4,200 |
|
Net settlement on vesting of restricted share units (Note 16) |
|
| 499,097 |
|
|
| 5 |
|
|
| (2,734 | ) |
|
| — |
|
|
| — |
|
|
| (2,729 | ) |
Net settlement on vesting of performance units (Note 16) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Stock-based compensation expense (Note 16) |
|
| — |
|
|
| — |
|
|
| 39,987 |
|
|
| — |
|
|
| — |
|
|
| 39,987 |
|
Comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 134,563 |
|
|
| — |
|
|
| 134,563 |
|
Other comprehensive income (loss) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 28,197 |
|
|
| 28,197 |
|
Dividend (0.17 per common share, Note 17) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (32,307 | ) |
|
| — |
|
|
| (32,307 | ) |
Balance as of June 30, 2019 |
|
| 190,486,041 |
|
| $ | 1,899 |
|
| $ | 1,520,025 |
|
| $ | 540,709 |
|
| $ | (479,263 | ) |
| $ | 1,583,370 |
|
See accompanying notes to the Consolidated Financial Statements.
6
GENPACT LIMITED AND ITS SUBSIDIARIES
Consolidated Statements of Equity and Redeemable Non-controlling Interest
(Unaudited)
For the three months ended June, 30 2019
(In thousands, except share count)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
| |
|
| Common shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Other |
|
|
|
|
|
|
| ||||||||
|
| No. of Shares |
|
|
|
| Amount |
|
|
|
| Additional Paid- in Capital |
|
|
|
| Retained Earnings |
|
|
|
| Comprehensive Income (Loss) |
|
|
|
| Total Equity |
| ||||||
Balance as of April 1, 2019 |
|
| 189,659,709 |
|
|
|
| $ | 1,891 |
|
|
|
| $ | 1,493,706 |
|
|
|
| $ | 483,175 |
|
|
|
| $ | (483,603 | ) |
|
|
| $ | 1,495,169 |
|
Issuance of common shares on exercise of options (Note 16) |
|
| 370,962 |
|
|
|
|
| 3 |
|
|
|
|
| 4,615 |
|
|
|
|
| — |
|
|
|
|
| — |
|
|
|
|
| 4,618 |
|
Issuance of common shares under the employee stock purchase plan (Note 16) |
|
| 69,477 |
|
|
|
|
| 1 |
|
|
|
|
| 2,260 |
|
|
|
|
| — |
|
|
|
|
| — |
|
|
|
|
| 2,261 |
|
Net settlement on vesting of restricted share units (Note 16) |
|
| 385,893 |
|
|
|
|
| 4 |
|
|
|
|
| (2,081 | ) |
|
|
|
| — |
|
|
|
|
| — |
|
|
|
|
| (2,077 | ) |
Net settlement on vesting of performance units (Note 16) |
|
| — |
|
|
|
|
| — |
|
|
|
|
| — |
|
|
|
|
| — |
|
|
|
|
| — |
|
|
|
|
| — |
|
Stock-based compensation expense (Note 16) |
|
| — |
|
|
|
|
| — |
|
|
|
|
| 21,525 |
|
|
|
|
| — |
|
|
|
|
| — |
|
|
|
|
| 21,525 |
|
Comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
| — |
|
|
|
|
| — |
|
|
|
|
| — |
|
|
|
|
| 73,722 |
|
|
|
|
| — |
|
|
|
|
| 73,722 |
|
Other comprehensive income (loss) |
|
| — |
|
|
|
|
| — |
|
|
|
|
| — |
|
|
|
|
| — |
|
|
|
|
| 4,340 |
|
|
|
|
| 4,340 |
|
Dividend ($0.085 per common share, Note 17) |
|
| — |
|
|
|
|
| — |
|
|
|
|
| — |
|
|
|
|
| (16,188 | ) |
|
|
|
| — |
|
|
|
|
| (16,188 | ) |
Balance as of June 30, 2019 |
|
| 190,486,041 |
|
|
|
|
| 1,899 |
|
|
|
|
| 1,520,025 |
|
|
|
|
| 540,709 |
|
|
|
|
| (479,263 | ) |
|
|
|
| 1,583,370 |
|
7
GENPACT LIMITED AND ITS SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
|
| Nine months ended September 30, |
|
| Six months ended June 30, |
| ||||||||||
|
| 2016 (1) |
|
|
| 2017 |
|
|
| 2018 |
|
|
| 2019 |
| |
Operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Genpact Limited shareholders |
| $ | 193,385 |
|
| $ | 196,029 |
|
| $ | 129,269 |
|
| $ | 134,563 |
|
Net loss attributable to redeemable non-controlling interest |
|
| (1,905 | ) |
|
| (1,326 | ) |
|
| (761 | ) |
|
| — |
|
Net income |
| $ | 191,480 |
|
| $ | 194,703 |
|
| $ | 128,508 |
|
| $ | 134,563 |
|
Adjustments to reconcile net income to net cash provided by (used for) operating activities: |
|
|
|
|
|
|
|
| ||||||||
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
| ||||||||
Depreciation and amortization |
|
| 40,366 |
|
|
| 42,271 |
|
|
| 31,613 |
|
|
| 45,708 |
|
Amortization of debt issuance costs |
|
| 1,150 |
|
|
| 1,382 |
| ||||||||
Amortization of debt issuance costs (including loss on extinguishment of debt) |
|
| 979 |
|
|
| 864 |
| ||||||||
Amortization of acquired intangible assets |
|
| 19,764 |
|
|
| 25,780 |
|
|
| 19,762 |
|
|
| 16,605 |
|
Intangible assets write-down |
|
| 11,195 |
|
|
| — |
| ||||||||
Write-down of intangible assets and property, plant and equipment |
|
| 850 |
|
|
| 3,511 |
| ||||||||
Reserve for doubtful receivables |
|
| 7,307 |
|
|
| 4,871 |
|
|
| 1,347 |
|
|
| 4,881 |
|
Unrealized loss (gain) on revaluation of foreign currency asset/liability |
|
| 1,304 |
|
|
| (9,296 | ) |
|
| (7,350 | ) |
|
| 3,107 |
|
Equity-method investment activity, net |
|
| 6,336 |
|
|
| 4,567 |
|
|
| 15 |
|
|
| 11 |
|
Stock-based compensation expense |
|
| 18,344 |
|
|
| 22,402 |
|
|
| 18,724 |
|
|
| 39,987 |
|
Deferred income taxes |
|
| 20,729 |
|
|
| (4,589 | ) |
|
| (4,194 | ) |
|
| (4,242 | ) |
Gain on divestiture |
|
| (5,214 | ) |
|
| — |
| ||||||||
Provision for expected loss on divestiture |
|
| — |
|
|
| 5,195 |
| ||||||||
Others, net |
|
| 29 |
|
|
| (5,261 | ) |
|
| 294 |
|
|
| (4,087 | ) |
Change in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in accounts receivable |
|
| (33,760 | ) |
|
| (30,687 | ) |
|
| (4,548 | ) |
|
| (86,329 | ) |
Increase in prepaid expenses, other current assets and other assets |
|
| (64,252 | ) |
|
| (56,230 | ) | ||||||||
Decrease in accounts payable |
|
| (397 | ) |
|
| (462 | ) | ||||||||
Increase/(decrease) in accrued expenses, other current liabilities and other liabilities |
|
| (14,797 | ) |
|
| 27,723 |
| ||||||||
Increase in prepaid expenses, other current assets, contract cost assets, operating lease right-of-use assets and other assets |
|
| (71,559 | ) |
|
| (68,115 | ) | ||||||||
Increase (decrease) in accounts payable |
|
| 6,289 |
|
|
| (17,407 | ) | ||||||||
Increase (decrease) in accrued expenses, other current liabilities, operating lease liabilities and other liabilities |
|
| (96,965 | ) |
|
| 23,730 |
| ||||||||
Increase in income taxes payable |
|
| 36,420 |
|
|
| 41,324 |
|
|
| 25,719 |
|
|
| 28,255 |
|
Net cash provided by operating activities |
| $ | 236,004 |
|
| $ | 263,693 |
|
| $ | 49,484 |
|
| $ | 121,042 |
|
Investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment & intangibles |
|
| (64,441 | ) |
|
| (56,460 | ) | ||||||||
Purchase of property, plant and equipment |
|
| (37,703 | ) |
|
| (30,392 | ) | ||||||||
Payment for internally generated intangible assets (including intangibles under development) |
|
| (11,544 | ) |
|
| (16,501 | ) | ||||||||
Proceeds from sale of property, plant and equipment |
|
| 334 |
|
|
| 1,648 |
|
|
| 309 |
|
|
| 1,562 |
|
Investment in equity affiliates |
|
| (7,519 | ) |
|
| (496 | ) | ||||||||
Payment for business acquisitions, net of cash acquired |
|
| (41,558 | ) |
|
| (277,549 | ) |
|
| (728 | ) |
|
| (6,305 | ) |
Proceeds from divestiture of business, net of cash divested |
|
| 17,582 |
|
|
| — |
| ||||||||
Payment for purchase of redeemable non-controlling interest |
|
| (4,730 | ) |
|
| — |
| ||||||||
Net cash used for investing activities |
| $ | (95,602 | ) |
| $ | (332,857 | ) |
| $ | (54,396 | ) |
| $ | (51,636 | ) |
Financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayment of capital lease obligations |
|
| (1,344 | ) |
|
| (2,199 | ) | ||||||||
Payment of debt issuance costs |
|
| — |
|
|
| (1,481 | ) | ||||||||
Proceeds from long-term debt |
|
| — |
|
|
| 350,000 |
| ||||||||
Repayment of capital/finance lease obligations |
|
| (1,108 | ) |
|
| (4,102 | ) | ||||||||
Repayment of long-term debt |
|
| (30,000 | ) |
|
| (30,000 | ) |
|
| (20,000 | ) |
|
| (17,000 | ) |
Proceeds from short-term borrowings |
|
| 155,000 |
|
|
| 275,000 |
|
|
| 105,000 |
|
|
| 50,000 |
|
Repayment of short-term borrowings |
|
| (61,500 | ) |
|
| (275,000 | ) |
|
| (60,000 | ) |
|
| (55,000 | ) |
Proceeds from issuance of common shares under stock-based compensation plans |
|
| 12,808 |
|
|
| 12,834 |
|
|
| 9,388 |
|
|
| 11,477 |
|
Payment for net settlement of stock-based awards |
|
| (461 | ) |
|
| (10,296 | ) |
|
| (14,229 | ) |
|
| (2,729 | ) |
Payment of earn-out/deferred consideration |
|
| (1,406 | ) |
|
| (6,219 | ) |
|
| (1,476 | ) |
|
| (10,470 | ) |
Dividend paid |
|
| — |
|
|
| (35,096 | ) |
|
| (28,648 | ) |
|
| (32,307 | ) |
Payment for stock purchased and retired |
|
| (242,552 | ) |
|
| (219,784 | ) | ||||||||
Payment for expenses related to stock purchase |
|
| (192 | ) |
|
| (16 | ) | ||||||||
Net cash provided by (used for) financing activities |
| $ | (169,647 | ) |
| $ | 57,743 |
| ||||||||
Payment for stock repurchased and retired |
|
| (130,103 | ) |
|
| — |
| ||||||||
Payment for expenses related to stock repurchase |
|
| (82 | ) |
|
| — |
| ||||||||
Net cash used for financing activities |
| $ | (141,258 | ) |
| $ | (60,131 | ) | ||||||||
Effect of exchange rate changes |
|
| (2,570 | ) |
|
| 28,853 |
|
|
| (24,395 | ) |
|
| 359 |
|
Net increase (decrease) in cash and cash equivalents |
|
| (29,245 | ) |
|
| (11,421 | ) |
|
| (146,170 | ) |
|
| 9,275 |
|
Cash and cash equivalents at the beginning of the period |
|
| 450,907 |
|
|
| 422,623 |
|
|
| 504,468 |
|
|
| 368,396 |
|
Cash and cash equivalents at the end of the period |
| $ | 419,092 |
|
| $ | 440,055 |
|
| $ | 333,903 |
|
| $ | 378,030 |
|
Supplementary information |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for interest |
| $ | 13,267 |
|
| $ | 23,414 |
|
| $ | 21,808 |
|
| $ | 23,384 |
|
Cash paid during the period for income taxes |
| $ | 40,294 |
|
| $ | 46,935 |
|
| $ | 34,809 |
|
| $ | 37,060 |
|
Property, plant and equipment acquired under capital lease obligations |
| $ | 1,667 |
|
| $ | 1,944 |
| ||||||||
|
|
|
|
|
|
|
|
| ||||||||
(1) Income taxes, net income and cash flows for the 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. |
| |||||||||||||||
|
|
|
|
|
|
|
|
| ||||||||
Property, plant and equipment acquired under capital/finance lease obligations |
| $ | 668 |
|
| $ | 7,188 |
|
See accompanying notes to the Consolidated Financial Statements.Statements
6
8
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
1. Organization
The Company is a global professional services firm focused on driving digital-ledthat drives digitally-led innovation and runningruns digitally-enabled intelligent operations for its clients. Guidedclients, guided by its experience running thousands of processes for hundreds of Fortune Global 500 clients since its founding, the Company strives to help its clients achieve their operational goals by applying its industry expertise, proprietary digital technology and analytics. clients. The Company employshas over 77,000 people90,000 employees serving clients in key industry verticals from more than 2030 countries.
Prior to December 30, 2004, the business of the Company was conducted through various entities and divisions of GE. On December 30, 2004, GE transferred such operations to the Company. In August 2007, the Company completed an initial public offering of its common shares. On October 25, 2012, Glory Investments A Limited (“Glory Investments”), formerly known as South Asia Private Investments, an affiliate of Bain Capital Investors, LLC, became the Company’s largest shareholder when, together with its affiliated assignees and two additional co-investors, it purchased 67,750,678 common shares of the Company from the Company’s initial investors. On August 18, 2017, Glory Investments and its affiliated assignees, together with one of its co-investors, sold 10,000,000 common shares of the Company in an underwritten public offering. The Company did not receive any proceeds from the offering.
2. Summary of significant accounting policies
(a) Basis of preparation and principles of consolidation
The unaudited interim consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) for interim financial information and the rules and regulations of the Securities and Exchange Commission for reporting on Form 10-Q. Accordingly, they do not include certain information and note disclosures required by generally accepted accounting principles for annual financial reporting and should be read in conjunction with the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.2018.
The unaudited interim consolidated financial statements reflect all adjustments that management considers necessary for a fair presentation of the results of operations for these periods. The results of operations for interim periods are not necessarily indicative of results for the full year.
The accompanying unaudited interim consolidated financial statements have been prepared on a consolidated basis and reflect the financial statements of Genpact Limited, a Bermuda company, and all of its subsidiaries that are more than 50% owned and controlled. When the Company does not have a controlling interest in an entity but exerts significant influence on the entity, the Company applies the equity method of accounting. All intercompany transactions and balances are eliminated in consolidation.
Non-controlling interest in subsidiaries that is redeemable outside of the Company’s control for cash or other assets is reflected in the mezzanine section between liabilities and equity in the consolidated balance sheets at the redeemable value, which approximates fair value. Redeemable non-controlling interest is adjusted to its fair value at each balance sheet date. Any resulting increases or decreases in the estimated redemption amount are affected by corresponding changes to retained earnings.additional paid in capital. The Company’s share of non-controlling interest in subsidiary earnings is reflected in net loss (income) attributable to redeemable non-controlling interest in the consolidated statements of income.
(b) Use of estimates
The preparation of consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements. Significant items subject to such estimates and assumptions include the useful lives of property, plant and equipment, intangibles and goodwill, revenue recognition, reserves for doubtful receivables, valuation allowances for deferred tax assets, the valuationvaluations of derivative financial instruments, the measurement of lease liabilities and right-of-use (ROU) assets, measurements of stock-based compensation, assets and obligations related to employee benefits, the nature and timing of the satisfaction of performance obligations, the standalone selling price of performance obligations, variable consideration, other obligations for revenue recognition, income tax uncertainties and other contingencies. Management believes that the estimates used in the preparation of the consolidated financial statements are reasonable. Although these estimates are based upon management’s best knowledge of current events and actions, actual results could differ from these estimates. Any changes in estimates are adjusted prospectively in the Company’s consolidated financial statements.
79
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
2. Summary of significant accounting policies (Continued)
(c) Business combinations, goodwill and other intangible assets
The Company accounts for its business combinations using the acquisition method of accounting in accordance with ASC 805, Business Combinations, by recognizing the identifiable tangible and intangible assets acquired and liabilities assumed, and any non-controlling interest in the acquired business, measured at their acquisition date fair values. Contingent consideration is included within the acquisition cost and is recognized at its fair value on the acquisition date. A liability resulting from contingent consideration is remeasured to fair value as of each reporting date until the contingency is resolved. Changes in fair value are recognized in earnings. All assets and liabilities of the acquired businesses, including goodwill, are assigned to reporting units. Acquisition-related costs are expensed as incurred under Selling, Generalselling, general and Administrative Expenses.administrative expenses.
Goodwill represents the cost of acquired businesses in excess of the fair value of identifiable tangible and intangible net assets purchased. Goodwill is not amortized but is tested for impairment at least on an annual basis on December 31, based on a number of factors, including operating results, business plans and future cash flows. The Company performs an assessment of qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. Based on the assessment of events or circumstances, the Company performs a quantitative assessment of goodwill impairment if it determines that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, based on the quantitative impairment analysis, the carrying value of the goodwill of a reporting unit exceeds the fair value of such goodwill, an impairment loss is recognized in an amount equal to the excess. In addition, the Company performs a qualitative assessment of goodwill impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. See Note 10 for information and related disclosures.
Intangible assets acquired individually or with a group of other assets or in a business combination and developed internally are carried at cost less accumulated amortization based on their estimated useful lives as follows:
Customer-related intangible assets |
|
|
Marketing-related intangible assets |
| 1-10 years |
Technology-related intangible assets |
| 2-8 years |
Other intangible assets |
|
|
10
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
2. Summary of significant accounting policies (Continued)
Intangible assets are amortized over their estimated useful lives using a method of amortization that reflects the pattern in which the economic benefits of the intangible assets are consumed or otherwise realized.
In business combinations where the fair value of identifiable tangible and intangible net assets purchased exceeds the cost of the acquired business, the Company recognizes the resulting gain under “Other operating (income) expense, net” in the Consolidated Statementsconsolidated statements of Income.income.
(d) Financial instruments and concentration of credit risk
Financial instruments that potentially subject the Company to concentration of credit risk are reflected principally in cash and cash equivalents, derivative financial instruments and accounts receivable. The Company places its cash and cash equivalents and derivative financial instruments with corporations and banks with high investment grade ratings, limits the amount of credit exposure with any one corporation or bank and conducts ongoing evaluations of the creditworthiness of the corporations and banks with which it does business. To reduce its credit risk on accounts receivable, the Company conducts ongoing credit evaluations of its clients. GEThe General Electric Company (“GE”) accounted for 15%11% and 11%17% of receivables as of December 31, 20162018 and SeptemberJune 30, 2017,2019, respectively. GE accounted for 15%10% and 10% 14%of total revenue for the ninesix months ended SeptemberJune 30, 20162018 and 2017, respectively,2019, respectively.
(e) Accounts receivable
Accounts receivable are recorded at the invoiced or to be invoiced amount and 17%do not bear interest. Amounts collected on trade accounts receivable are included in net cash provided by operating activities in the consolidated statements of cash flows. The Company maintains an allowance for doubtful accounts for estimated losses inherent in its accounts receivable portfolio. In establishing the required allowance, management considers historical losses adjusted to take into account current market conditions and 10%clients’ financial condition, the amount of totalreceivables in dispute, and the current receivables’ aging and current payment patterns. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any off-balance-sheet credit exposure related to its clients.
(f) Revenue Recognition
The Company derives its revenue primarily from business process management including analytics, consulting and related digital solutions and information technology services which are provided primarily on a time-and-material, transaction or fixed-price basis. The Company recognizes revenue when the promised services are delivered to customers for an amount that reflects the three months ended September 30, 2016consideration to which the Company expects to be entitled in exchange for those services. Revenues from services rendered under time-and-material and 2017, respectively.transaction-based contracts are recognized as the services are provided. The Company’s fixed-price contracts include contracts for application development, maintenance and support services. Revenues from these contracts are recognized ratably over the term of the agreement. The Company accrues for revenue and unbilled receivables for services rendered between the last billing date and the balance sheet date.
8
The Company’s customer contracts sometimes also include incentive payments received for discrete benefits delivered or promised to be delivered to clients or service level agreements that could result in credits or refunds to the client. Revenues relating to such arrangements are accounted for as variable consideration when the amount of revenue to be recognized can be estimated to the extent that it is probable that a significant reversal of any incremental revenue will not occur.
11
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
2. Summary of significant accounting policies (Continued)
(e) Recently issued accounting pronouncements
The authoritative bodies release standards and guidance which are assessed by management for impact on the Company’s consolidated financial statements.
The Company has adopted the following recently released accounting standard:
In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvementrecords deferred revenue attributable to Employee Share-Based Payment Accounting. The new standard contains several amendments that will simplify the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, statutory tax withholding requirements, classification of awards as either equity orcertain process transition activities where such activities do not represent separate performance obligations. Revenues relating to such transition activities are classified under contract liabilities and classification onsubsequently recognized ratably over the statement of cash flows. The changes in the new standard eliminate the requirement for excess tax benefits to be recognized in additional paid-in capital and tax deficiencies recognized either in income tax expense or in additional paid-in capital. In the quarter ended December 31, 2016, the Company elected to early adopt ASU 2016-09 effective January 1, 2016 and will continue to apply ASU 2016-09 using a modified retrospective approach. The treatment of forfeitures has not changed as the Company is electing to continue its current process of estimating the number of forfeitures. With the early adoption of ASU 2016-09, the Company has elected to present the cash flow statement on a prospective transition method and no prior periods have been adjusted. As a result, the Company’s income taxes, net income, cash flows, retained earnings, additional paid-in capital, and basic and diluted net income per common share for corresponding periods in 2016 have been restated due to the adoption of ASU No. 2016-09.
In addition, the Company has adopted the following recently released accounting standards. Adoption of these standards did not have a material impact on the Company’s consolidated results of operations, cash flows, financial position or disclosures:
Effective January 1, 2016, the Company adopted FASB ASU 2015-01 (Topic 225), Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items (“ASU 2015-01”). Such items are defined as transactions or events that are both unusual in nature and infrequent in occurrence, and, currently, are required to be presented separately in the income statement, net of income tax, after income from continuing operations. The changes eliminate the concept of an extraordinary item and, therefore, the presentation of such items will no longer be required. Notwithstanding this change, the Company will still be required to present and disclose a transaction or event that is both unusual in nature and infrequent in occurrence in the notes to the financial statements.
Effective January 1, 2016, the Company adopted FASB ASU 2015-05 (Topic 350), Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement (“ASU 2015-05”), which provides explicit guidance to evaluate the accounting for fees paid by a customer in a cloud computing arrangement. The new guidance clarifies that if a cloud computing arrangement includes a software license, the customer should account for the license consistent with its accounting for other software licenses. If the arrangement does not include a software license, the customer should account for the arrangement as a service contract.
Effective January 1, 2016, the Company adopted FASB ASU 2015-16 (Topic 805), Business Combinations (“ASU 2015-16”), which eliminates the requirement for an acquirer in a business combination to account for measurement-period adjustments retrospectively. The guidance requires that the acquirer shall recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amountsrelated services are determined.
Effective January 1, 2016, the Company adopted FASB ASU 2015-02. In February 2015, the FASB issued ASU No. 2015-02, Amendmentperformed. Costs relating to such transition activities are fulfillment costs which are directly related to the Consolidation Analysis, which specifies changescontract and result in the generation or enhancement of resources. Such costs are expected to be recoverable under the analysis that an entity must perform to determine whether it should consolidate certain typescontract and are therefore classified as contract cost assets and recognized ratably over the estimated expected period of legal entities. These changes (i) modify the evaluationbenefit under cost of whether limited partnershipsrevenue.
Revenues are reported net of value-added tax, business tax and similar legal entities are variable interest entities or voting interest entities, (ii) eliminate the presumption that a general partner should consolidate a limited partnership, (iii) affect the consolidation analysisapplicable discounts and allowances. Reimbursements of reporting entitiesout-of-pocket expenses received from clients have been included as part of revenues.
Revenue for performance obligations that are involved with variable interest entities, particularly those that have fee arrangements and related party relationships, and (iv) provide a scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operatesatisfied over time is recognized in accordance with requirements thatthe methods prescribed for measuring progress. The input (effort or cost expended) method has been used to measure progress towards completion as there is a direct relationship between input and productivity. Provisions for estimated losses, if any, on uncompleted contracts are similar to thoserecorded in Rule 2a-7the period in which such losses become probable based on the current contract estimates.
The Company enters into multiple-element revenue arrangements in which a client may purchase a combination of products or services. Revenue from multiple-element arrangements is recognized, for each element, based on an allocation of the Investment Company Act of 1940 for registered money market funds.transaction price to each performance obligation on a relative standalone basis.
Effective January 1, 2017,Certain contracts may include offerings such as sale of licenses, which may be perpetual or subscription-based. Revenue from distinct perpetual licenses is recognized upfront at the Company adopted FASB ASU 2016-06, Derivatives and Hedging (Topic 815). The amendmentspoint in this update clarifytime when the requirements for assessing whether contingent call (put) optionssoftware is made available to the client. Revenue from distinct subscription-based licenses is recognized at the point in time it is transferred to the client. Revenue from any associated maintenance or ongoing support services is recognized ratably over the term of the contract. For a combined software license/services performance obligation, revenue is recognized over the period that can accelerate the payment of principal on debt instrumentsservices are clearly and closely related to their debt hosts. An entity performing the assessment under the amendments in this update is required to assess the embedded call (put) options solely in accordance with a four-step decision sequence.performed.
9All incremental and direct costs incurred for acquiring contracts, such as certain sales commissions, are classified as contract cost assets. Such costs are amortized over the expected period of benefit and recorded under selling, general and administrative expenses.
Other upfront fees paid to clients are classified as contract assets. Such costs are amortized over the expected period of benefit and recorded as an adjustment to the transaction price and subtracted from revenue.
12
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
2. Summary of significant accounting policies (Continued)
Timing of revenue recognition may differ from the timing of invoicing. If a payment is received in respect of services prior to the delivery of services, the payment is recognized as an advance from the client and classified as a contract liability. Contract assets and contract liabilities relating to the same client contract are offset against each other and presented on a net basis in the consolidated financial statements.
Significant judgments
The following recently released accounting standards have not yet been adopted byCompany often enters into contracts with its clients that include promises to transfer multiple products and services to the Company:client. Determining whether products and services are considered distinct performance obligations that should be accounted for separately rather than together may require significant judgment.
Judgment is also required to determine the standalone selling price for each distinct performance obligation. In May 2014,instances where the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers,standalone selling price is not directly observable, it is determined using information that may include market conditions and other observable inputs.
Client contracts sometimes include incentive payments received for discrete benefits delivered to clients or service level agreements that could result in credits or refunds to the client. Such amounts are estimated at contract inception and are adjusted at the end of each reporting period as additional information becomes available only to the extent that it is probable that a significant reversal of any incremental revenue will not occur.
(g) Changes in accounting policies
Except as described below, the Company has applied accounting policies consistently to all periods presented in these consolidated financial statements. The Company adopted Accounting Standards Codification Topic 842, Leases (“Topic 842”), effective January 1, 2019. The Company applied Topic 842 using the modified retrospective adoption approach, which will replace most existing revenue recognition guidanceinvolves recognizing new right-of-use (“ROU”) assets and lease liabilities in U.S. GAAP. The core principleits statement of financial position for various operating leases. Therefore, comparative information has not been adjusted and continues to be reported under ASC Topic 840.
As a result of the ASUCompany’s adoption of this new standard, all leases are classified as either operating leases or finance leases and are recorded on the balance sheet. The accounting for finance leases (capital leases under ASC 840) is that an entity should recognize revenue for the transfer of goods or services equal to the amount that it expects to be entitled to receive for those goods or services. The ASU requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments. Subsequently, the FASB issued ASU No. 2017-13, in September 2017, ASU No. 2016-08, “Principal versus Agent Considerations (Reporting Gross versus Net),” in March 2016, ASU No. 2016-10, “Identifying performance obligations and licensing,” in April 2016, and ASU 2016-20 “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers” in December 2016, which amend and clarify ASU 2014-09. These ASUs will be effective for the Company beginning January 1, 2018, including interim periods in the fiscal year 2018, and allow for both retrospective and prospective adoption.substantially unchanged. The Company has performed an initial assessmentelected the “package of practical expedients,” which allows the impact of the ASU and developed a transition plan, including necessary changesCompany not to policies, processes, and internal controls as well as system enhancements to generate the information necessary forreassess, under the new disclosures. The implementation plan is on schedule for adoption on January 1, 2018standard, its prior conclusions about lease identification, lease classification and the Company will apply the cumulative effect method as its transition approach.initial direct costs. The Company expects revenuehas also elected the practical expedients to not separate lease and non-lease components for all of its leases and to use the recognition acrossexemptions for lease contracts that, at the portfolio of services to remain largely unchanged, however there would be an impact on the timing of recognition of certain contract costs, which would now be amortized over the contract period as against being previously expensed off. Based on the analysis completed tocommencement date, the Company does not currently expect that the ASU will have a material impact on consolidated revenue in its Consolidated Financial Statements. Company’s preliminary assessments are subject to change.lease term of 12
In February 2016, the FASB issued ASU No. 2016-02, “Leases.” The core principlemonths or less and do not contain a purchase option (“short-term leases”). As of the ASU is that a lessee should recognize the assets and liabilities that arise from its leases other than those that meet the definition of a short-term lease. The ASU requires extensive qualitative and quantitative disclosures, including with respect to significant judgments made by management. Subsequently, the FASB issued ASU No. 2017-13, in September 2017, which amends and clarifies ASU 2016-02. The ASU will be effective for the Company beginning January 1, 2019, including interim periods in the fiscal year 2019. Early adoption is permitted.date of the Company’s initial application of ASC 842, the Company recognized its lease liabilities measured as the present value of lease payments not yet paid, discounted using the discount rate for the lease as of the date of initial application. The ROU asset for each existing lease as of the date of initial application includes an initial measurement of the lease liability adjusted for any lease payments made to the lessor at or before the date of initial application, accrued lease payments and any lease incentives received or any initial direct costs incurred by the Company is inas of the processdate of determining the methodinitial application. As a result of adoption of the ASC 842, the Company recognized additional lease liabilities of $328,978, and assessing the impactROU assets of this ASU on its consolidated results of operations, cash flows, financial position and disclosures.$309,687.
In October 2016, the FASB issued ASU 2016-16, “Intra-Entity Transfers of Assets Other Than Inventory.” The new guidance eliminates the exception for deferment of tax recognition until the transferred asset is sold to a third party or otherwise recovered through use for all intra-entity sales of assets other than inventory. The ASU is effective for the Company beginning January 1, 2018, including interim periods in the fiscal year 2018. Early adoption is permitted. The Company does not expect the adoption of this update to have a material impact on its consolidated results of operations, cash flows, financial position or disclosures.
In January 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business.” The new guidance revises the definition of a business. The definition of a business affects many areas of accounting (e.g., acquisitions, disposals, goodwill impairment, consolidation). The ASU is effective for the Company beginning January 1, 2018, including interim periods in the fiscal year 2018. Early adoption is permitted. The Company is in the process of assessing the impact of this ASU on its consolidated results of operations, cash flows, financial position and disclosures.
In March 2017, the FASB issued ASU 2017-07, “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” The ASU requires entities to (1) disaggregate the current-service-cost component from the other components of net benefit cost (the “other components”) and present it with other current compensation costs for related employees in the income statement and (2) present the other components elsewhere in the income statement and outside of income from operations if that subtotal is presented. In addition, the ASU requires entities to disclose the income statement lines that contain the other components if they are not presented on appropriately described separate lines. The ASU is effective for the Company beginning January 1, 2018, including interim periods in the fiscal year 2018. The Company is in the process of assessing the impact of this ASU on its consolidated results of operations, cash flows, financial position and disclosures.
1013
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
2. Summary of significant accounting policies (Continued)
Leases (effective January 1, 2019)
At the inception of a contract, the Company assesses whether the contract is, or contains, a lease. The Company’s assessment is based on: (1) whether the contract involves the use of a distinct identified asset, (2) whether the Company obtains the right to substantially all the economic benefit from the use of the asset throughout the term of the contract, and (3) whether the Company has the right to direct the use of the asset. At the inception of a lease, the consideration in the contract is allocated to each lease component based on its relative standalone price to determine the lease payments. Leases entered into prior to January 1, 2019 have been accounted for under ASC 840 and were not reassessed.
Leases are classified as either finance leases or operating leases. A lease is classified as a finance lease if any one of the following criteria are met: (1) the lease transfers ownership of the asset by the end of the lease term, (2) the lease contains an option to purchase the asset that is reasonably certain to be exercised, (3) the lease term is for a major part of the remaining useful life of the asset or (4) the present value of the lease payments equals or exceeds substantially all of the fair value of the asset. A lease is classified as an operating lease if it does not meet any one of the above criteria.
For all leases at the lease commencement date, a ROU asset and a lease liability are recognized. The lease liability represents the present value of the lease payments under the lease. Lease liabilities are initially measured at the present value of the lease payments not yet paid, discounted using the discount rate for the lease at lease commencement. The lease liabilities are subsequently measured on an amortized cost basis. The lease liability is adjusted to reflect interest on the liability and the lease payments made during the period. Interest on the lease liability is determined as the amount that results in a constant periodic discount rate on the remaining balance of the liability.
The ROU asset represents the right to use the leased asset for the lease term. The ROU asset for each lease initially includes the amount of the initial measurement of the lease liability adjusted for any lease payments made to the lessor at or before the commencement date, accrued lease liabilities and any lease incentives received or any initial direct costs incurred by the Company.
The ROU asset of finance leases is subsequently measured at cost, less accumulated amortization and any accumulated impairment losses. The ROU asset of operating leases is subsequently measured from the carrying amount of the lease liability at the end of each reporting period, and is therefore equal to the carrying amount of lease liabilities adjusted for (1) unamortized initial direct costs, (2) prepaid/(accrued) lease payments and (3) the unamortized balance of lease incentives received.
Leases with a lease term of 12 months or less from the commencement date that do not contain a purchase option are recognized as an expense on a straight-line basis over the lease term.
Significant judgments
The Company determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised.
Under certain of its leases, the Company has a renewal and termination option to lease assets for additional terms between one and five years. The Company applies judgment in evaluating whether it is reasonably certain to exercise the option to renew or terminate the lease. The Company considers all relevant factors that create an economic incentive for it to exercise the renewal or termination option. After the commencement date, the Company reassesses the lease term if there is a significant event or change in circumstances that is within the Company’s control and affects its ability to exercise (or not to exercise) the option to renew or terminate.
14
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
2. Summary of significant accounting policies (Continued)
The company has applied an incremental borrowing rate for the purpose of computing lease liabilities based on the rate prevailing in different geographies. Upon the Company’s adoption of ASC 842, the Company applied an incremental borrowing rate to leases existing as of January 1, 2019, the date of initial application.
Impact on consolidated financial statements
The following tables summarize the impact of the Company’s adoption of Topic 842 on its consolidated financial statements as of January 1, 2019.
|
| As reported December 31, 2018 | Adoption of ASC 842 Increase/(Decrease) |
| Balance as of January 1, 2019 |
Prepaid expenses and other current assets |
| 212,477 | (3,529) | 1 | 208,948 |
Operating lease ROU assets |
| - | 273,732
|
| 273,732
|
Other assets: Finance lease ROU assets |
| - | 35,955 | 6 | 35,955 |
Other assets |
| 155,159 | (5,126) | 3 | 150,033 |
Property, plant and equipment, net |
| 212,715 | (2,343) | 2 | 210,372 |
|
|
|
|
|
|
Accrued expenses and other current liabilities |
| 571,350 | (1,123) | 4 | 570,227 |
Operating leases liability (current) |
| - | 42,200 |
| 42,200 |
Operating leases liability (non-current) |
| - | 258,378 |
| 258,378 |
Other liabilities |
| 165,226 | (767) | 5 | 164,459 |
1. | Includes prepaid rent amounting to $3,160 and leasehold land amounting to $369, which have been reclassified to operating lease ROU assets and finance lease ROU assets, respectively. |
2. | Represents vehicles recognized as capital leases under ASC 840 and reclassified as a finance lease ROU asset. |
3. | Includes prepaid rent amounting to $284 and leasehold land amounting to $4,842, which have been reclassified to operating lease ROU assets and finance lease ROU assets, respectively. |
4. | Includes accrued lease liabilities of $4,562 adjusted with operating lease ROU assets offset by additional current portion of finance lease liabilities of $3,439 recognized upon the adoption of ASC 842. |
5. | Includes accrued lease liabilities of $25,728 adjusted with operating lease ROU assets offset by additional finance lease liabilities of $24,961 recognized upon the adoption of ASC 842. |
6. | The balance is included in “other assets” in the consolidated balance sheet. |
(h) Recently issued accounting pronouncements
The authoritative bodies release standards and guidance which are assessed by management for their impact on the Company’s consolidated financial statements.
The Company has adopted the following recently released accounting standards:
15
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
2. Summary of significant accounting policies (Continued)
The Company adopted ASC Topic 606, Revenue from Contracts with Customers, with a date of initial application of January 1, 2018 using the modified retrospective method, and the revenue recognition significant accounting policy is outlined in section (f) above.
The Company adopted ASC Topic 842, Leases, with a date of initial application of January 1, 2019 using the modified retrospective approach. The cumulative impact of the adoption of this standard has been described in section (g) above.
In March 2019, the Financial Accounting Standards Board (the “FASB”) issued ASU 2019-01, Leases (Topic 842): Codification Improvement. The new standard contains several amendments to clarify the codification more generally and/or to correct unintended application of guidance. The changes in the new standard eliminate the requirement for transition disclosures related to Topic 250-10-50-3. The guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those years. Early application is permitted. In the quarter ended March 31, 2019, the Company adopted ASU 2019-01 effective January 1, 2019 and no prior periods have been adjusted.
In August 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging.” The amendment expands an entity’s ability to hedge accounting to non-financial and financial risk components and requires changes in the fair value of hedging instruments to be presented in the same income statement line as thea hedged item. The ASU also amends the presentation and disclosure requirements for the effect of hedge accounting. The ASU must be adopted using a modified retrospective approach with a cumulative effect adjustment recorded to the opening balance of retained earnings as of the initial application date. The ASU is effective for the Company beginning January 1, 2019, including interim periods in the fiscal year 2019. On January 1, 2019, the Company assessed the impact of this ASU and concluded that it does not have any impact on its consolidated results of operations, cash flows, financial position and disclosures.
In addition, the following recently released accounting standards have not yet been adopted by the Company.
In June 2016, the FASB issued ASU No. 2016-13, “Measurement of credit losses on financial instruments.” The ASU requires measurement and recognition of expected credit losses for financial assets held by the Company. The ASU is effective for the Company beginning January 1, 2020, including interim periods in fiscal year 2020. Early adoption is permitted. The Company is in the process of assessing the impact of this ASU on its consolidated results of operations, cash flows, financial position and disclosures.
In August 2018, the FASB issued ASU No. 2018-13, “Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement.” The ASU modifies the disclosure requirements with respect to fair value measurements. The ASU is effective for the Company beginning January 1, 2020, including interim periods in fiscal year 2020. Early adoption is permitted. The Company is in the process of assessing the impact of this ASU on its consolidated results of operations, cash flows, financial position and disclosures.
In August 2018, the FASB issued ASU No. 2018-14, “Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans.” The ASU modifies the disclosure requirements with respect to defined benefit pension plans. The ASU is effective for the Company beginning January 1, 2021. Early adoption is permitted. The Company is in the process of assessing the impact of this ASU on its consolidated results of operations, cash flows, financial position and disclosures.
16
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(f)In thousands, except per share data and share count)
2. Summary of significant accounting policies (Continued)
In August 2018, the FASB issued ASU No. 2018-15, “Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract.” The ASU modifies the capitalization requirements with respect to implementation costs incurred by the customer in a hosting arrangement that is a service contract. The ASU is effective for the Company beginning January 1, 2020. Early adoption is permitted. The Company is in the process of assessing the impact of this ASU on its consolidated results of operations, cash flows, financial position and disclosures.
In April 2019, the FASB issued ASU No. 2019-04, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments.” The ASU provides additional guidance on the recognition of credit losses and addresses partial-term fair value hedges, fair value hedge basis adjustments and certain transition requirements, among other things. The ASU also addresses the scope of the guidance on the requirement for remeasurement under ASC 820 when using the measurement alternative, certain disclosure requirements and which foreign currency-denominated equity securities must be remeasured at historical exchange rates. The ASU is effective for the Company beginning January 1, 2020, including interim periods in fiscal year 2020. Early adoption is permitted. The Company is in the process of assessing the impact of this ASU on its consolidated results of operations, cash flows, financial position and disclosures.
In May 2019, the FASB issued ASU No. 2019-05, “Financial Instruments—Credit Losses (Topic 326).” The ASU provides final guidance that allows entities to make an irrevocable one-time election upon adoption of the new credit losses standard to measure financial assets measured at amortized cost (except held-to-maturity securities) using the fair value option. The ASU is effective for the Company beginning January 1, 2020, including interim periods in fiscal year 2020. Early adoption is permitted. The Company is in the process of assessing the impact of this ASU on its consolidated results of operations, cash flows, financial position and disclosures.
(i) Reclassification
Certain reclassifications have been made in the consolidated financial statements of prior periods to conform to the classification used in the current period. The impact of such reclassifications on the consolidated financial statements is not material.
17
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
3. Business acquisitions
A. | Certain acquisitions |
(a) TandemSeven, Inc.riskCanvas Holdings, LLC
On September 5, 2017,January 7, 2019, the Company acquired 100% of the outstanding equity interestinterests in TandemSeven, Inc. (“TandemSeven”),riskCanvas Holdings, LLC, a Massachusetts corporation,Delaware limited liability company, for estimated total purchase consideration of $35,720, subject to adjustment for closing date working capital and indebtedness.$5,747. This amount includes cash consideration of $31,866,$5,700, net of cash acquired of $3,854, and a preliminary adjustment for working capital and indebtedness. In addition, the Company is evaluating certain tax positions, which, when determined, may result in the recognitioncapital. No portion of additional assets and liabilities as of the acquisition date. The measurement period will not exceed one year from the acquisition date. As of September 30, 2017, the total consideration, paid by the Company to the sellerspayable in cash, was $34,806, resulting in a payableunpaid as of $914. TandemSeven’s focus on improving the design of customer experiences complementsJune 30, 2019. This acquisition expands the Company’s existingservices in the areas of financial institution fraud, anti-money laundering and financial transaction surveillance and enhances its consulting capabilities aimed at transforming clients’ processes end-to-end.for clients in the financial services industry.
In connection with thethis acquisition, of TandemSeven, the Company recorded $2,000$1,700 in customer-related intangibles, $1,700$1,400 in marketing-relatedsoftware-related intangibles and $800$100 in technology-related intangible assets, which have a weighted average amortization period of two years.restrictive covenants. Goodwill arising from the acquisition amounted to $25,298,$2,547, which has been allocated to the Company’s India reporting unit and is deductible for tax purposes. The goodwill represents primarily the acquired design expertise,capabilities, operating synergies and other benefits expected to result from combining the acquired operations with those of the Company.
Acquisition-related costs of $932$967 have been included in selling, general and administrative expenses as incurred. In connection with the transaction, the Company also acquired certain assets with a value of $7,388$660 and assumed certain liabilities amounting to $1,206. The Company also recognized a net deferred tax liability of $260. The results of operations of the acquired business and the fair value of the acquired assets and assumed liabilities are included in the Company’s consolidated financial statements with effect from the date of the acquisition.
(b) OnSource, LLC
On July 18, 2017, the Company acquired 100% of the outstanding equity interest in OnSource, LLC (“OnSource”), a Massachusetts limited liability company, for estimated total purchase consideration of $22,996, subject to adjustment for closing date working capital, indebtedness and certain transaction expenses incurred by OnSource in connection with closing. This amount includes cash consideration of $22,959, net of cash acquired of $37, and a preliminary adjustment for working capital and net debt. The total consideration paid by the Company to the sellers is $23,043, resulting in a receivable of $47, which is outstanding as of September 30, 2017. This acquisition brings digital capabilities to the Company’s insurance service offerings.
11
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
3. Business acquisitions (Continued)
In connection with the acquisition of OnSource, the Company recorded $794 in customer-related intangibles, $936 in marketing-related intangibles and $1,150 in technology-related intangibles, which have a weighted average amortization period of four years. Goodwill arising from the acquisition amounted to $19,729, which has been allocated to the Company’s India reporting unit and is deductible for tax purposes. The goodwill represents primarily the capabilities, operating synergies and other benefits expected to result from combining the acquired operations with those of the Company.
Acquisition-related costs of $1,334 have been included in selling, general and administrative expenses as incurred. In connection with the transaction, the Company also acquired certain assets with a value of $1,180 and assumed certain liabilities amounting to $793.$707. The results of operations of the acquired business and the fair value of the acquired assets and assumed liabilities are included in the Company’s consolidated financial statements with effect from the date of the acquisition.
(c) IT business of Birlasoft(b) Barkawi Management Consultants GmbH & Co. KG and certain related entities
On July 18, 2017,August 30, 2018, the Company acquired from Birlasoft (India) Limited,100% of the outstanding equity/partnership interests in Barkawi Management Consultants GmbH & Co. KG, a company incorporated underGerman limited partnership, and certain affiliated entities in the Indian Companies Act, 1956, Birlasoft Inc., a Delaware corporation,United States, Germany and Birlasoft (UK) Limited, a company incorporated in England and WalesAustria (collectively referred to as “Birlasoft”“Barkawi”) certain assets comprising a portionfor total purchase consideration of Birlasoft’s IT business.$101,307. This amount includes cash consideration of $95,625, net of cash acquired of $5,682. The total purchase consideration paid by the Company to Birlasoftwas $100,969, resulting in a payable of $338, which is $16,309.outstanding as of June 30, 2019. During the quarter ended June 30, 2019, the Company recorded certain measurement period adjustments. These adjustments did not have a significant impact on the Company’s consolidated statements of income, balance sheets or cash flows. This acquisition expandsenhances the Company’s end-to-end capabilities for its clients in the healthcare and aviation industries.supply chain management consulting capabilities.
In connection with the transaction,acquisition of Barkawi, the Company recorded $8,600$10,200 in customer-related intangibles and $1,800 in marketing related intangibles, which have a weighted average amortization period of three years. Goodwill arising from the acquisition amounted to $9,671,$79,928, which has been allocated to the Company’s IT servicesIndia reporting unit and is partially deductible for tax purposes. The goodwill represents primarily the consulting expertise, operating synergies and other benefits expected to result from combining the acquired operations with those of the Company.
Acquisition-related costs of $1,842 have been included in selling, general and administrative expenses as incurred. In connection with the transaction, the Company also acquired certain assets with a value of $17,314, assumed certain liabilities amounting to $8,827 and recognized a net deferred tax asset of $892. The results of operations of the acquired business and the fair value of the acquired assets and assumed liabilities are included in the Company’s consolidated financial statements with effect from the date of the acquisition.
18
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
3. Business acquisitions (Continued)
(c) Commonwealth Informatics Inc.
On July 3, 2018, the Company acquired 100% of the outstanding equity interest in Commonwealth Informatics Inc. (“Commonwealth”), a Massachusetts corporation, for preliminary purchase consideration of $17,938. This amount includes cash consideration of $16,123, net of cash acquired of $1,477, and preliminary adjustments for working capital and indebtedness. No portion of the total consideration, payable in cash, was unpaid as of June 30, 2019. During the quarter ended March 31, 2019, the Company recorded certain measurement period adjustments. These adjustments did not have a significant impact on the Company’s consolidated statements of income, balance sheets or cash flows. This acquisition enhances the Company’s signal management and pharmacovigilance capabilities for clients in the life sciences industry.
In connection with the acquisition of Commonwealth, the Company recorded $2,200 in customer-related intangibles and $2,600 in technology-related intangible assets, which have a weighted average amortization period of four years.
Goodwill arising from the acquisition amounted to $11,587, which has been allocated to the Company’s India reporting unit and is deductible for tax purposes. The goodwill represents primarily the acquired capabilities, operating synergies and other benefits expected to result from combining the acquired operations with those of the Company.
Acquisition-related costs of $97$521 have been included in selling, general and administrative expenses as incurred. Through thisIn connection with the transaction, the Company hasalso acquired certain assets with a value of $1,381$2,583 and assumed certain liabilities amounting to $3,343.$1,032. The results of operations of the acquired business and the fair value of the acquired assets and assumed liabilities are included in the Company’s consolidated financial statements with effect from the date of the acquisition.
(d) Image processing business of Fiserv Solutions of Australia Pty Ltd.
On May 11, 2017, the Company acquired the image processing business of Fiserv Solutions of Australia Pty Limited for estimated total purchase consideration of $18,990, subject to adjustment for closing date working capital, value transfer and net debt. This amount includes a preliminary adjustment for closing date working capital, value transfer and net debt. As of September 30, 2017, the total consideration paid by the Company to the sellers is $21,301, resulting in a receivable of $2,311. This acquisition strengthens the Company’s financial services portfolio and expands its Australia footprint.
In connection with the transaction, the Company recorded $17,400 in customer-related intangibles, $1,806 in technology-related intangibles and $100 in other intangibles, which have a weighted average amortization period of six years. Goodwill arising from the acquisition amounted to $5,416, which has been allocated to the Company’s India reporting unit and is not deductible for tax purposes. The goodwill represents primarily the capabilities, operating synergies and other benefits expected to result from combining the acquired operations with those of the Company.
Acquisition-related costs of $385 have been included in selling, general and administrative expenses as incurred. Through this transaction, the Company has acquired assets with a value of $5,144, assumed liabilities amounting to $5,625, and recognized a net deferred tax liability of $5,250. The results of operations of the acquired business and the fair value of the acquired assets and assumed liabilities are included in the Company’s consolidated financial statements with effect from the date of the acquisition.
12
19
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
3. Business acquisitions (Continued)
(e) BrightClaim LLC and associated companies
On May 3, 2017, the Company acquired 100% of the outstanding equity interest in each of BrightClaim LLC, a Delaware limited liability company, BrightServe LLC, a Georgia limited liability company, National Vendor LLC, a Delaware limited liability company, and BrightClaim Blocker, Inc., a Delaware corporation (collectively referred to as “BrightClaim”) for total purchase consideration of $56,461, subject to adjustment for closing date working capital, indebtedness and certain transaction expenses incurred by BrightClaim in connection with closing. This amount includes cash consideration of $52,395, net of cash acquired of $4,002, and an adjustment for working capital and net debt. The total consideration paid by the Company to the sellers is $56,496. This acquisition enhances the Company’s breadth and depth of service offerings for clients in the insurance industry. During the quarter ended September 30, 2017, the Company recorded measurement period adjustments that resulted in a $64 increase in the purchase consideration as a result of an adjustment to closing date working capital and net debt. The adjustments included an increase of $156 in assets acquired, an increase of $156 in liabilities assumed and a corresponding impact on goodwill of $64. This resulted in a receivable of $35, which is outstanding as of September 30, 2017. These measurement period adjustments did not have a significant impact on the Company’s consolidated statements of income, balance sheets or cash flows.
In connection with the acquisition of BrightClaim, the Company recorded $8,000 in customer-related intangibles, $3,200 in marketing-related intangibles, $2,200 in technology-related intangibles and $200 in other intangibles, which have a weighted average amortization period of four years. Goodwill arising from the acquisition amounted to $42,638, which has been allocated to the Company’s India reporting unit and is partially deductible for tax purposes. The goodwill represents primarily the capabilities, operating synergies and other benefits expected to result from combining the acquired operations with those of the Company.
Acquisition-related costs of $1,563 have been included in selling, general and administrative expenses as incurred. In connection with the transaction, the Company also acquired certain assets with a value of $10,367, assumed certain liabilities amounting to $7,415, and recognized a net deferred tax liability of $2,728. The results of operations of the acquired business and the fair value of the acquired assets and assumed liabilities are included in the Company’s consolidated financial statements with effect from the date of the acquisition.
(f) RAGE Frameworks, Inc.
On April 13, 2017, the Company acquired 100% of the outstanding equity interest in RAGE Frameworks, Inc. (“RAGE”), a Delaware corporation, for estimated total consideration of $125,089, subject to adjustment for closing date working capital and indebtedness. This amount includes cash consideration of $124,149, net of cash acquired of $1,605, and a preliminary adjustment for working capital and indebtedness. In addition, the Company is evaluating certain tax positions which, when determined, may result in the recognition of additional assets and liabilities as of the acquisition date. The measurement period will not exceed one year from the acquisition date. As of September 30, 2017, the total consideration paid by the Company to the sellers was $125,754, resulting in a receivable of $548. This acquisition enhances the Company’s digital and artificial intelligence capabilities by adding knowledge-based automation technology and services.
In connection with the acquisition of RAGE, the Company recorded $1,600 in customer-related intangibles, $600 in marketing-related intangibles, $12,400 in technology-related intangible assets and $100 in other intangible assets, which have a weighted average amortization period of seven years. Goodwill arising from the acquisition amounted to $105,114, which has been allocated to the Company’s India reporting unit and is not deductible for tax purposes. The goodwill represents primarily the acquired digital and artificial intelligence capabilities, operating synergies and other benefits expected to result from combining the acquired operations with those of the Company.
Acquisition-related costs of $881 have been included in selling, general and administrative expenses as incurred. In connection with the transaction, the Company also acquired certain assets with a value of $13,836 and assumed certain liabilities amounting to $9,654. The Company also recognized a net deferred tax asset of $1,094. The results of operations of the acquired business and the fair value of the acquired assets and assumed liabilities are included in the Company’s consolidated financial statements with effect from the date of the acquisition.
13
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
3. Business acquisitions (Continued)
(g) LeaseDimensions, Inc.
On February 15, 2017, the Company acquired 100% of the outstanding equity interest in LeaseDimensions, Inc. (“LeaseDimensions”), an Oregon corporation, for estimated total consideration of $11,626, subject to adjustment for closing date working capital and net debt. This amount includes the estimated fair value of contingent earn-out consideration, cash consideration of $9,089, net of cash acquired of $217, and a preliminary adjustment for working capital and net debt. The total consideration paid by the Company to the sellers was $9,454, resulting in a receivable of $148, which is outstanding as of September 30, 2017. The purchase agreement also provides for contingent earn-out consideration ranging from $0 to $3,000, payable by the Company to the sellers based on the future performance of the business relative to the thresholds specified in the earn-out calculation. This acquisition enhances the Company’s capabilities in commercial lending and leasing.
In connection with the transaction, the Company recorded $2,400 in customer-related intangibles and $1,000 in marketing-related intangibles, which have a weighted average amortization period of three years. Goodwill arising from the acquisition amounted to $8,307, which has been allocated to the Company’s Americas reporting unit and is not deductible for tax purposes. The goodwill represents primarily the capabilities, operating synergies and other benefits expected to result from combining the acquired operations with those of the Company.
Acquisition-related costs of $422 have been included in selling, general and administrative expenses as incurred. Through this transaction, the Company acquired assets with a value of $2,277, assumed liabilities amounting to $1,038, and recognized a net deferred tax liability of $1,320. The results of operations of the acquired business and the fair value of the acquired assets and assumed liabilities are included in the Company’s consolidated financial statements with effect from the date of the acquisition.
(h) Endeavour Software Technologies Private Limited
On April 13, 2016, the Company acquired 100% of the outstanding equity interest in Endeavour Software Technologies Private Limited (“Endeavour”), an Indian private limited company, for total consideration of $14,788. This amount includes the estimated fair value of the contingent earn-out consideration, cash consideration of $10,345, net of cash acquired of $2,373, and an adjustment for working capital and net debt. Of this amount, $101 was paid by the Company to one of the sellers during the quarter ended September 30, 2017. During the quarter ended March 31, 2017, the Company recorded a measurement period adjustment that resulted in a $346 increase in the purchase consideration as a result of an adjustment to closing date working capital and net debt. The adjustments included an increase of $161 in assets acquired, a decrease of $118 in liabilities assumed and a corresponding impact on goodwill of $67. These measurement period adjustments did not have a significant impact on the Company’s consolidated statements of income, balance sheets or cash flows. This acquisition enhances the Company’s digital capabilities by adding critical end-to-end mobility services.
In connection with the transaction, the Company recorded $800 in customer-related intangibles, $900 in marketing-related intangibles and $950 in other intangible assets, which have a weighted average amortization period of three years. Goodwill arising from the acquisition amounted to $8,936, which has been allocated to the Company’s India reporting unit and is not deductible for tax purposes. The goodwill represents primarily the capabilities in end-to-end mobility services, operating synergies and other benefits expected to result from combining the acquired operations with those of the Company. In connection with the transaction, the Company also acquired certain assets with a value of $5,854 and assumed certain liabilities amounting to $1,735.
(i) Strategic Sourcing Excellence Limited
On January 8, 2016, the Company acquired 51% of the outstanding equity interest in Strategic Sourcing Excellence LLC (“SSE”), a Delaware limited liability company. The total consideration paid by the Company to the selling equity holders for the acquired interest in SSE was $14,541. This amount includes the fair value of earn-out consideration, cash consideration of $2,550, and an adjustment for working capital, transaction expenses and indebtedness. During the quarter ended December 31, 2016, the Company recorded a measurement period adjustment that resulted in a $51 increase in the purchase consideration through the recognition of $69 in current assets and $16 in non-current assets, with a corresponding impact on goodwill of $34. These measurement period adjustments did not have a significant impact on the Company’s consolidated statements of income, balance sheets or cash flows in any period. The equity purchase agreement between the Company and the selling equity holders of SSE also provides for contingent earn-out consideration of up to $20,000, payable by the Company to the selling equity holders based on the future performance of the acquired business relative to the thresholds specified in the earn-out calculation. Up to $9,800 of the total potential earn-out consideration, representing the selling equity holders’ 49% interest in SSE, is payable only if either the put or call option, each as described below, is exercised.
14
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
3. Business acquisitions (Continued)
The equity purchase agreement grants the Company a call option to purchase the remaining 49% equity interest in SSE, which option the Company has the right to exercise between January 1, 2018 and January 31, 2018. If the Company does not exercise its call option during such period, the selling equity holders have the right to exercise a put option between March 1, 2018 and April 30, 2018 to require the Company to purchase their 49% interest in SSE at a price ranging from $2,450 to $2,950. This acquisition enhances the Company’s sourcing and procurement consulting domain expertise.
Acquisition-related costs of $164 have been included in selling, general and administrative expenses as incurred. Through this transaction, the Company acquired assets with a value of $412 and assumed liabilities amounting to $617. The results of operations of the acquired business, the fair value of the acquired assets and assumed liabilities, and redeemable non-controlling interest are included in the Company’s Consolidated Financial Statements with effect from the date of the acquisition.
In connection with the transaction, the Company recorded $300 in customer-related intangible assets with an amortization period of five years. Goodwill arising from the acquisition amounted to $14,445, which has been allocated to the Company’s India reporting unit and is deductible for tax purposes. The goodwill represents future economic benefits the Company expects to derive from its expanded presence in the sourcing and procurement consulting domains, operating synergies and other anticipated benefits of combining the acquired operations with those of the Company.
15
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
Cash and cash equivalents as of December 31, 2016 and September 30, 2017 are set out in the table below:
|
| As of December 31, |
|
| As of September 30, |
|
| As of December 31, |
|
| As of June 30, |
| ||||
|
| 2016 |
|
| 2017 |
|
| 2018 |
|
| 2019 |
| ||||
Cash and other bank balances |
|
| 422,623 |
|
|
| 440,055 |
|
|
| 368,396 |
|
|
| 378,030 |
|
Total |
| $ | 422,623 |
|
| $ | 440,055 |
|
| $ | 368,396 |
|
| $ | 378,030 |
|
5. Accounts receivable, net of reserve for doubtful receivables
The following table provides details of the Company’s reserve for doubtful receivables:
|
| Year ended |
|
| Nine months ended |
|
|
|
|
|
|
|
|
| ||
|
| December 31, 2016 |
|
| September 30, 2017 |
|
| Year ended December 31, 2018 |
|
| Six months ended June 30, 2019 |
| ||||
Opening balance as of January 1 |
| $ | 11,530 |
|
| $ | 15,519 |
|
| $ | 23,660 |
|
| $ | 23,960 |
|
Additions due to acquisitions |
|
| - |
|
|
| 235 |
| ||||||||
Additions charged to cost and expense |
|
| 7,282 |
|
|
| 4,871 |
| ||||||||
Additions charged/reversal released to cost and expense |
|
| 1,857 |
|
|
| 4,881 |
| ||||||||
Deductions/effect of exchange rate fluctuations |
|
| (3,293 | ) |
|
| (49 | ) |
|
| (1,557 | ) |
|
| (448 | ) |
Closing balance |
| $ | 15,519 |
|
| $ | 20,576 |
|
| $ | 23,960 |
|
| $ | 28,393 |
|
Accounts receivable were $630,784$798,144 and $691,268,$884,995, and the reserves for doubtful receivables were $15,519$23,960 and $20,576,$28,393, resulting in net accounts receivable balances of $615,265$774,184 and $670,692,$856,602 as of December 31, 20162018 and SeptemberJune 30, 2017,2019, respectively. In addition, accounts receivable due after one year of $3,272amounting to $4,099 and $1,880$3,975 as of December 31, 20162018 and SeptemberJune 30, 2017,2019, respectively, are included under other assets“other assets” in the Consolidated Balance Sheets.consolidated balance sheets.
Accounts receivable from related parties were $2,490$99 and $42$53 as of December 31, 20162018 and SeptemberJune 30, 2017,2019, respectively. There are no reserves for doubtful receivables in respect of amounts due from related parties.
6. Fair value measurements
The Company measures certain financial assets and liabilities, including derivative instruments, at fair value on a recurring basis. The fair value measurements of these financial assets and liabilities were determined using the following inputs as of December 31, 20162018 and SeptemberJune 30, 2017:2019:
|
| As of December 31, 2016 |
|
| As of December 31, 2018 |
| ||||||||||||||||||||||||||
|
| Fair Value Measurements at Reporting Date Using |
|
| Fair Value Measurements at Reporting Date Using |
| ||||||||||||||||||||||||||
|
|
|
|
|
| Quoted Prices in Active Markets for Identical Assets |
|
| Significant Other Observable Inputs |
|
| Significant Other Unobservable Inputs |
|
|
|
|
|
| Quoted Prices in Active Markets for Identical Assets |
|
| Significant Other Observable Inputs |
|
| Significant Other Unobservable Inputs |
| ||||||
|
| Total |
|
| (Level 1) |
|
| (Level 2) |
|
| (Level 3) |
|
| Total |
|
| (Level 1) |
|
| (Level 2) |
|
| (Level 3) |
| ||||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative instruments (Note a, c) |
| $ | 55,386 |
|
| $ | — |
|
| $ | 55,386 |
|
| $ | — |
|
| $ | 44,099 |
|
| $ | — |
|
| $ | 44,099 |
|
| $ | — |
|
Deferred compensation plan assets (Note a, e) |
|
| 1,613 |
|
|
| — |
|
|
| — |
|
|
| 1,613 |
| ||||||||||||||||
Total |
| $ | 55,386 |
|
| $ | — |
|
| $ | 55,386 |
|
| $ | — |
|
| $ | 45,712 |
|
| $ | — |
|
| $ | 44,099 |
|
| $ | 1,613 |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earn-out consideration (Note b, d) |
| $ | 22,435 |
|
| $ | — |
|
| $ | — |
|
| $ | 22,435 |
|
| $ | 17,073 |
|
| $ | — |
|
| $ | — |
|
| $ | 17,073 |
|
Derivative instruments (Note b, c) |
| $ | 17,353 |
|
| $ | — |
|
| $ | 17,353 |
|
| $ | — |
|
|
| 35,245 |
|
|
| — |
|
|
| 35,245 |
|
|
| — |
|
Deferred compensation plan liability (Note b, f) |
|
| 1,582 |
|
|
| — |
|
|
| — |
|
|
| 1,582 |
| ||||||||||||||||
Total |
| $ | 39,788 |
|
| $ | — |
|
| $ | 17,353 |
|
| $ | 22,435 |
|
| $ | 53,900 |
|
| $ | — |
|
| $ | 35,245 |
|
| $ | 18,655 |
|
Redeemable non-controlling interest (Note e) |
| $ | 4,520 |
|
| $ | — |
|
| $ | — |
|
| $ | 4,520 |
|
1620
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
6. Fair value measurements (Continued)
|
| As of September 30, 2017 |
|
| As of June 30, 2019 |
| ||||||||||||||||||||||||||
|
| Fair Value Measurements at Reporting Date Using |
|
| Fair Value Measurements at Reporting Date Using |
| ||||||||||||||||||||||||||
|
|
|
|
|
| Quoted Prices in Active Markets for Identical Assets |
|
| Significant Other Observable Inputs |
|
| Significant Other Unobservable Inputs |
|
|
|
|
|
| Quoted Prices in Active Markets for Identical Assets |
|
| Significant Other Observable Inputs |
|
| Significant Other Unobservable Inputs |
| ||||||
|
| Total |
|
| (Level 1) |
|
| (Level 2) |
|
| (Level 3) |
|
| Total |
|
| (Level 1) |
|
| (Level 2) |
|
| (Level 3) |
| ||||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative instruments (Note a, c) |
| $ | 55,080 |
|
| $ | — |
|
| $ | 55,080 |
|
| $ | — |
|
| $ | 37,296 |
|
| $ | — |
|
| $ | 37,296 |
|
| $ | — |
|
Deferred compensation plan assets (Note a, e) |
|
| 9,141 |
|
|
| — |
|
|
| — |
|
|
| 9,141 |
| ||||||||||||||||
Total |
| $ | 55,080 |
|
| $ | — |
|
| $ | 55,080 |
|
| $ | — |
|
| $ | 46,437 |
|
| $ | — |
|
| $ | 37,296 |
|
| $ | 9,141 |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earn-out consideration (Note b, d) |
| $ | 17,999 |
|
| $ | — |
|
|
| — |
|
| $ | 17,999 |
|
| $ | 3,463 |
|
| $ | — |
|
| $ | — |
|
| $ | 3,463 |
|
Derivative instruments (Note b, c) |
| $ | 27,763 |
|
| $ | — |
|
| $ | 27,763 |
|
| $ | — |
|
|
| 21,927 |
|
|
| — |
|
|
| 21,927 |
|
|
| — |
|
Deferred compensation plan liability (Note b, f) |
|
| 8,994 |
|
|
| — |
|
|
| — |
|
|
| 8,994 |
| ||||||||||||||||
Total |
| $ | 45,762 |
|
| $ | — |
|
| $ | 27,763 |
|
| $ | 17,999 |
|
| $ | 34,384 |
|
| $ | — |
|
| $ | 21,927 |
|
| $ | 12,457 |
|
Redeemable non-controlling interest (Note e) |
| $ | 3,839 |
|
| $ | — |
|
| $ | — |
|
| $ | 3,839 |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) | Included in |
(b) | Included in |
(c) | The Company values its derivative instruments based on market observable inputs, including both forward and spot prices for the relevant currencies and interest rate indices for relevant interest rates. The quotes are taken from an independent market database. |
(d) | The fair value of earn-out consideration, calculated as the present value of expected future payments to be made to the sellers of acquired businesses, was derived by estimating the future financial performance of the acquired businesses using the earn-out formula and performance targets specified in each purchase agreement and adjusting the result to reflect the Company’s estimate of the likelihood of achievement of such targets. Given the significance of the unobservable inputs, the valuations are classified in level 3 of the fair value hierarchy. |
|
| Deferred compensation plan assets consist of life insurance policies held under a Rabbi Trust. Assets held in the Rabbi Trust are valued based on the cash surrender value of the insurance contract, which is determined based on the fair value of |
(f) | The fair value of the deferred compensation plan liability is derived based on the fair value of the underlying assets in the insurance portfolio and is therefore classified within level 3 of the fair value hierarchy. |
21
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
6. Fair value measurements (Continued)
The following table provides a roll-forward of the fair value of earn-out consideration categorized as level 3 in the fair value hierarchy for the three and ninesix months ended SeptemberJune 30, 20162018 and 2017:2019:
|
| Three months ended September 30, |
|
| Nine months ended September 30, |
| ||||||||||
|
| 2016 |
|
| 2017 |
|
| 2016 |
|
| 2017 |
| ||||
Opening balance |
| $ | 18,438 |
|
| $ | 23,274 |
|
| $ | 22,820 |
|
| $ | 22,435 |
|
Earn-out consideration payable in connection with acquisitions |
|
| 4,360 |
|
|
| - |
|
|
| 14,550 |
|
|
| 2,320 |
|
Payments of earn-out consideration |
|
| (357 | ) |
|
| (5,756 | ) |
|
| (1,509 | ) |
|
| (7,239 | ) |
Changes in fair value of earn-out consideration (note a) |
|
| - |
|
|
| 11 |
|
|
| (14,997 | ) |
|
| (1,414 | ) |
Others (note b) |
|
| 545 |
|
|
| 470 |
|
|
| 2,122 |
|
|
| 1,897 |
|
Ending balance |
| $ | 22,986 |
|
| $ | 17,999 |
|
| $ | 22,986 |
|
| $ | 17,999 |
|
|
| Three months ended |
|
| Six months ended |
| ||||||||||
|
| June 30, |
|
| June 30, |
| ||||||||||
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2019 |
| ||||
Opening balance |
| $ | 23,900 |
|
| $ | 7,476 |
|
| $ | 24,732 |
|
| $ | 17,073 |
|
Earn-out consideration payable in connection with acquisitions |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Payments made on earn-out consideration |
|
| — |
|
|
| (4,098 | ) |
|
| (1,476 | ) |
|
| (14,098 | ) |
Change in fair value of earn-out consideration (Note a) |
|
| (650 | ) |
|
| - |
|
|
| (633 | ) |
|
| - |
|
Others (Note b) |
|
| 359 |
|
|
| 85 |
|
|
| 986 |
|
|
| 488 |
|
Closing balance |
| $ | 23,609 |
|
| $ | 3,463 |
|
| $ | 23,609 |
|
| $ | 3,463 |
|
(a) Changes in the fair value of earn-out consideration are reported in other“other operating (income) expense, netnet” in the consolidated statements of income.
(b) Interest“Others” is comprised of interest expense is included in interest“interest income (expense), netnet” and the impact of changes in foreign exchange is reported in foreign“foreign exchange gains (losses), netnet” in the consolidated statements of income. TheThis also includes a cumulative translation adjustment is reported as a component of other comprehensive income (loss).
17The following table provides a roll-forward of the fair value of deferred compensation plan assets categorized as level 3 in the fair value hierarchy for the three and six months ended June 30, 2018 and 2019:
|
| Three months ended June 30, |
|
| Six months ended June 30, |
| ||||||||||
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2019 |
| ||||
Opening balance |
| $ | — |
|
| $ | 8,066 |
|
| $ | — |
|
| $ | 1,613 |
|
Redemptions |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Additions |
|
| — |
|
|
| 820 |
|
|
| — |
|
|
| 6,985 |
|
Change in fair value of deferred compensation plan assets (Note a) |
|
| — |
|
|
| 255 |
|
|
| — |
|
|
| 543 |
|
Closing balance |
| $ | — |
|
| $ | 9,141 |
|
| $ | — |
|
| $ | 9,141 |
|
(a) Changes in the fair value of plan assets are reported in “other income (expense), net” in the consolidated statements of income.
22
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
6. Fair value measurements (Continued)
The following table provides a roll-forward of the fair value of deferred compensation liabilities categorized as level 3 in the fair value hierarchy for the three and six months ended June 30, 2018 and 2019:
|
| Three months ended June 30, |
|
| Six months ended June 30, |
| ||||||||||
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2019 |
| ||||
Opening balance |
| $ | — |
|
| $ | 7,935 |
|
| $ | — |
|
|
| 1,582 |
|
Redemptions |
|
| — |
|
| — |
|
|
| — |
|
|
| — |
| |
Additions |
|
| — |
|
|
| 812 |
|
|
| — |
|
|
| 6,977 |
|
Change in fair value of deferred compensation plan liabilities (Note a) |
|
| — |
|
|
| 247 |
|
|
| — |
|
|
| 435 |
|
Closing balance |
| $ | — |
|
| $ | 8,994 |
|
| $ | — |
|
|
| 8,994 |
|
(a) Changes in the fair value of deferred compensation liabilities are reported in “selling, general and administrative expenses” in the consolidated statements of income.
7. Derivative financial instruments
The Company is exposed to the risk of rate fluctuations on its foreign currency assets and liabilities and on foreign currency denominated forecasted cash flows.flows and interest rates. The Company has established risk management policies, including the use of derivative financial instruments to hedge foreign currency assets and liabilities, foreign currency denominated forecasted cash flows and interest rate risk. These derivative financial instruments are largely deliverable and non-deliverable forward foreign exchange contracts and interest rate swaps. The Company enters into these contracts with counterparties that are banks or other financial institutions, and the Company considers the risk of non-performance by such counterparties not to be material. The forward foreign exchange contracts and interest rate swaps mature during a period of up to 5154 months and the forecasted transactions are expected to occur during the same period.
23
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
7. Derivative financial instruments (Continued)
The following table presents the aggregate notional principal amounts of outstanding derivative financial instruments together with the related balance sheet exposure:
|
| Notional principal amounts (note a) |
|
| Balance sheet exposure asset (liability) (note b) |
| ||||||||||
|
| As of December 31, 2016 |
|
| As of September 30, 2017 |
|
| As of December 31, 2016 |
|
| As of September 30, 2017 |
| ||||
Foreign exchange forward contracts denominated in: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States dollars (sell) Indian rupees (buy) |
| $ | 1,108,400 |
|
| $ | 1,274,026 |
|
| $ | 6,669 |
|
| $ | 30,464 |
|
United States dollars (sell) Mexican peso (buy) |
|
| 9,120 |
|
|
| 2,280 |
|
|
| (187 | ) |
|
| 362 |
|
United States dollars (sell) Philippines peso (buy) |
|
| 70,050 |
|
|
| 66,800 |
|
|
| (1,036 | ) |
|
| (1,635 | ) |
Euro (sell) United States dollars (buy) |
|
| 138,613 |
|
|
| 161,783 |
|
|
| 9,180 |
|
|
| (1,760 | ) |
Pound sterling (buy) United States dollars (sell) |
|
| - |
|
|
| 16,077 |
|
|
| - |
|
|
| 40 |
|
Euro (sell) Romanian leu (buy) |
|
| 29,805 |
|
|
| 36,662 |
|
|
| (152 | ) |
|
| (481 | ) |
Japanese yen (sell) Chinese renminbi (buy) |
|
| 77,267 |
|
|
| 71,832 |
|
|
| (742 | ) |
|
| 306 |
|
Pound sterling (sell) United States dollars (buy) |
|
| 104,142 |
|
|
| 94,728 |
|
|
| 14,228 |
|
|
| (605 | ) |
Australian dollars (sell) United States dollars (buy) |
|
| 114,412 |
|
|
| 145,679 |
|
|
| 2,328 |
|
|
| (5,934 | ) |
Interest rate swaps (floating to fixed) |
|
| 456,810 |
|
|
| 438,290 |
|
|
| 7,746 |
|
|
| 6,560 |
|
|
|
|
|
|
|
|
|
|
|
| 38,034 |
|
|
| 27,317 |
|
|
| Notional principal amounts (Note a) |
|
| Balance sheet exposure asset (liability) (Note b) |
| ||||||||||
|
| As of December 31, 2018 |
|
| As of June 30, 2019 |
|
| As of December 31, 2018 |
|
| As of June 30, 2019 |
| ||||
Foreign exchange forward contracts denominated in: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States Dollars (sell) Indian Rupees (buy) |
| $ | 1,439,000 |
|
| $ | 1,248,000 |
|
| $ | (3,643 | ) |
| $ | 10,476 |
|
United States Dollars (sell) Mexican Peso (buy) |
|
| — |
|
|
| 6,000 |
|
|
| — |
|
|
| 284 |
|
United States Dollars (sell) Philippines Peso (buy) |
|
| 55,800 |
|
|
| 35,700 |
|
|
| (1,510 | ) |
|
| 186 |
|
Euro (sell) United States Dollars (buy) |
|
| 136,412 |
|
|
| 116,055 |
|
|
| 4,804 |
|
|
| 4,985 |
|
Pound Sterling (buy) United States Dollars (sell) |
|
| 128 |
|
|
| — |
|
|
| (128 | ) |
|
| — |
|
Singapore Dollars (buy) United States Dollars (sell) |
|
| — |
|
|
| 9,939 |
|
|
| — |
|
|
| 61 |
|
Euro (sell) Romanian Leu (buy) |
|
| 41,198 |
|
|
| 20,486 |
|
|
| (299 | ) |
|
| (81 | ) |
Japanese Yen (sell) Chinese Renminbi (buy) |
|
| 40,568 |
|
|
| 39,070 |
|
|
| (2,195 | ) |
|
| (1,830 | ) |
Pound Sterling (sell) United States Dollars (buy) |
|
| 27,517 |
|
|
| 18,315 |
|
|
| 495 |
|
|
| 685 |
|
Australian Dollars (sell) United States Dollars (buy) |
|
| 89,780 |
|
|
| 68,509 |
|
|
| 3,548 |
|
|
| 3,046 |
|
Interest rate swaps (floating to fixed) |
|
| 507,425 |
|
|
| 492,515 |
|
|
| 7,782 |
|
|
| (2,443 | ) |
|
|
|
|
|
|
|
|
|
|
| 8,854 |
|
|
| 15,369 |
|
(a) | Notional amounts are key elements of derivative financial instrument agreements but do not represent the amount exchanged by counterparties and do not measure the Company’s exposure to credit, foreign exchange, interest rate or market risks. However, the amounts exchanged are based on the notional amounts and other provisions of the underlying derivative financial instrument agreements. |
(b) | Balance sheet exposure is denominated in U.S. dollars and denotes the mark-to-market impact of the derivative financial instruments on the reporting date. |
FASB guidance on derivatives and hedging requires companies to recognize all derivative instruments as either assets or liabilities at fair value in the balance sheet. In accordance with the FASB guidance on derivatives and hedging, the Company designates foreign exchange forward contracts and interest rate swaps as cash flow hedges. Foreign exchange forward contracts are entered into to cover the effects of future exchange rate variability on forecasted revenues and purchases of services, and interest rate swaps are entered into to cover interest rate fluctuation risk. In addition to this program, the Company uses derivative instruments that are not accounted for as hedges under the FASB guidance in order to hedge foreign exchange risks related to balance sheet items, such as receivables and intercompany borrowings, that are denominated in currencies other than the Company’s underlying functional currency.
1824
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
7. Derivative financial instruments (Continued)
The fair value of the Company’s derivative instruments and their location in the Company’s financial statements are summarized in the table below:
|
| Cash flow hedges |
|
| Non-designated |
|
| Cash flow hedges |
|
| Non-designated |
| ||||||||||||||||||||
|
| As of December 31, 2016 |
|
| As of September 30, 2017 |
|
| As of December 31, 2016 |
|
| As of September 30, 2017 |
|
| As of December 31, 2018 |
|
| As of June 30, 2019 |
|
| As of December 31, 2018 |
|
| As of June 30, 2019 |
| ||||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses and other current assets |
| $ | 33,921 |
|
| $ | 33,345 |
|
| $ | 809 |
|
| $ | 883 |
|
| $ | 23,038 |
|
| $ | 25,647 |
|
| $ | 11,490 |
|
| $ | 4,184 |
|
Other assets |
| $ | 20,657 |
|
| $ | 20,852 |
|
| $ | — |
|
| $ | — |
|
| $ | 9,571 |
|
| $ | 7,465 |
|
| $ | — |
|
| $ | — |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued expenses and other current liabilities |
| $ | 4,540 |
|
| $ | 12,005 |
|
| $ | 237 |
|
| $ | 2,522 |
|
| $ | 15,148 |
|
| $ | 5,477 |
|
| $ | 225 |
|
| $ | — |
|
Other liabilities |
| $ | 12,576 |
|
| $ | 13,236 |
|
| $ | — |
|
| $ | — |
|
| $ | 19,872 |
|
| $ | 16,450 |
|
| $ | — |
|
| $ | — |
|
Cash flow hedges
For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain (loss) on the derivative instrument is reported as a component of other comprehensive income (loss) and reclassified into earnings in the same period or periods during which the hedged transaction is recognized in the consolidated statements of income. Gains (losses) on the derivatives, representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness, are recognized in earnings as incurred.
25
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
7. Derivative financial instruments (Continued)
In connection with cash flow hedges, the gains (losses) recorded as a component of other comprehensive income (loss), or OCI, and the related tax effects are summarized below:
| Three months ended September 30, |
| Nine months ended September 30, |
| ||||||||||||||||||||||||||||||||
| 2016 |
| 2017 |
| 2016 |
| 2017 |
| ||||||||||||||||||||||||||||
| Before-tax amount |
| Tax (expense) or benefit |
| Net of tax amount |
| Before-tax amount |
| Tax (expense) or benefit |
| Net of tax amount |
| Before-tax amount |
| Tax (expense) or benefit |
| Net of tax amount |
| Before-tax amount |
| Tax (expense) or benefit |
| Net of tax amount |
| ||||||||||||
Opening balance | $ | (30,790 | ) | $ | 8,945 |
| $ | (21,845 | ) | $ | 52,167 |
| $ | (19,438 | ) | $ | 32,729 |
| $ | (30,090 | ) | $ | 9,830 |
| $ | (20,260 | ) | $ | 37,461 |
| $ | (13,979 | ) | $ | 23,482 |
|
Net gains (losses) reclassified into statement of income on completion of hedged transactions |
| (1,584 | ) |
| 11 |
|
| (1,573 | ) |
| 15,451 |
|
| (5,716 | ) |
| 9,735 |
|
| (7,071 | ) |
| 1,300 |
|
| (5,771 | ) |
| 40,251 |
|
| (14,815 | ) |
| 25,436 |
|
Changes in fair value of effective portion of outstanding derivatives, net |
| 29,005 |
|
| (10,806 | ) |
| 18,199 |
|
| (7,760 | ) |
| 2,621 |
|
| (5,139 | ) |
| 22,818 |
|
| (10,402 | ) |
| 12,416 |
|
| 31,746 |
|
| (11,937 | ) |
| 19,809 |
|
Gain (loss) on cash flow hedging derivatives, net |
| 30,589 |
|
| (10,817 | ) |
| 19,772 |
|
| (23,211 | ) |
| 8,337 |
|
| (14,874 | ) |
| 29,889 |
|
| (11,702 | ) |
| 18,187 |
|
| (8,505 | ) |
| 2,878 |
|
| (5,627 | ) |
Closing balance | $ | (201 | ) | $ | (1,872 | ) | $ | (2,073 | ) | $ | 28,956 |
| $ | (11,101 | ) | $ | 17,855 |
| $ | (201 | ) | $ | (1,872 | ) | $ | (2,073 | ) | $ | 28,956 |
| $ | (11,101 | ) | $ | 17,855 |
|
|
| Three months ended June 30, |
| Six months ended June 30, |
| ||||||||||||||||||||||||||||||||||||||
|
| 2018 |
| 2019 |
| 2018 |
| 2019 |
| ||||||||||||||||||||||||||||||||||
|
| Before-tax amount |
| Tax (expense) or benefit |
| Net of tax amount |
| Before-tax amount |
| Tax (expense) or benefit |
|
| Net of tax amount |
| Before-tax amount |
| Tax (expense) or benefit |
| Net of tax amount |
| Before-tax amount |
| Tax (expense) or benefit |
| Net of tax amount |
| |||||||||||||||||
Opening balance |
| $ | 26,357 |
| $ | (6,931 | ) | $ | 19,426 |
| $ | 12,798 |
| $ | (7,577 | ) |
| $ | 5,221 |
| $ | 50,529 |
| $ | (14,436 | ) | $ | 36,093 |
| $ | (2,411 | ) | $ | (5,524 | ) | $ | (7,935 | ) | |||||
Adoption of ASU 2018-02 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
|
| — |
|
| — |
|
| 2,265 |
|
| 2,265 |
|
| — |
|
| — |
|
| — |
| |||||
Net gains (losses) reclassified into statement of income on completion of hedged transactions |
|
| 4,282 |
|
| (760 | ) |
| 3,522 |
|
| 5,997 |
|
| (1,864 | ) |
|
| 4,133 |
|
| 12,561 |
|
| (2,376 | ) |
| 10,185 |
|
| 9,190 |
|
| (3,603 | ) |
| 5,587 |
| |||||
Changes in fair value of effective portion of outstanding derivatives, net |
|
| (32,352 | ) |
| 7,995 |
|
| (24,357 | ) |
| 4,384 |
|
| (364 | ) |
|
| 4,020 |
|
| (48,245 | ) |
| 11,619 |
|
| (36,626 | ) |
| 22,786 |
|
| (4,156 | ) |
| 18,630 |
| |||||
Gain/(loss) on cash flow hedging derivatives, net |
|
| (36,634 | ) |
| 8,755 |
|
| (27,879 | ) |
| (1,613 | ) |
| 1,500 |
|
|
| (113 | ) |
| (60,806 | ) |
| 13,995 |
|
| (46,811 | ) |
| 13,596 |
|
| (553 | ) |
| 13,043 |
| |||||
Closing balance |
| $ | (10,277 | ) | $ | 1,824 |
| $ | (8,453 | ) | $ | 11,185 |
| $ | (6,077 | ) |
| $ | 5,108 |
| $ | (10,277 | ) | $ | 1,824 |
| $ | (8,453 | ) | $ | 11,185 |
| $ | (6,077 | ) | $ | 5,108 |
|
The Company’s gains or losses recognized in other comprehensive income (loss) and their effects on financial performance are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
| Amount of Gain (Loss) |
|
|
|
| Amount of Gain (Loss) reclassified |
|
| ||||||||||||||||||||||||||
| recognized in OCI on |
|
|
|
| from OCI into Statement of Income |
|
| ||||||||||||||||||||||||||
Derivatives in | Derivatives (Effective Portion) |
|
|
|
| (Effective Portion) |
|
| ||||||||||||||||||||||||||
Cash Flow | Three months ended |
|
| Six months ended |
|
| Location of Gain (Loss) reclassified from OCI into |
| Three months ended |
|
| Six months ended |
|
| ||||||||||||||||||||
Hedging | June 30, |
|
| June 30, |
|
| Statement of Income |
| June 30, |
|
| June 30, |
|
| ||||||||||||||||||||
Relationships | 2018 |
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| (Effective Portion) |
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| ||||||||
Forward foreign exchange contracts | $ | (33,541 | ) |
| $ | 9,642 |
|
| $ | (52,220 | ) |
| $ | 30,225 |
|
| Revenue |
| $ | (1,295 | ) |
| $ | 1,549 |
|
| $ | (2,769 | ) |
| $ | 2,522 |
|
|
Interest rate swaps |
| 1,189 |
|
|
| (5,258 | ) |
|
| 3,975 |
|
|
| (7,439 | ) |
| Cost of revenue |
|
| 3,678 |
|
|
| 2,336 |
|
|
| 10,948 |
|
|
| 2,980 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Selling, general and administrative expenses |
|
| 991 |
|
|
| 742 |
|
|
| 2,925 |
|
|
| 902 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Interest expense |
|
| 908 |
|
|
| 1,370 |
|
|
| 1,457 |
|
|
| 2,786 |
|
|
| $ | (32,352 | ) |
| $ | 4,384 |
|
| $ | (48,245 | ) |
| $ | 22,786 |
|
|
|
| $ | 4,282 |
|
| $ | 5,997 |
|
| $ | 12,561 |
|
| $ | 9,190 |
|
|
1926
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
7. Derivative financial instruments (Continued)
TheThere are no gains or losses recognized in other comprehensive income (loss) and their effects on financial performance are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Amount of gain (loss) |
|
|
|
| Amount of gain (loss) |
|
| ||||||||||||||||||||||||||
| recognized in OCI on |
|
|
|
| reclassified from OCI into |
|
| ||||||||||||||||||||||||||
Derivatives in | derivatives (effective portion) |
|
| Location of gain (loss) reclassified |
| statement of income (effective portion) |
|
| ||||||||||||||||||||||||||
Cash Flow | Three months ended |
|
| Nine months ended |
|
| from OCI into |
| Three months ended |
|
| Nine months ended |
|
| ||||||||||||||||||||
Hedging | September 30, |
|
| September 30, |
|
| statement of income |
| September 30, |
|
| September 30, |
|
| ||||||||||||||||||||
Relationships | 2016 |
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| (effective portion) |
| 2016 |
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| ||||||||
Forward foreign exchange contracts | $ | 28,287 |
|
| $ | (7,779 | ) |
| $ | 26,612 |
|
| $ | 33,132 |
|
| Revenue |
| $ | 2,599 |
|
| $ | 403 |
|
| $ | 8,596 |
|
| $ | 6,429 |
|
|
Interest rate swaps |
| 718 |
|
|
| 19 |
|
|
| (3,794 | ) |
|
| (1,386 | ) |
| Cost of revenue |
|
| (2,823 | ) |
|
| 11,666 |
|
|
| (11,540 | ) |
|
| 26,655 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Selling, general and administrative expenses |
|
| (693 | ) |
|
| 3,213 |
|
|
| (3,073 | ) |
|
| 7,368 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Interest expense |
|
| (667 | ) |
|
| 169 |
|
|
| (1,054 | ) |
|
| (201 | ) |
|
| $ | 29,005 |
|
| $ | (7,760 | ) |
| $ | 22,818 |
|
| $ | 31,746 |
|
|
|
| $ | (1,584 | ) |
| $ | 15,451 |
|
| $ | (7,071 | ) |
| $ | 40,251 |
|
|
Gain (loss)(losses) recognized in income on the ineffective portion of derivatives and the amount excluded from effectiveness testing is $0 for the three and ninesix months ended SeptemberJune 30, 20162018 and 2017,2019, respectively.
Non-designated Hedges
hedges
|
|
|
| Amount of gain (loss) |
| |||||||||||||
|
|
|
| recognized in statement of |
| |||||||||||||
|
|
|
| income on derivatives |
| |||||||||||||
Derivatives not designated as hedging |
| Location of gain (loss) recognized in statement of |
| Three months ended September 30, |
|
| Nine months ended September 30, |
| ||||||||||
instruments |
| income on derivatives |
| 2016 |
|
| 2017 |
|
| 2016 |
|
| 2017 |
| ||||
Forward foreign exchange contracts (Note a) |
| Foreign exchange gains (losses), net |
| $ | 2,599 |
|
| $ | (1,350 | ) |
| $ | 2,838 |
|
| $ | 8,763 |
|
|
|
|
| $ | 2,599 |
|
| $ | (1,350 | ) |
| $ | 2,838 |
|
| $ | 8,763 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Amount of Gain (Loss) recognized in Statement of Income on Derivatives |
| |||||||||||||
|
|
|
| Three months ended June 30, |
|
| Six months ended June 30, |
| ||||||||||
Derivatives not designated as hedging instruments |
| Location of Gain (Loss) recognized in Statement of Income on Derivatives |
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2019 |
| ||||
Forward foreign exchange contracts (Note a) |
| Foreign exchange gains (losses), net |
| $ | (12,541 | ) |
| $ | 3,752 |
|
| $ | (16,829) |
|
| $ | 7,412 |
|
|
|
|
| $ | (12,541 | ) |
| $ | 3,752 |
|
| $ | (16,829) |
|
| $ | 7,412 |
|
(a) | These forward foreign exchange contracts were entered into to hedge fluctuations in foreign exchange rates for recognized balance sheet items such as receivables and intercompany borrowings, and were not originally designated as hedges under FASB guidance on derivatives and hedging. Realized gains (losses) and changes in the fair value of these derivatives are recorded in foreign exchange gains (losses), net in the consolidated statements of income. |
208. Prepaid expenses and other current assets
Prepaid expenses and other current assets consist of the following:
|
| As of December 31, |
|
| As of June 30, |
| ||
|
| 2018 |
|
| 2019 |
| ||
Advance income and non-income taxes |
| $ | 58,701 |
|
| $ | 82,904 |
|
Contract asset (Note 19) |
|
| 22,472 |
|
|
| 25,489 |
|
Prepaid expenses |
|
| 25,996 |
|
|
| 31,483 |
|
Derivative instruments |
|
| 34,528 |
|
|
| 29,831 |
|
Employee advances |
|
| 3,772 |
|
|
| 3,698 |
|
Deposits |
|
| 2,758 |
|
|
| 1,774 |
|
Advances to suppliers |
|
| 1,998 |
|
|
| 2,738 |
|
Others |
|
| 62,252 |
|
|
| 47,246 |
|
|
| $ | 212,477 |
|
| $ | 225,163 |
|
9. Property, plant and equipment, net
The following table provides the gross and net amount of property, plant and equipment:
|
| As of December 31, |
|
| As of June 30, |
| ||
|
| 2018 |
|
| 2019 |
| ||
Property, plant and equipment, gross |
| $ | 660,754 |
|
| $ | 682,046 |
|
Less: Accumulated depreciation and amortization |
|
| (448,039 | ) |
|
| (470,802 | ) |
Property, plant and equipment, net |
| $ | 212,715 |
|
| $ | 211,244 |
|
27
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
8. Prepaid expenses and other current assets
Prepaid expenses and other current assets consist of the following:
|
| As of December 31, |
|
| As of September 30, |
| ||
|
| 2016 |
|
| 2017 |
| ||
Advance income and non-income taxes |
| $ | 50,676 |
|
| $ | 96,175 |
|
Deferred transition costs |
|
| 45,252 |
|
|
| 50,561 |
|
Derivative instruments |
|
| 34,730 |
|
|
| 34,229 |
|
Prepaid expenses |
|
| 22,222 |
|
|
| 21,290 |
|
Customer acquisition cost |
|
| 11,126 |
|
|
| 15,707 |
|
Employee advances |
|
| 6,880 |
|
|
| 5,069 |
|
Deposits |
|
| 2,688 |
|
|
| 2,855 |
|
Advances to suppliers |
|
| 10,059 |
|
|
| 2,569 |
|
Others |
|
| 5,516 |
|
|
| 15,412 |
|
|
| $ | 189,149 |
|
| $ | 243,867 |
|
9. Property, plant and equipment, net (Continued)
Property, plant and equipment, net consist of the following:
|
| As of December 31, |
|
| As of September 30, |
| ||
|
| 2016 |
|
| 2017 |
| ||
Property, plant and equipment, gross |
| $ | 600,554 |
|
| $ | 653,523 |
|
Less: Accumulated depreciation and amortization |
|
| (407,336 | ) |
|
| (447,900 | ) |
Property, plant and equipment, net |
| $ | 193,218 |
|
| $ | 205,623 |
|
Depreciation expense on property, plant and equipment for the ninesix months ended SeptemberJune 30, 20162018 and 20172019 was $33,990$24,634 and $32,692,$28,474, respectively, and for the three months ended SeptemberJune 30, 20162018 and 20172019 was $11,334$12,360 and $11,479,$15,058, respectively. Computer software amortization for the ninesix months ended SeptemberJune 30, 20162018 and 20172019 amounted to $6,990$5,573 and $8,368,$4,216, respectively, and for the three months ended SeptemberJune 30, 20162018 and 2017 was $2,1822019 amounted to $2,760 and $2,963,$1,248, respectively.
The depreciation and amortization expenses set forth above include the effect of the reclassification of foreign exchange (gains) losses related to the effective portion of foreign currency derivative contracts, amounting to $614$(502) and $(1,211)$(130) for the ninesix months ended SeptemberJune 30, 20162018 and 2017,2019, respectively, and $147$(162) and $(517)$(97) for the three months ended SeptemberJune 30, 20162018 and 2017,2019, respectively.
The Company recorded a write-down to computer software during the three months ended June 30, 2018 as described in Note 10.
10. Goodwill and intangible assets
The following table presents the changes in goodwill:
|
| For the year ended December 31, 2018 |
|
| For six months ended June 30, 2019 |
| ||
Opening balance |
| $ | 1,337,122 |
|
| $ | 1,393,832 |
|
Goodwill relating to acquisitions consummated during the period |
|
| 91,936 |
|
|
| 2,547 |
|
Impact of measurement period adjustments |
|
| 816 |
|
|
| (988 | ) |
Effect of exchange rate fluctuations |
|
| (36,042 | ) |
|
| 4,866 |
|
Closing balance |
| $ | 1,393,832 |
|
| $ | 1,400,257 |
|
The total amount of goodwill deductible for tax purposes was $187,546 and $194,765 as of December 31, 2018 and June 30, 2019, respectively.
The Company’s intangible assets are as follows:
|
| As of December 31, 2018 |
|
| As of June 30, 2019 |
| ||||||||||||||||||
|
| Gross carrying amount |
|
| Accumulated amortization & Impairment |
|
| Net |
|
| Gross carrying amount |
|
| Accumulated amortization & Impairment |
|
| Net |
| ||||||
Customer-related intangible assets |
| $ | 368,558 |
|
| $ | 306,582 |
|
| $ | 61,976 |
|
| $ | 371,380 |
|
| $ | 319,702 |
|
| $ | 51,678 |
|
Marketing-related intangible assets |
|
| 54,714 |
|
|
| 46,591 |
|
|
| 8,123 |
|
|
| 54,971 |
|
|
| 48,522 |
|
|
| 6,449 |
|
Technology-related intangible assets |
|
| 76,790 |
|
|
| 33,976 |
|
|
| 42,814 |
|
|
| 129,698 |
|
|
| 43,698 |
|
|
| 86,000 |
|
Other intangible assets |
|
| 1,204 |
|
|
| 1,077 |
|
|
| 127 |
|
|
| 1,221 |
|
|
| 1,164 |
|
|
| 57 |
|
Intangible assets under development |
|
| 64,047 |
|
|
| — |
|
|
| 64,047 |
|
|
| 25,078 |
|
|
| 3,511 |
|
|
| 21,567 |
|
|
|
| 565,313 |
|
|
| 388,226 |
|
|
| 177,087 |
|
|
| 582,348 |
|
|
| 416,597 |
|
|
| 165,751 |
|
Amortization expenses for intangible assets acquired as a part of business combination and disclosed in the consolidated statements of income under amortization of acquired intangible assets for the year ended December 31, 2016 and ninesix months ended SeptemberJune 30, 2017:2018 and 2019 were $19,762 and $16,605, respectively, and for the three months ended June 30, 2018 and 2019 were $9,826 and $8,096, respectively.
|
| As of December 31, |
|
| As of September 30, |
| ||
|
| 2016 |
|
| 2017 |
| ||
Opening balance |
| $ | 1,038,346 |
|
| $ | 1,069,408 |
|
Goodwill relating to acquisitions consummated during the Period |
|
| 51,535 |
|
|
| 216,108 |
|
Goodwill relating to divestitures consummated during the period |
|
| (2,226 | ) |
|
| - |
|
Impact of measurement period adjustments |
|
| (59 | ) |
|
| 131 |
|
Effect of exchange rate fluctuations |
|
| (18,188 | ) |
|
| 29,665 |
|
Closing balance |
| $ | 1,069,408 |
|
| $ | 1,315,312 |
|
2128
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
10. Goodwill and intangible assets (Continued)
The total amount of goodwill deductible for tax purposes was $39,032 and $109,268 as of December 31, 2016 and September 30, 2017, respectively.
The Company’s intangible assets are as follows:
|
| As of December 31, 2016 |
|
| As of September 30, 2017 |
| ||||||||||||||||||
|
| Gross carrying amount |
|
| Accumulated amortization & impairment |
|
| Net |
|
| Gross carrying amount |
|
| Accumulated amortization & impairment |
|
| Net |
| ||||||
Customer-related intangible assets |
| $ | 312,041 |
|
| $ | 260,018 |
|
| $ | 52,023 |
|
| $ | 362,496 |
|
| $ | 283,459 |
|
| $ | 79,037 |
|
Marketing-related intangible assets |
|
| 45,098 |
|
|
| 30,571 |
|
|
| 14,527 |
|
|
| 52,275 |
|
|
| 36,355 |
|
|
| 15,920 |
|
Technology-related intangible assets |
|
| 26,116 |
|
|
| 21,026 |
|
|
| 5,090 |
|
|
| 51,487 |
|
|
| 26,438 |
|
|
| 25,049 |
|
Other intangible assets |
|
| 2,875 |
|
|
| 2,466 |
|
|
| 409 |
|
|
| 3,062 |
|
|
| 1,956 |
|
|
| 1,106 |
|
Intangible assets under development |
|
| 6,897 |
|
|
| - |
|
|
| 6,897 |
|
|
| 17,103 |
|
|
| - |
|
|
| 17,103 |
|
|
| $ | 393,027 |
|
| $ | 314,081 |
|
| $ | 78,946 |
|
| $ | 486,423 |
|
| $ | 348,208 |
|
| $ | 138,215 |
|
Amortization expenses for internally-developed and other intangible assets disclosed in the consolidated statements of income under amortizationcost of intangible assetsrevenue and selling, general and administrative expenses for the ninesix months ended SeptemberJune 30, 20162018, and 20172019 were $19,764$890 and $25,780,$8,254, respectively, and for the three months ended SeptemberJune 30, 20162018 and 20172019 were $7,126$490 and $10,151,$4,609, respectively.
Amortization expenses for the technology-related, internally-developed intangible assets set forth above include the effect of the reclassification of foreign exchange (gains) losses related to the effective portion of foreign currency derivative contracts, amounting to$(14) and $(35) for the six months ended June 30, 2018 and 2019, respectively, and $(5) and $(28) for the three months ended June 30, 2018 and 2019, respectively.
During the ninethree months ended SeptemberJune 30, 2016,2018, the Company tested anfor recoverability a group of assets comprised of computer software and a technology-related intangible software asset for recoverability as a result of the termination of related client contracts. Additionally, during the three months ended June 30, 2019, the Company tested for recoverability certain other technology-related intangible assets as a downward revision to the forecasted cash flows to be generated by the intangible asset. The Company previously recorded a charge to this assetresult of changes in the third quarter of 2015.Company’s investment strategy. Based on the results of itsthis testing, the Company determined that the carrying valuevalues of the intangible asset exceededassets tested were not recoverable, and the estimated undiscounted cash flows by $10,324 andCompany recorded an additional charge to further reducecomplete write-downs of the carrying value by this amount. Of this charge, $5,381 was recorded duringvalues of these assets amounting to $850 and $3,511 for the three months ended SeptemberJune 30, 2016. The Company used a combination of the income2018 and cost approaches to determine the fair value of the intangible asset for the purpose of calculating the charge. This charge hasJune 30, 2019, respectively. These write-downs have been recorded in other operating (income) expenses, net in the consolidated statement of income. Duringincome. The impairment related to computer software and technology-related intangible assets amounted to $512 and $338, respectively, for the ninethree months ended SeptemberJune 30, 2016,2018. For the Company also tested a customer-relatedthree months ended June 30, 2019, the impairment of $3,511 relates to technology-related intangible asset for recoverability as a result ofassets.
29
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the termination of a client contract. Based on results of such testing, the Company recorded a charge in the amount of the asset’s total carrying value of $871.Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
11. Short-term borrowings
The Company has the following borrowing facilities:
| (a) | Fund-based and non-fund-based credit facilities with banks, which are available for operational requirements in the form of overdrafts, letters of credit, guarantees and short-term loans. As of December 31, |
| (b) | A fund-based and non-fund based revolving credit facility of |
22
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)12. Long-term debt
In June 2015,August 2018, the Company refinancedamended its 20122015 credit facility through a new credit facility(the “2015 Facility”), which was comprised of an $800,000 term loan and a $350,000 revolving credit facility. The amended facility is comprised of a $680,000 term loan, which represents the outstanding balance under the 2015 Facility as of the date of amendment, and a $500,000 revolving credit facility. The amended facility expires on August 8, 2023. The amendment did not result in a substantial modification of $550,814 of the outstanding term loan under the 2015 Facility. Further, as a result of the amendment, the Company extinguished the outstanding term loan under the 2015 Facility of $129,186 and obtained additional funding of $129,186, resulting in no change to the outstanding principal of the term loan under the amended facility. In connection with the amendment, the Company expensed $2,029, representing partial acceleration of the amortization of the existing unamortized debt issuance costs and an additional fee paid to the Company’s lenders related to the term loan. The overall borrowing capacity under the revolving credit facility increased from $350,000 to $500,000. The amendment of the revolving credit facility resulted in accelerated amortization of $82 relating to existing unamortized debt issuance cost. The remaining unamortized costs and an additional third-party fee paid in connection with the amendment will be amortized over the term of the amended facility, which will expire on August 8, 2023.
Borrowings under the newamended credit facility bear interest at a rate equal to, at the election of the Company, either LIBOR plus an applicable margin equal to 1.50%1.375% per annum, compared to a margin of 1.50% under the 2015 facility, or a base rate plus an applicable margin equal to 0.50%0.375% per annum, compared to a margin of 0.50% under the 2015 facility, in each case subject to adjustment based on the Company’s debt ratings provided by Standard & Poor’s Rating Services and Moody’s Investors Service, Inc. Based on the Company’s election and current credit rating, the applicable interest rate is equal to LIBOR plus 1.50%1.375% per annum. AsThe amended credit agreement contains certain customary covenants, including a result ofmaximum leverage covenant and a minimum interest coverage ratio. During the June 2015 refinancing, the gross outstanding term loan under the previous facility, which amounted to $663,188 as ofsix months ended June 30, 2015, was extinguished, and the Company expensed $10,050, representing accelerated amortization of the existing unamortized debt issuance costs related to the prior facility. Additionally, the refinancing of the revolving facility resulted in the accelerated amortization of $65 relating to the existing unamortized debt issuance cost. The remaining unamortized costs for the revolving facility, together with the fees paid to the Company’s lenders and third parties in connection with the new term loan and revolving facility, will be amortized over the term of the refinanced facility, which ends on June 30, 2020. During the nine months ended September 30, 2017,2019, the Company was in compliance with the financial covenants ofcovenants.
30
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the credit agreement.Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
12. Long-term debt (Continued)
As of December 31, 20162018 and SeptemberJune 30, 2017,2019, the amount outstanding under the term loan, net of debt amortization expense of $2,667$2,158 and $2,051,$1,898, was $737,333$660,841 and $707,967,$644,102, respectively. As of December 31, 20162018 and SeptemberJune 30, 2017,2019, the term loan bore interest at a rate equal to LIBOR plus a margin of 1.50%1.375% per annum based on the Company’s election and current credit rating.annum. Indebtedness under the refinancedamended credit facility is unsecured. The amount outstanding on the term loan as of SeptemberJune 30, 2017 will be repaid through2019 requires quarterly payments of $10,000,$8,500, and the balance will be repaidof the loan is due and payable upon the maturity of the term loan on June 30, 2020.August 8, 2023.
The maturity profile of the term loan outstanding as of June 30, 2019, net of debt amortization expense, is as follows:
Year ended |
| Amount |
|
| Amount |
| ||
2017 |
| $ | 9,815 |
| ||||
2018 |
|
| 39,226 |
| ||||
2019 |
|
| 39,272 |
|
| $ | 16,744 |
|
2020 |
|
| 619,654 |
|
|
| 33,509 |
|
2021 |
|
| 33,537 |
| ||||
2022 |
|
| 33,564 |
| ||||
2023 |
|
| 526,748 |
| ||||
Total |
| $ | 707,967 |
|
| $ | 644,102 |
|
In March 2017, Genpact Luxembourg S.à.r.l. (the “Issuer”), a wholly owned subsidiary of the Company, issued $350,000 aggregate principal amount of 3.70% senior notes in a private offering, resulting in cash proceeds of approximately $348,519, net of an underwriting fee of $1,481. The issuance was fully guaranteed by the Company. In connection with the offering, the Company incurred other debt issuance costs of $1,161. The total debt issuance cost of $2,642 is being amortized over the life of the notes as additional interest expense. As of SeptemberDecember 31, 2018 and June 30, 2017,2019, the amount outstanding under the notes, net of debt amortization expense of $2,372,$1,713 and $1,453, was $347,628,$348,287 and $348,547, respectively, which is payable on April 1, 2022. The CompanyIssuer will pay interest on the notes semi-annually in arrears on April 1 and October 1 of each year, ending on the maturity date of April 1, 2022. The Company, at its option, may redeem the notes at any time in whole or in part, at a redemption price equal to (i) 100% of the principal amount of the notes redeemed, together with accrued and unpaid interest on the redeemed amount, and (ii) if the notes are redeemed prior to March 1, 2022, a specified “make-whole” premium. The notes are subject to certain customary covenants, including limitations on the ability of the Company and certain of its subsidiaries to incur debt secured by liens, engage in certain sale and leaseback transactions and consolidate, merge, convey or transfer their assets.assets, and during the six months ended June 30, 2019, the Company and its applicable subsidiaries were in compliance with the covenants. Upon certain change of control transactions, the CompanyIssuer will be required to make an offer to repurchase the notes at a price equal to 101% of the aggregate principal amount of such notes, plus accrued and unpaid interest. The interest rate payable on the notes is subject to adjustment if the credit rating of the notes is downgraded, up to a maximum increase of 2.0%. TheIn connection with the 3.70% senior notes private offering, the Issuer and the Company is requiredentered into a registration rights agreement with the initial purchasers of the outstanding unregistered notes pursuant to offerwhich the Issuer and the Company agreed to complete an exchange the notes for registered notes or have one or more shelf registration statements declared effectiveoffer within 455 days after the issue date of the private offering upon terms identical in all material respects to the terms of the outstanding unregistered notes, except that the transfer restrictions, registration rights and if suchadditional interest provisions applicable to the outstanding unregistered notes would not apply to the exchange notes. On July 24, 2018, the unregistered notes exchange offer fails to be consummated or such registration statement fails to be effective by June 25, 2018, thenwas completed and all outstanding unregistered notes were exchanged for freely tradable notes registered under the interest payable on the notes will increase by 0.25% per annum during the 90-day period immediately following such date and will further increase by 0.25% per annum at the endSecurities Act of each subsequent 90-day period up to a maximum increase of 0.50%. The notes are senior unsecured obligations of the Company and will rank equally with all other senior unsecured indebtedness of the Company outstanding from time to time.1933, as amended.
23
31
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
13. Accrued expenses and other current liabilities
Accrued expenses and other current liabilities consist of the following:
|
| As of December 31, |
|
| As of September 30, |
|
| As of December 31, |
|
| As of June 30, |
| |||||
|
| 2016 |
|
| 2017 |
|
| 2018 |
|
| 2019 |
| |||||
Accrued expenses |
| $ | 163,400 |
|
| $ | 183,261 |
|
| $ | 179,843 |
|
| $ | 185,504 |
| |
Accrued employee cost |
|
| 179,360 |
|
|
| 182,211 |
|
|
| 210,251 |
|
|
| 163,842 |
| |
Deferred transition revenue |
|
| 50,552 |
|
|
| 47,317 |
| |||||||||
Earn-out consideration |
|
| 16,875 |
|
|
| 3,354 |
| |||||||||
Statutory liabilities |
|
| 36,878 |
|
|
| 44,125 |
|
|
| 42,728 |
|
|
| 51,496 |
| |
Retirement benefits |
|
| 17,616 |
|
|
| 19,810 |
|
|
| 22,921 |
|
|
| 24,436 |
| |
Derivative instruments |
|
| 4,777 |
|
|
| 14,527 |
|
|
| 15,373 |
|
|
| 5,477 |
| |
Advance from customers |
|
| 21,969 |
|
|
| 27,678 |
| |||||||||
Earn-out consideration |
|
| 6,885 |
|
|
| 6,687 |
| |||||||||
Contract liabilities (Note 19) |
|
| 64,744 |
|
|
| 83,334 |
| |||||||||
Finance lease liability |
|
| — |
|
|
| 10,456 |
| |||||||||
Capital lease obligations |
|
| 1,808 |
|
|
| — |
| |||||||||
Other liabilities |
|
| 15,461 |
|
|
| 13,607 |
|
|
| 16,807 |
|
|
| 17,113 |
| |
Capital lease obligations |
|
| 1,349 |
|
|
| 1,520 |
| |||||||||
|
| $ | 498,247 |
|
| $ | 540,743 |
|
| $ | 571,350 |
|
| $ | 545,012 |
|
14. Other liabilities
Other liabilities consist of the following:
|
| As of December 31, |
|
| As of September 30, |
|
| As of December 31, |
|
| As of June 30, |
| ||||
|
| 2016 |
|
| 2017 |
|
| 2018 |
|
| 2019 |
| ||||
Accrued employee cost |
| $ | 3,976 |
|
| $ | 16,234 |
|
| $ | 6,341 |
|
| $ | 6,686 |
|
Deferred transition revenue |
|
| 72,560 |
|
|
| 74,860 |
| ||||||||
Earn-out consideration |
|
| 198 |
|
|
| 109 |
| ||||||||
Retirement benefits |
|
| 39,020 |
|
|
| 45,243 |
|
|
| 50,370 |
|
|
| 52,537 |
|
Derivative instruments |
|
| 12,576 |
|
|
| 13,236 |
|
|
| 19,872 |
|
|
| 16,450 |
|
Amount received from GE under indemnification arrangement, pending adjustment |
|
| 3,159 |
|
|
| 3,294 |
| ||||||||
Advance from customers |
|
| 2,371 |
|
|
| 232 |
| ||||||||
Earn-out consideration |
|
| 15,550 |
|
|
| 11,312 |
| ||||||||
Contract liabilities (Note 19) |
|
| 53,796 |
|
|
| 60,052 |
| ||||||||
Finance lease liability |
|
| — |
|
|
| 26,185 |
| ||||||||
Capital lease obligations |
|
| 1,714 |
|
|
| — |
| ||||||||
Others |
|
| 11,078 |
|
|
| 17,803 |
|
|
| 32,935 |
|
|
| 16,807 |
|
Capital lease obligations |
|
| 2,500 |
|
|
| 2,751 |
| ||||||||
|
| $ | 162,790 |
|
| $ | 184,965 |
|
| $ | 165,226 |
|
| $ | 178,826 |
|
24
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
The Company has employee benefit plans in the form of certain statutory and other schemesprograms covering its employees.
Defined benefit plans
In accordance with Indian law, the Company maintains a defined benefit retirement plan covering substantially all of its Indian employees. In accordance with Mexican law, the Company provides termination benefits to all of its Mexican employees. In addition, certain of the Company’s subsidiaries in the Philippines and Japan sponsor defined benefit retirement programs.
Net defined benefit plan costs for the three and nine months ended September 30, 2016 and 2017 include the following components:
| Three months ended September 30, |
|
| Nine months ended September 30, |
| |||||||||||
| 2016 |
|
| 2017 |
|
| 2016 |
|
|
| 2017 |
| ||||
Service costs | $ | 1,207 |
|
| $ | 1,814 |
|
| $ | 4,040 |
|
|
| $ | 5,391 |
|
Interest costs |
| 559 |
|
|
| 776 |
|
|
| 1,870 |
|
|
|
| 2,303 |
|
Amortization of actuarial loss |
| 34 |
|
|
| 221 |
|
|
| 15 |
|
|
|
| 653 |
|
Expected return on plan assets |
| (469 | ) |
|
| (529 | ) |
|
| (1,449 | ) |
|
|
| (1,560 | ) |
Net defined benefit plan costs | $ | 1,331 |
|
| $ | 2,282 |
|
| $ | 4,476 |
|
|
| $ | 6,787 |
|
Defined contribution plans
During the three and nine months ended September 30, 2016 and 2017, the Company contributed the following amounts to defined contribution plans in various jurisdictions:
|
| Three months ended September 30, |
|
| Nine months ended September 30, |
| ||||||||||
|
| 2016 |
|
| 2017 |
|
| 2016 |
|
| 2017 |
| ||||
India |
| $ | 4,843 |
|
| $ | 5,731 |
|
| $ | 13,877 |
|
| $ | 16,514 |
|
U.S. |
|
| 2,216 |
|
|
| 2,228 |
|
|
| 7,951 |
|
|
| 9,148 |
|
U.K. |
|
| 1,596 |
|
|
| 1,887 |
|
|
| 5,177 |
|
|
| 5,961 |
|
China |
|
| 4,158 |
|
|
| 4,132 |
|
|
| 11,555 |
|
|
| 11,700 |
|
Other regions |
|
| 1,158 |
|
|
| 1,006 |
|
|
| 3,507 |
|
|
| 3,083 |
|
Total |
| $ | 13,971 |
|
| $ | 14,984 |
|
| $ | 42,067 |
|
| $ | 46,405 |
|
2532
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
15. Employee benefit plans (Continued)
Net defined benefit plan costs for the three and six months ended June 30, 2018 and 2019 include the following components:
| Three months ended June 30, |
|
|
| Six months ended June 30, |
| ||||||||||
| 2018 |
|
| 2019 |
|
|
| 2018 |
|
| 2019 |
| ||||
Service costs | $ | 2,058 |
|
| $ | 2,358 |
|
|
| $ | 4,053 |
|
| $ | 4,331 |
|
Interest costs |
| 939 |
|
|
| 1,269 |
|
|
|
| 1,934 |
|
|
| 2,341 |
|
Amortization of actuarial loss |
| 235 |
|
|
| 280 |
|
|
|
| 555 |
|
|
| 597 |
|
Expected return on plan assets |
| (744 | ) |
|
| (691 | ) |
|
|
| (1,480 | ) |
|
| (1,324 | ) |
Net defined benefit plan costs | $ | 2,488 |
|
| $ | 3,216 |
|
|
| $ | 5,062 |
|
| $ | 5,945 |
|
Defined contribution plans
During the three and six months ended June 30, 2018 and 2019, the Company contributed the following amounts to defined contribution plans in various jurisdictions:
|
| Three months ended June 30, |
|
| Six months ended June 30, |
| ||||||||||
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2019 |
| ||||
India |
| $ | 6,061 |
|
| $ | 7,387 |
|
| $ | 12,005 |
|
| $ | 13,952 |
|
U.S. |
|
| 2,359 |
|
|
| 3,814 |
|
|
| 6,958 |
|
|
| 9,021 |
|
U.K. |
|
| 3,187 |
|
|
| 4,233 |
|
|
| 5,324 |
|
|
| 6,656 |
|
China |
|
| 4,408 |
|
|
| 4,645 |
|
|
| 8,802 |
|
|
| 9,418 |
|
Other regions |
|
| 1,172 |
|
|
| 1,787 |
|
|
| 2,332 |
|
|
| 2,856 |
|
Total |
| $ | 17,187 |
|
| $ | 21,866 |
|
| $ | 35,421 |
|
| $ | 41,903 |
|
Deferred compensation plan
On July 1, 2018, Genpact LLC, a wholly-owned subsidiary of the Company, adopted an executive deferred compensation plan (the “Plan”). The Plan provides a select group of U.S.-based members of Company management with the opportunity to defer from 1% to 80% of their base salary and from 1% to 100% of their qualifying bonus compensation (or such other minimums or maximums as determined by the Plan administrator from time to time) pursuant to the terms of the Plan. Participant deferrals are 100% vested at all times. The Plan also allows for discretionary supplemental employer contributions by the Company, in its sole discretion, which will be subject to a two-year vesting schedule (50% vesting on the one-year anniversary of approval of the contribution and 50% vesting on the second year anniversary of approval of the contribution) or such other vesting schedule as determined by the Company.
The Plan also provides an option for participants to elect to receive deferred compensation and earnings thereon on either fixed date(s) no earlier than two years following the applicable Plan year (or end of the applicable performance period for performance-based bonus compensation) or following a separation from service, in each case either in a lump sum or in annual installments over a term of up to 15 years. Each Plan participant’s compensation deferrals are credited or debited with notional investment gains and losses equal to the performance of selected hypothetical investment funds offered under the Plan and elected by the participant.
The Company has issued optionsinvestments in funds held in Company-owned life insurance policies which are held in a Rabbi Trust that are classified as trading securities. Management determines the appropriate classification of the securities at the time they are acquired and evaluates the appropriateness of such classifications at each balance sheet date. The securities are classified as trading securities because they are held for resale in anticipation of short-term fluctuations in market prices. The trading securities are stated at fair value.
33
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
15. Employee benefit plans (Continued)
The liability for the deferred compensation plan was $1,582 and $8,994 as of December 31, 2018 and June 30, 2019, respectively, and is included in “other liabilities” in the consolidated balance sheets.
In connection with the administration of the Plan, the Company has purchased company-owned life insurance policies insuring the lives of certain employees. The cash surrender value of these policies was $1,613 and $9,141 as of December 31, 2018 and June 30, 2019, respectively. The cash surrender value of these insurance policies is included in “other assets” in the consolidated balance sheets.
The change in the fair value of Plan assets during the six months ended June 30, 2018 and 2019 was $0 and $543, respectively, and for the three months ended June 30, 2018 and 2019 was $0 and $255, respectively, which is included in “other income (expense), net” in the consolidated statements of income. The change in the fair value of deferred compensation liabilities during the six months ended June 30, 2018 and 2019 was $0 and $435, respectively, and for the three months ended June 30, 2018 and 2019 was $0 and $247, respectively, which is included in “selling, general and administrative expenses.”
16. Stock-based compensation
The Company has granted stock-based awards under the Genpact Global Holdings 2005 Plan (the “2005 Plan”), the Genpact Global Holdings 2006 Plan (the “2006 Plan”), the Genpact Global Holdings 2007 Plan (the “2007 Plan”) and the Genpact Limited 2007 Omnibus Incentive Compensation Plan (the “2007 Omnibus Plan”) and the Genpact Limited 2017 Omnibus Incentive Compensation Plan (the “2017 Omnibus Plan”) to eligible persons, who areincluding employees, directors and certain other persons associated with the Company.
With respect to options granted under the 2005, 2006 and 2007 Plans before the date of adoption of the 2007 Omnibus Plan, if an award granted under any such plan was forfeited or otherwise expired, terminated, or cancelled without the delivery of shares, then the shares covered by the forfeited, expired, terminated, or cancelled award were added to the number of shares otherwise available for grant under the respective plans.
Under the 2007 Omnibus Plan, share-basedshares underlying awards forfeited, expired, terminated or cancelled under any of the Company’s predecessor plans were added to the number of shares otherwise available for grant under the 2007 Omnibus Plan. The 2007 Omnibus Plan was amended and restated on April 11, 2012 to increase the number of common shares authorized for issuance by 5,593,200 shares to 15,000,000 shares.
On May 9, 2017, the Company’s shareholders approved the adoption of the Genpact Limited 2017 Omnibus Incentive Compensation Plan (the “2017 Omnibus Plan”), pursuant to which 15,000,000 Company common shares are available for issuance. The 2017 Omnibus Plan was amended and restated on April 5, 2019 to increase the number of common shares authorized for issuance by 8,000,000 shares to 23,000,000 shares. No further grants may be made under the 2007 Omnibus Plan after the date of adoption of the 2017 Omnibus Plan. Grants that were outstanding under the 2007 Omnibus Plan as of the date of Company’s adoption of the 2017 Omnibus Plan remain subject to the terms of the 2007 Omnibus Plan.
Stock-based compensation costs relating to the foregoing plans during the ninesix months ended SeptemberJune 30, 20162018 and 2017June 30, 2019 were $18,046$18,343 and $21,985,$39,483, respectively, and for the three months ended SeptemberJune 30, 20162018 and 20172019 were $4,718$10,746 and $9,907,$21,252, respectively. These costs have been allocated to cost of revenue and selling, general, and administrative expenses.
Stock options
Options granted are subject to a vesting requirement. Options
All options granted under the plans to date2007 and 2017 Omnibus Plans are exercisable into common shares of the Company, have a contractual period of ten years and vest over four to five years unless specified otherwise in the applicable award agreement. The Company recognizes the compensation cost over the vesting period of the option.
Compensation cost is determined as ofat the date of grant by estimating the fair value of an option using the Black-Scholes option-pricing model.
The following table shows the significant assumptions used in connection with the determination of the fair value of options granted in the nine months ended September 30, 2016 and September 30, 2017.
| Nine months ended September 30, 2016 |
|
| Nine months ended September 30, 2017 |
| ||||
Dividend yield | — |
|
|
|
| 0.97% |
| ||
Expected life (in months) | 84 |
|
|
|
| 84 |
| ||
Risk-free rate of interest | 1.42%-1.56% |
|
|
| 2.25% |
| |||
Volatility | 25.60%-27.22% |
|
|
| 24.28% |
|
2634
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
16. Stock-based compensation (Continued)
The following table shows the significant assumptions used in determining the fair value of options granted in the six months ended June 30, 2018 and June 30, 2019.
| Six months ended June 30, 2018 |
|
| Six months ended June 30, 2019 |
| |||
Dividend yield | 0.95% - 0.99% |
|
|
|
| 1.08% |
| |
Expected life (in months) | 84 |
|
|
|
| 84 |
| |
Risk-free rate of interest | 2.67%-2.93% |
|
|
| 2.63% |
| ||
Volatility | 22.67%-22.73% |
|
|
| 21.38% |
|
A summary of stock option activity during the ninesix months ended SeptemberJune 30, 20172019 is set out below:
|
| Nine months ended September 30, 2017 |
| |||||||||||||
|
| Shares arising out of options |
|
| Weighted average exercise price |
|
| Weighted average remaining contractual life (years) |
|
| Aggregate intrinsic value |
| ||||
Outstanding as of January 1, 2017 |
|
| 5,707,690 |
|
| $ | 18.65 |
|
|
| 5.8 |
|
| $ | — |
|
Granted |
|
| 250,000 |
|
|
| 24.74 |
|
|
| — |
|
|
| — |
|
Forfeited |
|
| (80,000 | ) |
|
| 20.63 |
|
|
| — |
|
|
| — |
|
Expired |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Exercised |
|
| (641,900 | ) |
|
| 14.40 |
|
|
| — |
|
|
| 8,707 |
|
Outstanding as of September 30, 2017 |
|
| 5,235,790 |
|
| $ | 19.44 |
|
|
| 5.8 |
|
| $ | 48,770 |
|
Vested as of September 30, 2017 and expected to vest thereafter (Note a) |
|
5,036,756 |
|
| $ | 19.22 |
|
|
| 5.8 |
|
| $ | 47,981 |
| |
Vested and exercisable as of September 30, 2017 |
|
| 2,304,291 |
|
| $ | 16.12 |
|
|
| 4.3 |
|
| $ | 29,095 |
|
Weighted average grant date fair value of grants during the period |
| $ | 6.62 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six months ended June 30, 2019 |
| ||||||||||||||||||||||
|
| Shares arising out of options |
|
| Weighted average exercise price |
|
| Weighted average remaining contractual life (years) |
|
| Aggregate intrinsic value |
| |||||||||||||
Outstanding as of January 1, 2019 |
|
| 7,261,675 |
|
| $ | 23.61 |
|
|
| 6.4 |
|
| $ | - |
| |||||||||
Granted |
|
| 1,771,068 |
|
|
| 27.70 |
|
|
|
|
|
|
|
|
| |||||||||
Forfeited |
|
| (85,000) |
|
|
| 29.91 |
|
|
|
|
|
|
|
|
| |||||||||
Expired |
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
| |||||||||
Exercised |
|
| (506,497) |
|
|
| 14.37 |
|
|
|
|
|
|
| 11,591 |
| |||||||||
Outstanding as of June 30, 2019 |
|
| 8,441,246 |
|
| $ | 24.96 |
|
|
| 6.9 |
|
| $ | 110,867 |
| |||||||||
Vested as of June 30, 2019 and expected to vest thereafter (Note a) |
| 8,118,039 |
|
| $ | 24.84 |
|
|
| 6.9 |
|
| $ |
| 107,567 | ||||||||||
Vested and exercisable as of June 30, 2019 |
|
| 3,177,073 |
|
| $ | 19.13 |
|
|
| 3.8 |
|
| $ | 60,250 |
| |||||||||
Weighted average grant date fair value of grants during the period |
| $ | 6.83 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) Options expected to vest reflect the application of an estimated forfeiture rate.
35 GENPACT LIMITED AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements (Unaudited) (In thousands, except per share data and share count) 16. Stock-based compensation (Continued) |
|
As of SeptemberJune 30, 2017,2019, the total remaining unrecognized stock-based compensation cost for options expected to vest amounted to $8,182,$27,744, which will be recognized over the weighted average remaining requisite vesting period of 2.73.9 years.
Restricted share units
The Company has granted restricted share units, or RSUs, under the 2007 and 2017 Omnibus Plans. Each RSU represents the right to receive one Company common share at a future date.share. The fair value of each RSU is typically the closing market price of a Companyone common share of the Company on the date of the grant. The RSUs granted to date have graded vesting schedules of three months to four years. The compensation expense is recognized on a straight-line basis over the vesting term. A summary of RSUs grantedRSU activity during the ninesix months ended SeptemberJune 30, 20172019 is set out below:
|
| Nine months ended September 30, 2017 |
|
| Six months ended June 30, 2019 |
| ||||||||||
|
| Number of Restricted Share Units |
|
| Weighted Average Grant Date Fair Value |
|
| Number of Restricted Share Units |
|
| Weighted Average Grant Date Fair Value |
| ||||
Outstanding as of January 1, 2017 |
|
| 117,905 |
|
| $ | 20.65 |
| ||||||||
Outstanding as of January 1, 2019 |
|
| 1,528,999 |
|
| $ | 27.45 |
| ||||||||
Granted |
|
| 1,518,565 |
|
|
| 26.30 |
|
|
| 263,668 |
|
|
| 33.85 |
|
Vested (Note a) |
|
| (45,248 | ) |
|
| 18.31 |
|
|
| (525,867 | ) |
|
| 25.94 |
|
Forfeited |
|
| (1,242) |
|
|
| 25.53 |
|
|
| (126,719 | ) |
|
| 32.29 |
|
Outstanding as of September 30, 2017 |
|
| 1,589,980 |
|
| $ | 26.11 |
| ||||||||
Outstanding as of June 30, 2019 |
|
| 1,140,081 |
|
| $ | 29.10 |
| ||||||||
Expected to vest (Note b) |
|
| 1,324,508 |
|
|
|
|
|
|
| 1,053,871 |
|
|
|
|
|
(a) | 525,867 RSUs that vested during the period were net settled upon vesting by issuing |
(b) | The number of RSUs expected to vest reflects the application of an estimated forfeiture rate. |
53,546 RSUs vested in the year ended December 31, 2015, in respect of which 53,023 shares were issued during the nine months ended September 30, 2017 after withholding shares to the extent of minimum statutory withholding taxes.
34,035 RSUs vested in the year ended December 31, 2016, in respect of which 17,802 shares were issued during the nine months ended September 30, 2017 after withholding shares to the extent of minimum statutory withholding taxes.
2736
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
16. Stock-based compensation (Continued)
As of SeptemberJune 30, 2017,2019, the total remaining unrecognized stock-based compensation cost related to RSUs amounted to $29,339,$21,280, which will be recognized over the weighted average remaining requisite vesting period of 3.12 years.
Performance units
The Company also grants stockstock-based awards in the form of performance units, or PUs, and has granted PUs under both the 2007 and 2017 Omnibus Plans.
Each PU represents the right to receive one Company common share at a future date based on the Company’s performance against specified targets. PUs granted to date have vesting schedules of six months to three years. The fair value of each PU is the closing market price of one common share of the Company on the date of grant and assumes that performance targets will be achieved. PUs granted under the Company’s plans to date are subject to cliff vesting. The compensation expense for such awards is recognized on a straight-line basis over the vesting terms. OverDuring the performance period, the Company’s estimate of the number of shares to be issued is adjusted upward or downward depending onbased upon the probability of achievement of the performance targets. The ultimate number of shares issued and the related compensation cost recognized is based on a comparison of the final performance metrics to the specified targets.
A summary of PU activity during the ninesix months ended SeptemberJune 30, 20172019 is set out below:
|
| Nine months ended September 30, 2017 |
| |||||||||
|
| Number of Performance Units |
|
| Weighted Average Grant Date Fair Value |
|
| Maximum Shares Eligible to Receive |
| |||
Outstanding as of January 1, 2017 |
|
| 3,772,128 |
|
| $ | 23.04 |
|
|
| 5,524,114 |
|
Granted |
|
| 1,811,292 |
|
|
| 25.22 |
|
|
| 3,622,584 |
|
Vested (Note a) |
|
| (1,136,047) |
|
|
| 16.78 |
|
|
| (1,136,047) |
|
Forfeited (Note b) |
|
| (1,557,067 | ) |
|
| 27.62 |
|
|
| (1,580,267 | ) |
Adjustment upon final determination of level of performance goal achievement (Note c) |
|
|
|
|
|
|
|
|
|
| (1,747,586) |
|
Outstanding as of September 30, 2017 |
|
| 2,890,306 |
|
| $ | 24.40 |
|
|
| 4,682,798 |
|
Expected to vest (Note d) |
|
| 2,248,990 |
|
|
|
|
|
|
|
|
|
|
| Six months ended June 30, 2019 |
| |||||||||
|
| Number of Performance Units |
|
| Weighted Average Grant Date Fair Value |
|
| Maximum Shares Eligible to Receive |
| |||
Outstanding as of January 1, 2019 |
|
| 3,712,402 |
|
| $ | 28.40 |
|
|
| 3,712,402 |
|
Granted |
|
| 1,554,743 |
|
|
| 34.60 |
|
|
| 3,109,486 |
|
Vested |
|
|
| - |
|
| - |
|
|
| - |
|
Forfeited |
|
| (148,418 | ) |
|
| 28.34 |
|
|
| (154,986 | ) |
Adjustment upon final determination of level of performance goal achievement (Note a) |
|
| (13,996 | ) |
|
| 30.68 |
|
|
|
|
|
Adjustment upon final determination of level of performance goal achievement (Note a) |
|
|
|
|
|
|
|
|
|
| (13,996 | ) |
Outstanding as of June 30, 2019 |
|
| 5,104,730 |
|
| $ | 30.28 |
|
|
| 6,652,906 |
|
Expected to vest (Note b) |
|
| 5,335,585 |
|
|
|
|
|
|
|
|
|
| (a) | Represents an adjustment made in March 2019 to the number of shares subject to the PUs |
| (b) |
|
|
|
| The number of PUs expected to vest |
As of SeptemberJune 30, 2017,2019, the total remaining unrecognized stock-based compensation cost related to PUs amounted to $27,746,$79,204, which will be recognized over the weighted average remaining requisite vesting period of 2.12 years.
2837
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
16. Stock-based compensation (Continued)
Employee Stock Purchase Plan (ESPP)
On May 1, 2008, the Company adopted the Genpact Limited U.S. Employee Stock Purchase Plan and the Genpact Limited International Employee Stock Purchase Plan (together, the “ESPP”). In April 2018, these plans were amended and restated, and their terms were extended to August 31, 2028.
The ESPP allows eligible employees to purchase the Company’s common shares through payroll deductions at 90% of the closing price of the Company’s common shares on the last business day of each purchase interval. The dollar amount of common shares purchased under the ESPP mustmay not exceed 15% of the participating employee’s base salary, subject to a cap of $25 per employee per calendar year. With effect from September 1, 2009, the offering periods commence on the first business day in March, June, September and December of each year and end on the last business day of the subsequent May, August, November and February. 4,200,000 common shares have been reserved for issuance in the aggregate over the term of the ESPP.
During the ninesix months ended SeptemberJune 30, 20162018 and 2017, 105,8562019, 114,951 and 150,265134,346 common shares, respectively, were issued under the ESPP.
The ESPP is considered compensatory under the FASB guidance on Compensation-Stock Compensation.
The compensation expense for the ESPP is recognized in accordance with the FASB guidance on Compensation-Stock Compensation. The compensation expense for the ESPP during the ninesix months ended SeptemberJune 30, 20162018 and 20172019 was $298$381 and $417,$504, respectively, and for the three months ended SeptemberJune 30, 20162018 and 20172019 was $110$191 and $144,$274, respectively, and has been allocated to cost of revenue and selling, general, and administrative expenses.
2938
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
17. Capital stock
Share repurchases
As
The Board of December 31, 2016,Directors of the Company’s board of directorsCompany (the “Board”) hadhas authorized the Company to repurchaserepurchases of up to $750,000 in value of the Company’s common shares under its share repurchase program first announced in February 2015. On February 10, 2017 the Board approved up to an additional $500,000 in share repurchases, bringing the total authorization$1,250,000 under the Company’s existing program to $1,250,000. Theshare repurchase program. Since the Company’s share repurchase program does not obligate itwas initially authorized in 2015, the Company has repurchased shares amounting to acquire any specificapproximately $946,000, representing 36,631,068 common shares, at an average price of $25.82 per share. This number of shares. Under the program,includes shares may be purchased in privately negotiated and/or open market transactions, including under plans complying with Rule 10b5-1repurchased under the Securities Exchange Act of 1934, as amended.
On March 29,Company’s 2017 the Company entered into an accelerated share repurchase (“ASR”) agreement with Morgan Stanley & Co. LLC (the “Dealer”) to repurchase Company common shares for an aggregate purchase price of $200,000. The Company paid the aggregate purchase price to the Dealer and received an initial delivery of 6,578,947 common shares at a price of $24.32 per share. The purchase price was recorded as a reduction in shareholders’ equity through a $160,000 decrease in retained earnings and a $40,000 decrease in additional paid-in capital.program.
The final settlement of the transaction under the ASR agreement, which was initially expected to be completed by the end of the fourth quarter of 2017, is now expected to be completed in January 2018 pursuant to an amendment to the ASR agreement. The final number of common shares to be repurchased by the Company under the ASR agreement will be based on the volume-weighted average share price of the Company’s common shares during the term of the applicable transaction, less a discount and subject to adjustments pursuant to the terms of the ASR agreement. At settlement, under certain circumstances, the Company may be entitled to receive additional common shares from the Dealer or may be required either to deliver its common shares or to make a cash payment to the Dealer.
The ASR agreement contains customary provisions, including, among other things, with respect to mechanisms to determine the number of shares or the amount of cash that will be delivered at settlement, the required timing of delivery upon settlement, specific circumstances under which adjustments may be made to the repurchase transaction, and specific circumstances under which the repurchase transaction may be canceled prior to the scheduled maturity.
During the ninesix months ended SeptemberJune 30, 2016,2019, the Company purchased 9,615,323did not repurchase any of its common shares. During the six months ended June 30, 2018, the Company repurchased 4,114,882 of its common shares on the open market at a weighted average price of $25.23$31.62 per share for an aggregate cash amount of $242,552. During$130,103. Additionally, in the ninesix months ended SeptemberJune 30, 2017,2018, the Company made payments in an aggregate cash amountreceived a final delivery of $219,784 toward share repurchases. Of this amount, the Company paid (i) $19,784 to repurchase 808,293 of its163,975 common shares onupon the open market at a weighted average price of $24.48 per share, (ii) $160,000 to the Dealer for the initial delivery of 6,578,947 of its common shares under the ASR agreement at a weighted average price of $24.32 per share, and (iii) $40,000 to the Dealer for shares to be delivered at the final settlement of the transaction under the ASR agreement as described above.its 2017 accelerated share repurchase program. All repurchased shares have beenwere retired.
The Company records repurchases of its common shares on the settlement date of each transaction. Shares purchased and retired are deducted to the extent of their par value from common stock and from retained earnings for the excess over par value. Direct costs incurred to acquire the shares are included in the total cost of the shares purchased. For the nine months ended September 30, 2016 and September 30, 2017, $192 and $16, respectively, was deducted from retained earnings in direct costs related to share repurchases.
Dividend
In
On February 2017,12, 2018, the Company’s boardCompany announced that its Board of directorsDirectors had approved a dividend program under which the Company intends to pay a regular25% increase in its quarterly cash dividend ofto $0.075 per share, up from $0.06 per share in 2017, representing an annual dividend of $0.30 per common share, up from $0.24 per share in 2017, payable to holders of itsthe Company’s common shares, representing a planned annual dividend of $0.24 per share.shares. On March 28, 2017,21, 2018 and June 28, 2017 and September 21, 2017,20, 2018, the Company paid dividends of $0.06$0.075 per share, amounting to $11,957, $11,558$14,408 and $11,581$14,240 in the aggregate, to shareholders of record as of March 10, 2017,9, 2018 and June 12, 2017 and September 8, 20172018, respectively.
30On February 7, 2019, the Company announced that its Board of Directors had approved a 13% increase in its quarterly cash dividend to $0.085 per share, up from $0.075 per share in 2018, representing a planned annual dividend of $0.34 per common share, up from $0.30 per share in 2018, payable to holders of the Company’s common shares. On March 20, 2019 and June 21, 2019, the Company paid dividends of $0.085 per share, amounting to $16,119 and $16,188 in the aggregate, to shareholders of record as of March 8, 2019 and June 12, 2019, respectively.
39
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
18. Earnings per share
The Company calculates earnings per share in accordance with FASB guidance on earnings per share. Basic and diluted earnings per common share give effect to the change in the number of Company common shares outstanding. The calculation of basic earnings per common share is determined by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the respective periods. Potentially dilutive shares, consisting of outstanding options on common shares, restricted share units, performance units and common shares to be issued under the employee stock purchase plan, have been included in the computation of diluted net earnings per share and the weighted average shares outstanding, except where the result would be anti-dilutive.
The number of stock awards outstanding but not included in the computation of diluted earnings per common share because their effect was anti-dilutive is 698,2861,465,442 and 1,122,5593,533,041 for the ninesix months ended SeptemberJune 30, 20162018 and 2017,2019, respectively, and 947,7782,270,885 and 1,113,3072,518,106 for the three months ended SeptemberJune 30, 20162018 and 2017,2019, respectively.
|
| Three months ended September 30, |
|
|
| Nine months ended September 30, |
|
| Three months ended June 30, |
|
|
| Six months ended June 30, |
| ||||||||||||||||||||
|
| 2016 |
|
| 2017 |
|
|
| 2016 |
|
| 2017 |
|
| 2018 |
|
| 2019 |
|
|
| 2018 |
|
| 2019 |
| ||||||||
Net income available to Genpact Limited common shareholders |
| $ | 68,922 |
|
| $ | 73,745 |
|
|
| $ | 193,385 |
|
| $ | 196,029 |
|
| $ | 64,574 |
|
| $ | 73,722 |
|
|
| $ | 129,269 |
|
| $ | 134,563 |
|
Weighted average number of common shares used in computing basic earnings per common share |
|
| 206,146,007 |
|
|
| 192,124,366 |
|
|
|
| 209,034,741 |
|
|
| 194,221,162 |
|
|
| 190,132,664 |
|
|
| 190,163,359 |
|
|
|
| 191,474,645 |
|
|
| 189,807,602 |
|
Dilutive effect of stock-based awards |
|
| 3,230,676 |
|
|
| 2,823,333 |
|
|
|
| 3,322,853 |
|
|
| 2,890,852 |
|
|
| 3,233,310 |
|
|
| 4,602,688 |
|
|
|
| 3,352,627 |
|
|
| 4,272,525 |
|
Weighted average number of common shares used in computing dilutive earnings per common share |
|
| 209,376,683 |
|
|
| 194,947,699 |
|
|
|
| 212,357,594 |
|
|
| 197,112,014 |
|
|
| 193,365,974 |
|
|
| 194,766,047 |
|
|
|
| 194,827,272 |
|
|
| 194,080,127 |
|
Earnings per common share attributable to Genpact Limited common shareholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | 0.33 |
|
| $ | 0.38 |
|
|
| $ | 0.93 |
|
| $ | 1.01 |
|
| $ | 0.34 |
|
| $ | 0.39 |
|
|
| $ | 0.68 |
|
| $ | 0.71 |
|
Diluted |
| $ | 0.33 |
|
| $ | 0.38 |
|
|
| $ | 0.91 |
|
| $ | 0.99 |
|
| $ | 0.33 |
|
| $ | 0.38 |
|
|
| $ | 0.66 |
|
| $ | 0.69 |
|
19. Cost of revenue
Cost of revenue consists of the following:
| Three months ended September 30, |
|
| Nine months ended September 30, |
| ||||||||||
| 2016 |
|
| 2017 |
|
| 2016 |
|
| 2017 |
| ||||
Personnel expenses | $ | 269,771 |
|
| $ | 293,253 |
|
| $ | 788,768 |
|
| $ | 847,784 |
|
Operational expenses |
| 111,443 |
|
|
| 123,995 |
|
|
| 325,938 |
|
|
| 346,300 |
|
Depreciation and amortization |
| 11,218 |
|
|
| 11,943 |
|
|
| 34,329 |
|
|
| 33,737 |
|
| $ | 392,432 |
|
| $ | 429,191 |
|
| $ | 1,149,035 |
|
| $ | 1,227,821 |
|
20. Selling, general and administrative expenses
Selling, general and administrative expenses consist of the following:
| Three months ended September 30, |
|
| Nine months ended September 30, |
| ||||||||||
| 2016 |
|
| 2017 |
|
| 2016 |
|
| 2017 |
| ||||
Personnel expenses | $ | 117,022 |
|
| $ | 126,612 |
|
| $ | 343,279 |
|
| $ | 371,867 |
|
Operational expenses |
| 37,649 |
|
|
| 42,984 |
|
|
| 132,385 |
|
|
| 121,664 |
|
Depreciation and amortization |
| 2,298 |
|
|
| 2,499 |
|
|
| 6,651 |
|
|
| 7,323 |
|
| $ | 156,969 |
|
| $ | 172,095 |
|
| $ | 482,315 |
|
| $ | 500,854 |
|
3140
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
19.Net revenues
Disaggregation of revenue
In the following tables, the Company’s revenue is disaggregated by customer classification, service type, major industrial vertical and location of service delivery center.
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| ||||
GE | $ | 65,444 |
|
| $ | 118,604 |
|
| $ | 123,493 |
|
| $ | 227,609 |
|
|
Global clients |
| 663,117 |
|
|
| 763,195 |
|
|
| 1,293,980 |
|
|
| 1,463,396 |
|
|
Total net revenues | $ | 728,561 |
|
| $ | 881,799 |
|
| $ | 1,417,473 |
|
| $ | 1,691,005 |
|
|
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| ||||
Business process outsourcing | $ | 605,911 |
|
| $ | 742,977 |
|
| $ | 1,179,972 |
|
| $ | 1,424,240 |
|
|
Information technology services |
| 122,650 |
|
|
| 138,822 |
|
|
| 237,501 |
|
|
| 266,765 |
|
|
Total net revenues | $ | 728,561 |
|
| $ | 881,799 |
|
| $ | 1,417,473 |
|
| $ | 1,691,005 |
|
|
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| ||||
Banking, financial services and insurance | $ | 275,909 |
|
| $ | 274,791 |
|
| $ | 545,400 |
|
| $ | 512,943 |
|
|
Consumer goods, retail, life sciences and healthcare |
| 213,801 |
|
|
| 272,797 |
|
|
| 418,528 |
|
|
| 529,411 |
|
|
High tech, manufacturing and services |
| 238,851 |
|
|
| 334,211 |
|
|
| 453,545 |
|
|
| 648,651 |
|
|
Total net revenues | $ | 728,561 |
|
| $ | 881,799 |
|
| $ | 1,417,473 |
|
| $ | 1,691,005 |
|
|
During the six months ended June 30, 2018, the Company reclassified the disaggregation of its revenue to reflect how the Company groups its clients into key industry verticals.
Net revenues from geographic areas based on the location of the Company’s service delivery centers are as follows. A portion of net revenues attributable to India consists of net revenues for services performed by delivery centers in India or at clients’ premises outside of India by business units or personnel normally based in India.
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| ||||
India | $ | 464,922 |
|
| $ | 486,350 |
|
| $ | 854,056 |
|
| $ | 923,093 |
|
|
Asia, other than India |
| 78,230 |
|
|
| 81,792 |
|
|
| 157,691 |
|
|
| 175,453 |
|
|
North and Latin America |
| 151,840 |
|
|
| 208,048 |
|
|
| 304,120 |
|
|
| 389,811 |
|
|
Europe |
| 33,569 |
|
|
| 105,609 |
|
|
| 101,606 |
|
|
| 202,648 |
|
|
Total net revenues | $ | 728,561 |
|
| $ | 881,799 |
|
| $ | 1,417,473 |
|
| $ | 1,691,005 |
|
|
41
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
19.Net revenues (Continued)
Contract balances
Accounts receivable include amounts for services that the Company has performed but for which payment has not been received. The Company typically follows a 30-day billing cycle and, as such, at any point in time may have accrued up to 30 days of revenues that have not been billed. The Company has determined that in instances where the timing of revenue recognition differs from the timing of invoicing, the related contracts generally do not include a significant financing component. Refer to Note 5 for details on the Company’s accounts receivable and reserve for doubtful receivables.
The following table provides details of the Company’s contract liabilities:
| Three months ended June 30, |
|
| Six months ended June 30, |
| ||||||||||||||||||||||||||
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2019 |
| ||||||||||||||||||||
Particulars | Advance from customers |
|
| Deferred transition revenue |
|
| Advance from customers |
|
| Deferred transition revenue |
|
| Advance from customers |
|
| Deferred transition revenue |
|
| Advance from customers |
|
| Deferred transition revenue |
| ||||||||
Opening balance | $ | 34,570 |
|
| $ | 102,428 |
|
| $ | 26,048 |
|
| $ | 97,137 |
|
| $ | 26,266 |
|
| $ | 101,785 |
|
| $ | 22,892 |
|
| $ | 95,648 |
|
Impact of opening balance offset with contract asset |
| — |
|
| $ | 24,427 |
|
|
| 4,328 |
|
| $ | 36,732 |
|
|
| — |
|
| $ | 21,348 |
|
|
| 3,821 |
|
| $ | 25,604 |
|
Gross opening balance | $ | 34,570 |
|
| $ | 126,855 |
|
| $ | 30,376 |
|
| $ | 133,869 |
|
| $ | 26,266 |
|
| $ | 123,133 |
|
| $ | 26,713 |
|
| $ | 121,252 |
|
Additions |
| 5,488 |
|
|
| 18,375 |
|
|
| 27,679 |
|
|
| 29,760 |
|
|
| 16,736 |
|
|
| 32,711 |
|
|
| 41,826 |
|
|
| 53,977 |
|
Effect of business combination |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 444 |
|
|
| — |
|
Revenue recognized |
| (8,959 | ) |
|
| (21,752 | ) |
|
| (8,618 | ) |
|
| (15,599 | ) |
|
| (11,903 | ) |
|
| (32,356 | ) |
|
| (19,530 | ) |
|
| (27,327 | ) |
Currency translation adjustments |
| (758 | ) |
|
| (781 | ) |
|
| 18 |
|
|
| (106 | ) |
|
| (758 | ) |
|
| (791 | ) |
|
| 2 |
|
|
| 22 |
|
Others |
| — |
|
|
| — |
|
|
| (2,402 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,402 | ) |
|
| — |
|
Gross closing balance | $ | 30,341 | �� |
| $ | 122,697 |
|
| $ | 47,053 |
|
| $ | 147,924 |
|
| $ | 30,341 |
|
| $ | 122,697 |
|
| $ | 47,053 |
|
| $ | 147,924 |
|
Impact of closing balance offset with contract asset |
| — |
|
|
| (23,735 | ) |
|
| (7,943 | ) |
|
| (43,648 | ) |
|
| — |
|
|
| (23,735 | ) |
|
| (7,943 | ) |
|
| (43,648 | ) |
Closing balance (Note a) | $ | 30,341 |
|
| $ | 98,962 |
|
| $ | 39,110 |
|
| $ | 104,276 |
|
| $ | 30,341 |
|
| $ | 98,962 |
|
| $ | 39,110 |
|
| $ | 104,276 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) Included in "accrued expenses and other current liabilities" and "other liabilities" in the consolidated balance sheet.
The following table includes estimated revenue expected to be recognized in the future related to remaining performance obligations as of June 30, 2019:
Particulars | Total |
|
| Less than 1 year |
|
| 1-3 years |
|
| 3-5 years |
|
| After 5 years |
| |||||
Transaction price allocated to remaining performance obligations | $ | 143,386 |
|
|
| 83,334 |
|
|
| 44,390 |
|
|
| 13,323 |
|
|
| 2,339 |
|
42
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
19.Net revenues (Continued)
The following table provides details of the Company’s contract assets:
Particulars | Three months ended June 30, |
|
| Six months ended June 30, |
| ||||||||||
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2019 |
| ||||
Opening balance | $ | 48,303 |
|
| $ | 46,951 |
|
| $ | 43,366 |
|
| $ | 45,035 |
|
Impact of opening balance offset with contract liability |
| 24,427 |
|
|
| 41,062 |
|
|
| 21,348 |
|
|
| 29,425 |
|
Gross opening balance | $ | 72,730 |
|
| $ | 88,013 |
|
| $ | 64,714 |
|
| $ | 74,460 |
|
Additions |
| 5,428 |
|
|
| 21,985 |
|
|
| 19,518 |
|
|
| 49,098 |
|
Reduction in revenue recognized |
| (12,752 | ) |
|
| (9,814 | ) |
|
| (18,826 | ) |
|
| (23,374 | ) |
Gross closing balance | $ | 65,406 |
|
| $ | 100,184 |
|
| $ | 65,406 |
|
| $ | 100,184 |
|
Impact of closing balance offset with contract liability |
| (23,735 | ) |
|
| (51,591 | ) |
|
| (23,735 | ) |
|
| (51,591 | ) |
Closing balance (Note b) | $ | 41,671 |
|
| $ | 48,593 |
|
| $ | 41,671 |
|
| $ | 48,593 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(b) | Included in "prepaid expenses and other current assets" and "other assets" in the consolidated balance sheet. |
The following table provides details of the Company’s contract cost assets
| Three months ended June 30, |
|
| Six months ended June 30, |
| ||||||||||||||||||||||||||
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2019 |
| ||||||||||||||||||||
Particulars | Sales incentive programs |
|
| Transition activities |
|
| Sales incentive programs |
|
| Transition activities |
|
| Sales incentive programs |
|
| Transition activities |
|
| Sales incentive programs |
|
| Transition activities |
| ||||||||
Opening balance | $ | 23,271 |
|
| $ | 139,164 |
|
| $ | 36,380 |
|
| $ | 144,423 |
|
| $ | 23,227 |
|
| $ | 139,284 |
|
| $ | 25,891 |
|
| $ | 134,302 |
|
Closing balance |
| 24,808 |
|
|
| 137,370 |
|
|
| 35,593 |
|
|
| 156,585 |
|
|
| 24,808 |
|
|
| 137,370 |
|
|
| 35,593 |
|
|
| 156,585 |
|
Amortization |
| 3,604 |
|
|
| 23,321 |
|
|
| 4,441 |
|
|
| 17,191 |
|
|
| 6,843 |
|
|
| 34,900 |
|
|
| 8,548 |
|
|
| 28,701 |
|
20. Cost of revenue
Cost of revenue consists of the following:
| Three months ended June 30, |
|
| Six months ended June 30, |
| ||||||||||
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2019 |
| ||||
Personnel expenses | $ | 322,799 |
|
| $ | 421,924 |
|
| $ | 632,931 |
|
| $ | 802,102 |
|
Operational expenses |
| 127,109 |
|
|
| 127,792 |
|
|
| 248,466 |
|
|
| 247,584 |
|
Depreciation and amortization |
| 12,990 |
|
|
| 21,528 |
|
|
| 25,825 |
|
|
| 40,695 |
|
| $ | 462,898 |
|
| $ | 571,244 |
|
| $ | 907,222 |
|
| $ | 1,090,381 |
|
21. Selling, general and administrative expenses
Selling, general and administrative expenses consist of the following:
| Three months ended June 30, |
|
| Six months ended June 30, |
| ||||||||||
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2019 |
| ||||
Personnel expenses | $ | 126,626 |
|
| $ | 148,910 |
|
| $ | 254,694 |
|
| $ | 291,390 |
|
Operational expenses |
| 46,920 |
|
|
| 45,286 |
|
|
| 87,309 |
|
|
| 91,496 |
|
Depreciation and amortization |
| 2,620 |
|
|
| 2,116 |
|
|
| 5,272 |
|
|
| 4,828 |
|
| $ | 176,166 |
|
| $ | 196,312 |
|
| $ | 347,275 |
|
| $ | 387,714 |
|
43
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
22. Other operating (income) expense, net
| Three months ended September 30, |
|
| Nine months ended September 30, |
| Three months ended June 30, |
|
| Six months ended June 30, |
| ||||||||||||||||||||
| 2016 |
|
| 2017 |
|
| 2016 |
|
| 2017 |
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2019 |
| ||||||||
Other operating (income) expense | $ | (249 | ) |
| $ | (75 | ) |
| $ | (990 | ) |
| $ | (7,103 | ) | $ | (51 | ) |
| $ | (3,566 | ) |
| $ | (286 | ) |
| $ | (3,480 | ) |
Provision for impairment of intangible assets |
| 5,381 |
|
|
| - |
|
|
| 11,195 |
|
|
| - |
| |||||||||||||||
Provision for impairment of intangible assets and property, plant and equipment |
| 850 |
|
|
| 3,511 |
|
|
| 850 |
|
|
| 3,511 |
| |||||||||||||||
Change in fair value of earn-out consideration and deferred consideration (relating to business acquisitions) |
| - |
|
|
| 11 |
|
|
| (14,996 | ) |
|
| (1,414 | ) |
| (650 | ) |
|
| — |
|
|
| (633 | ) |
|
| — |
|
Other operating (income) expense, net | $ | 5,132 |
|
| $ | (64 | ) |
| $ | (4,791 | ) |
| $ | (8,517 | ) | $ | 149 |
|
| $ | (55 | ) |
| $ | (69 | ) |
| $ | 31 |
|
22.23. Interest income (expense), net
| Three months ended September 30, |
|
| Nine months ended September 30, |
| Three months ended June 30, |
|
| Six months ended June 30, |
| ||||||||||||||||||||
| 2016 |
|
| 2017 |
|
| 2016 |
|
| 2017 |
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2019 |
| ||||||||
Interest income | $ | 1,041 |
|
| $ | 2,549 |
|
| $ | 5,565 |
|
| $ | 4,543 |
| $ | 1,774 |
|
| $ | 1,026 |
|
| $ | 5,144 |
|
| $ | 2,790 |
|
Interest expense |
| (5,942 | ) |
|
| (11,273 | ) |
|
| (16,737 | ) |
|
| (28,610 | ) |
| (12,181 | ) |
|
| (13,169 | ) |
|
| (23,651 | ) |
|
| (26,056 | ) |
Interest income (expense), net | $ | (4,901 | ) |
| $ | (8,724 | ) |
| $ | (11,172 | ) |
| $ | (24,067 | ) | $ | (10,407 | ) |
| $ | (12,143 | ) |
| $ | (18,507 | ) |
| $ | (23,266 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23.44
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
24. Income taxes
The Company determines its tax provision for interim periods using an estimate of its annual effective tax rate adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter, the Company updates its estimate of the annual effective tax rate, and if its estimated tax rate changes, the Company makes a cumulative adjustment.
The Company’s effective tax rate (“ETR”) was 22.8% for the six months ended June 30, 2019, up from 18.4% for the six months ended June 30, 2018. The increase in the Company’s effective tax rate is primarily due to the expiration of certain special economic zone benefits in India, tax costs relating to an internal restructuring, changes in the jurisdictional mix of the Company’s income, as well as certain tax benefits recorded in the six months ended June 30, 2018.
As of December 31, 2016,2018, the Company had unrecognized tax benefits amounting to $23,467,$26,722, including an amount of $22,469,$25,485, which, if recognized, would impact the effective tax rate.Company’s ETR.
The following table summarizes activities related to the Company’s unrecognized tax benefits for uncertain tax positions from January 1, 2017 to Septemberfor six months ended June 30, 2017:
2019:
|
| 2017 |
|
| 2019 |
| ||
Opening balance at January 1 |
| $ | 23,467 |
|
| $ | 26,722 |
|
Increase related to prior year tax positions, including recorded in acquisition accounting |
|
| 515 |
| ||||
Decrease related to prior year tax positions |
|
| (1,203 | ) |
|
| (56 | ) |
Decrease related to prior year tax positions due to lapse of applicable statute of limitation |
|
| (663 | ) | ||||
Decrease related to prior year tax position due to lapse of applicable statute of limitation |
|
| (66 | ) | ||||
Increase related to current year tax positions, including recorded in acquisition accounting |
|
| 150 |
| ||||
Effect of exchange rate changes |
|
| 853 |
|
|
| 337 |
|
Closing balance at September 30 |
| $ | 22,969 |
| ||||
Closing balance at June 30 |
| $ | 27,087 |
|
The Company’s unrecognized tax benefits as of SeptemberJune 30, 20172019 include an amount of $21,964,$25,850, which, if recognized, would impact the effective tax rate.Company’s ETR. As of December 31, 20162018 and SeptemberJune 30, 2017,2019 the Company had accrued approximately $3,856$5,081 and $4,266,$5,525, respectively, forin interest relating to unrecognized tax benefits. During the year ended December 31, 20162018 and the ninesix months ended SeptemberJune 30, 2017,2019, the companyCompany recognized approximately $(206)$467 and 248,$444, respectively, excluding the impact of exchange rate differences, in interest on unrecognized tax benefits. As of December 31, 20162018 and SeptemberJune 30, 2017,2019, the Company had accrued approximately $977$995 and $912,$922, respectively, for penalties.
3245
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
25. Related party transactions
The Company has entered into related party transactions with its non-consolidating affiliates. The Company has also entered into related party transactions with a significant shareholder and its affiliates.
The Company’s related party transactions can be categorized as follows:
Revenue from services
During the ninesix months ended SeptemberJune 30 20162018 and 2017,2019, the Company recognized net revenues of $257$439 and $299,$319, respectively, and duringfor the three months ended SeptemberJune 30, 20162018 and September 30, 2017, 2019,the Company recognized net revenues of $89$135 and $112,$159, respectively, from a client that is a significant shareholder of the Company.
During the nine months ended September 30, 2016 and 2017, the Company recognized net revenues of $5,109 and $5,400, respectively, and during the three months ended September 30, 2016, the Company recognized net revenues of $1,625, from a client that was a non-consolidating affiliate of the Company.
Cost of revenue from services
The Company purchases certain services from its non-consolidating affiliates, mainly relating to training and recruitment, which are included in cost of revenue. For the ninesix months ended SeptemberJune 30, 20162018 and 2017,2019, cost of revenue includes an amount of $1,675$449 and $1,245,$336, respectively, and for the three months ended SeptemberJune 30, 20162018 and 2017,2019, cost of revenue includes an amount of $722$258 and $336,$118, respectively,attributable to the cost of services provided by the Company’s non-consolidating affiliates.
Selling, general and administrative expenses
The Company purchases certain services from its non-consolidating affiliates, mainly relating to training and recruitment, the costs of which are included in selling, general and administrative expenses. For the ninesix months ended SeptemberJune 30, 20162018 and 2017,2019, selling, general and administrative expenses include an amount of $234$90 and $199,$54, respectively, and for the three months ended SeptemberJune 30, 20162018 and 2017,2019, selling, general and administrative expenses include an amount of $107$41 and $51,$30, respectively, attributable to the cost of services provided by the Company’s non-consolidating affiliates.
During the three and ninesix months ended SeptemberJune 30, 20162018 and 2017,2019, the Company engaged a significant shareholder to provide certain services to the Company, the costs of which are included in selling, general and administrative expenses.For the ninesix months ended SeptemberJune 30, 20162018 and 2017,2019, selling, general and administrative expenses include an amount of $58$10 and $51,$82, respectively, and for the three months ended SeptemberJune 30, 20162018 and 2017,2019, selling, general and administrative expenses include an amount of $43$0 and $6,$36, respectively, attributable to the cost of this engagement.services provided by the Company’s significant shareholder.
Investment in equity affiliates
During the nine months ended September 30, 2017, the Company invested $496 in its non-consolidating affiliates.
During the nine months ended September 30, 2017, the Company recorded a charge of $2,849 related to an investment in one of its non-consolidating affiliates. This charge has been included in equity-method investment activity, net in the Company’s consolidated statement of income.
As of December 31, 20162018 and SeptemberJune 30, 2017,2019, the Company’s investments in its non-consolidating affiliates amounted to $4,800$836 and $833,$842, respectively.
Others
During the nine months ended September 30, 2016 and 2017, the Company also entered into transactions with one of its non-consolidating affiliates for certain cost reimbursements amounting to $918 and $477, respectively. During the three months ended September 30, 2016, such cost reimbursements amounted to $244.
33
46
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
24. Related party transactions (Continued)
During the nine months ended September 30, 2017, the Company made payments of $3,847 to one of its non-consolidating affiliates under a tax-sharing arrangement in the U.K. This amount represents a portion of the non-consolidated affiliate’s26. Other Income (expense), net operating losses surrendered to the Company under the tax sharing arrangement for the years 2015 and 2016. On June 30, 2017, this non-consolidating affiliate ceased to be a related party.
| Three months ended June 30, | Six months ended June 30, |
| ||||||||||||
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2019 |
| ||||
Government incentives | $ | 10,196 |
|
| $ | - |
|
| $ | 25,696 |
|
| $ | 3,976 |
|
Other income (expense) |
| (448 | ) |
|
| 560 |
|
|
| (398 | ) |
|
| 387 |
|
Other Income (expense), net | $ | 9,748 |
|
| $ | 560 |
|
| $ | 25,298 |
|
| $ | 4,363 |
|
25.
27. Commitments and contingencies
Capital commitments
As of December 31, 20162018 and SeptemberJune 30, 2017,2019, the Company has committed to spend $5,185$4,859 and $6,181,$16,923, respectively, under agreements to purchase property, plant and equipment. This amount is net of capital advances paid in respect of these purchases.
Bank guarantees
The Company has outstanding bank guarantees amounting to $11,958$9,487 and $8,373$8,450 as of December 31, 20162018 and SeptemberJune 30, 2017,2019, respectively. Bank guarantees are generally provided to government agencies and excise and customs authorities for the purpose of maintaining a bonded warehouse. These guarantees may be revoked if the government agencies suffer any losses or damages through the breach of any of the covenants contained in the agreements governing such guarantees.
Other commitments
The Company’s business process delivery centers in India
Certain units of our Indian subsidiaries are 100% export oriented units orestablished as Software Technology Parks of India (“STPI”) units or Special Economic Zone (“SEZ”) units under the STPI guidelinesrelevant regulations issued by the Government of India. These units are exempt from customs and central excise duties, and other levies on imported and indigenous capital goods, stores and spares.spares, and service tax on services. SEZ units are also exempt from the goods and services tax (“GST”) that was introduced in India in 2017. The Company has undertaken to pay customtaxes and duties, service taxes, levies and liquidated damages payable, if any, in respect of imported and indigenous capital goods, stores, spares and sparesservices consumed duty-free, in the event that certain terms and conditions are not fulfilled.
Contingency
In February 2019, there was a judicial pronouncement in India with respect to defined contribution benefit payments interpreting certain statutory defined contribution obligations of employees and employers. It is not currently clear whether the interpretation set out in the pronouncement has retrospective application. If applied retrospectively, the interpretation would result in an increase in contributions payable by the Company for past periods for certain of its India-based employees. There are numerous interpretative challenges concerning the retrospective application of the judgment. Due to such challenges and a lack of interpretive guidance, and based on legal advice the Company has obtained on the matter, it is currently impracticable to reliably estimate the timing and amount of any payments the Company may be required to make. Accordingly, the Company plans to obtain further clarity and will evaluate the amount of a potential provision, if any.
47
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
28. Leases
The Company has leased buildings, vehicles, furniture and fixtures, leased lines, computer equipment and servers, and plants, machinery and equipment from various lessors. Certain lease agreements include options to terminate or extend the leases for up to 5 years. The lease agreements do not contain any material residual value guarantees or material restrictive covenants.The components of lease cost for operating and finance leases for the three and six months ended June 30, 2019 are summarized below:
Finance lease cost | Three months ended June 30, 2019 | Six months ended June 30, 2019 |
|
Amortization of ROU assets (Note a) | 2,732 | 4,579 |
|
Interest on lease liabilities (Note b) | 832 | 1,495 |
|
Operating lease cost (Note c) | 17,919 | 32,028 |
|
Short-term lease cost (Note c) | 144 | 228 |
|
Variable lease cost (Note c) | 994 | 1,879 |
|
Total lease cost | 22,621 | 40,209 |
|
| Included in “depreciation and |
b) | Included in “interest income (expense), net” in consolidated statements of income. |
c) | Included in “cost of revenue” and “selling, general and administrative expenses” in consolidated statements of income. |
ROU relating to finance leases of $40,853 as of June 30, 2019 are included in “other assets.”
Other information
Weighted-average remaining lease term—finance leases | 4.54 years | |
Weighted-average remaining lease term—operating leases | 7.27 years | |
Weighted-average discount rate—finance leases | 9.48% | |
Weighted-average discount rate—operating leases | 6.94% |
|
|
|
|
| Three months ended June 30, 2019 |
| Six months ended June 30, 2019 |
Cash paid for amounts included in the measurement of lease liabilities |
|
|
|
Operating cash flows from finance leases | 821 |
| 1,484 |
Operating cash flows from operating leases | 18,150 |
| 34,486 |
Financing cash flows from finance leases | 2,343 |
| 4,102 |
48
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
28. Leases (Continued)
The following table reconciles the undiscounted cash flows for the operating and finance leases at June 30, 2019 to the operating and finance lease liabilities recorded on the balance sheet:
Period range | Finance lease |
| Operating lease |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
2019 |
| 6,855 |
|
| 34,006 |
| ||||||
2020 |
| 11,294 |
|
| 64,367 |
| ||||||
2021 |
| 8,933 |
|
| 59,481 |
| ||||||
2022 |
| 6,186 |
|
| 52,364 |
| ||||||
2023 |
| 4,608 |
|
| 48,328 |
| ||||||
2024 |
| 4,469 |
|
| 40,683 |
| ||||||
Thereafter |
| 1,851 |
|
| 119,668 |
| ||||||
Total lease payments |
| 44,196 |
|
| 418,897 |
| ||||||
Less: Imputed interest |
| 7,555 |
|
| 93,545 |
| ||||||
Total lease liabilities |
| 36,641 |
|
| 325,352 |
|
29. Subsequent Events
Dividend
On July 24, 2019, the Company announced that its Board of Directors has declared a dividend for the third quarter of 2019 of $0.085 per common share, which is payable on September 20, 2019 to shareholders of record as of the close of business on September 11, 2019. The declaration of any future dividends will be at the discretion of the Board of Directors.
49
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
30. Guarantor financial information
In March 2017, Genpact Luxembourg S.à r.l. (the “Issuer”), a wholly-owned subsidiary of the Company, issued $350,000 aggregate principal amount of 3.70% senior notes in a private offering. See Note 12 for additional information.The issuance is fully and unconditionally guaranteed by the Company. The Company has prepared the following condensed consolidating financial statements, which set forth consolidated financial statements of the Issuer, the Company as parent guarantor and the non-guarantor subsidiaries of the Company, as well as intercompany elimination adjustments relating to intercompany transactions. Investments in subsidiaries have been accounted for using the equity method.
50
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
30. Guarantor financial information (continued)
Condensed Consolidating Balance Sheet |
| |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| As of June 30, 2019 |
| |||||||||||||||||
|
| Issuer/ Subsidiary |
|
| Guarantor/Parent |
|
| Non- Guarantor Subsidiaries |
|
| Eliminations |
|
| Consolidated |
| |||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 13,082 |
|
| $ | 420 |
|
| $ | 364,528 |
|
| $ | — |
|
| $ | 378,030 |
|
Intercompany Accounts receivable, net |
|
| 104,083 |
|
|
| — |
|
|
| — |
|
|
| (104,083 | ) |
|
| — |
|
Accounts receivable, net |
|
| — |
|
|
| — |
|
|
| 856,602 |
|
|
| — |
|
|
| 856,602 |
|
Intercompany loans |
|
| 640,168 |
|
|
| 5,300 |
|
|
| 1,969,596 |
|
|
| (2,615,064 | ) |
|
| — |
|
Intercompany other receivable |
|
| 43,377 |
|
|
| 106,381 |
|
|
| 135,045 |
|
|
| (284,803 | ) |
|
| — |
|
Prepaid expenses and other current assets |
|
| 3 |
|
|
| 2,293 |
|
|
| 222,867 |
|
|
| — |
|
|
| 225,163 |
|
Total current assets |
| $ | 800,713 |
|
| $ | 114,394 |
|
| $ | 3,548,638 |
|
| $ | (3,003,950 | ) |
| $ | 1,459,795 |
|
Property, plant and equipment, net |
|
| 158 |
|
|
| — |
|
|
| 211,086 |
|
|
| — |
|
|
| 211,244 |
|
Operating lease right-of-use assets |
|
| — |
|
|
| — |
|
|
| 297,068 |
|
|
| — |
|
|
| 297,068 |
|
Intercompany loans |
|
| 100,000 |
|
|
| — |
|
|
| 500,000 |
|
|
| (600,000 | ) |
|
| — |
|
Deferred tax assets |
|
| — |
|
|
| — |
|
|
| 78,807 |
|
|
| — |
|
|
| 78,807 |
|
Investment in subsidiaries |
|
| 563,422 |
|
|
| 3,260,357 |
|
|
| 606,097 |
|
|
| (4,429,876 | ) |
|
| — |
|
Investment in equity affiliates |
|
| — |
|
|
| — |
|
|
| 842 |
|
|
| — |
|
|
| 842 |
|
Intercompany investment in debentures |
|
| 491,969 |
|
|
| 118,393 |
|
|
| — |
|
|
| (610,362 | ) |
|
| — |
|
Intercompany other receivable |
|
| — |
|
|
| 61,483 |
|
|
| — |
|
|
| (61,483 | ) |
|
| — |
|
Intangible assets, net |
|
| — |
|
|
| — |
|
|
| 165,751 |
|
|
| — |
|
|
| 165,751 |
|
Goodwill |
|
| — |
|
|
| — |
|
|
| 1,400,257 |
|
|
| — |
|
|
| 1,400,257 |
|
Contract cost assets |
|
| — |
|
|
| — |
|
|
| 192,178 |
|
|
| — |
|
|
| 192,178 |
|
Other assets |
|
| 509 |
|
|
| — |
|
|
| 206,306 |
|
|
| — |
|
|
| 206,815 |
|
Total assets |
| $ | 1,956,771 |
|
| $ | 3,554,627 |
|
| $ | 7,207,030 |
|
| $ | (8,705,671 | ) |
| $ | 4,012,757 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term borrowings |
| $ | 100,000 |
|
| $ | — |
|
| $ | 190,000 |
|
| $ | — |
|
| $ | 290,000 |
|
Current portion of Intercompany loans |
|
| 225,560 |
|
|
| 1,944,037 |
|
|
| 445,467 |
|
|
| (2,615,064 | ) |
|
| — |
|
Current portion of long-term debt |
|
| 4,434 |
|
|
| — |
|
|
| 29,064 |
|
|
| — |
|
|
| 33,498 |
|
Accounts payable |
|
| 302 |
|
|
| 10 |
|
|
| 24,086 |
|
|
| — |
|
|
| 24,398 |
|
Intercompany accounts payable |
|
| — |
|
|
| — |
|
|
| 104,083 |
|
|
| (104,083 | ) |
|
| — |
|
Income taxes payable |
|
| — |
|
|
| — |
|
|
| 64,818 |
|
|
| — |
|
|
| 64,818 |
|
Intercompany other payable |
|
| 52,051 |
|
|
| 88,206 |
|
|
| 144,546 |
|
|
| (284,803 | ) |
|
| — |
|
Accrued expenses and other current liabilities |
|
| 5,655 |
|
|
| 4,467 |
|
|
| 534,890 |
|
|
| — |
|
|
| 545,012 |
|
Operating leases liability |
|
| — |
|
|
| — |
|
|
| 45,425 |
|
|
| — |
|
|
| 45,425 |
|
Total current liabilities |
| $ | 388,002 |
|
| $ | 2,036,720 |
|
| $ | 1,582,379 |
|
| $ | (3,003,950 | ) |
| $ | 1,003,151 |
|
Long-term debt, less current portion |
|
| 438,973 |
|
|
| — |
|
|
| 520,178 |
|
|
| — |
|
|
| 959,151 |
|
Operating leases liability |
|
| — |
|
|
| — |
|
|
| 279,927 |
|
|
| — |
|
|
| 279,927 |
|
Deferred tax liabilities |
|
| — |
|
|
| — |
|
|
| 8,332 |
|
|
| — |
|
|
| 8,332 |
|
Intercompany other payable |
|
| — |
|
|
| — |
|
|
| 61,483 |
|
|
| (61,483 | ) |
|
| — |
|
Intercompany loans and debenture, less current portion |
|
| 500,000 |
|
|
| — |
|
|
| 710,363 |
|
|
| (1,210,363 | ) |
|
| — |
|
Other liabilities |
|
| 109 |
|
|
| 170 |
|
|
| 178,547 |
|
|
| — |
|
|
| 178,826 |
|
Total liabilities |
| $ | 1,327,084 |
|
| $ | 2,036,890 |
|
| $ | 3,341,209 |
|
| $ | (4,275,796 | ) |
| $ | 2,429,387 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders' equity |
|
| 629,687 |
|
|
| 1,517,737 |
|
|
| 3,865,821 |
|
|
| (4,429,875 | ) |
|
| 1,583,370 |
|
Commitments and contingencies |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Total liabilities and equity |
| $ | 1,956,771 |
|
| $ | 3,554,627 |
|
| $ | 7,207,030 |
|
| $ | (8,705,671 | ) |
| $ | 4,012,757 |
|
51
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
30. Guarantor financial information (continued)
Condensed Consolidating Balance Sheet |
| |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| As of December 31, 2018 |
| |||||||||||||||||
|
| Issuer/ Subsidiary |
|
| Guarantor/Parent |
|
| Non- Guarantor Subsidiaries |
|
| Eliminations |
|
| Consolidated |
| |||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 12,797 |
|
| $ | 2,505 |
|
| $ | 353,094 |
|
| $ | — |
|
| $ | 368,396 |
|
Intercompany Accounts receivable, net |
|
| 89,958 |
|
|
| — |
|
|
| — |
|
|
| (89,958 | ) |
|
| — |
|
Accounts receivable, net |
|
| — |
|
|
| — |
|
|
| 774,184 |
|
|
| — |
|
|
| 774,184 |
|
Intercompany loans |
|
| 447,578 |
|
|
| 1,300 |
|
|
| 1,835,608 |
|
|
| (2,284,486 | ) |
|
| — |
|
Intercompany other receivable |
|
| 33,224 |
|
|
| 52,783 |
|
|
| 117,537 |
|
|
| (203,544 | ) |
|
| — |
|
Prepaid expenses and other current assets |
|
| 2,242 |
|
|
| 1,278 |
|
|
| 208,957 |
|
|
| — |
|
|
| 212,477 |
|
Total current assets |
| $ | 585,799 |
|
| $ | 57,866 |
|
| $ | 3,289,380 |
|
| $ | (2,577,988 | ) |
| $ | 1,355,057 |
|
Property, plant and equipment, net |
|
| 388 |
|
|
| — |
|
|
| 212,327 |
|
|
| — |
|
|
| 212,715 |
|
Intercompany loans |
|
| 100,000 |
|
|
| — |
|
|
| 500,000 |
|
|
| (600,000 | ) |
|
| — |
|
Deferred tax assets |
|
| — |
|
|
| — |
|
|
| 74,566 |
|
|
| — |
|
|
| 74,566 |
|
Investment in subsidiaries |
|
| 548,654 |
|
|
| 3,073,467 |
|
|
| 557,089 |
|
|
| (4,179,210 | ) |
|
| — |
|
Investment in equity affiliates |
|
| — |
|
|
| — |
|
|
| 836 |
|
|
| — |
|
|
| 836 |
|
Intercompany investment in debentures |
|
| 571,919 |
|
|
| 50,393 |
|
|
| — |
|
|
| (622,312 | ) |
|
| — |
|
Intercompany other receivable |
|
| — |
|
|
| 83,169 |
|
|
| — |
|
|
| (83,169 | ) |
|
| — |
|
Intangible assets, net |
|
| — |
|
|
| — |
|
|
| 177,087 |
|
|
| — |
|
|
| 177,087 |
|
Goodwill |
|
| — |
|
|
| — |
|
|
| 1,393,832 |
|
|
| — |
|
|
| 1,393,832 |
|
Contract cost assets |
|
| — |
|
|
| — |
|
|
| 160,193 |
|
|
| — |
|
|
| 160,193 |
|
Other assets |
|
| 682 |
|
|
| — |
|
|
| 154,477 |
|
|
| — |
|
|
| 155,159 |
|
Total assets |
| $ | 1,807,442 |
|
| $ | 3,264,895 |
|
| $ | 6,519,787 |
|
| $ | (8,062,679 | ) |
| $ | 3,529,445 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term borrowings |
| $ | 100,000 |
|
| $ | — |
|
| $ | 195,000 |
|
| $ | — |
|
| $ | 295,000 |
|
Current portion of Intercompany loans |
|
| 128,572 |
|
|
| 1,849,537 |
|
|
| 306,377 |
|
|
| (2,284,486 | ) |
|
| — |
|
Current portion of long-term debt |
|
| 4,961 |
|
|
| — |
|
|
| 28,522 |
|
|
| — |
|
|
| 33,483 |
|
Accounts payable |
|
| 1,636 |
|
|
| 520 |
|
|
| 40,428 |
|
|
| — |
|
|
| 42,584 |
|
Intercompany accounts payable |
|
| — |
|
|
| — |
|
|
| 89,958 |
|
|
| (89,958 | ) |
|
| — |
|
Income taxes payable |
|
| — |
|
|
| — |
|
|
| 33,895 |
|
|
| — |
|
|
| 33,895 |
|
Intercompany other payable |
|
| 47,844 |
|
|
| 70,973 |
|
|
| 84,727 |
|
|
| (203,544 | ) |
|
| — |
|
Accrued expenses and other current liabilities |
|
| 5,248 |
|
|
| 5,157 |
|
|
| 560,945 |
|
|
| — |
|
|
| 571,350 |
|
Total current liabilities |
| $ | 288,261 |
|
| $ | 1,926,187 |
|
| $ | 1,339,852 |
|
| $ | (2,577,988 | ) |
| $ | 976,312 |
|
Long-term debt, less current portion |
|
| 440,665 |
|
|
| — |
|
|
| 534,980 |
|
|
| — |
|
|
| 975,645 |
|
Deferred tax liabilities |
|
| — |
|
|
| — |
|
|
| 8,080 |
|
|
| — |
|
|
| 8,080 |
|
Intercompany other payable |
|
| — |
|
|
| — |
|
|
| 83,169 |
|
|
| (83,169 | ) |
|
| — |
|
Intercompany loans and debenture, less current portion |
|
| 500,000 |
|
|
| — |
|
|
| 722,312 |
|
|
| (1,222,312 | ) |
|
| — |
|
Other liabilities |
|
| 197 |
|
|
| 154 |
|
|
| 164,875 |
|
|
| — |
|
|
| 165,226 |
|
Total liabilities |
| $ | 1,229,123 |
|
| $ | 1,926,341 |
|
| $ | 2,853,268 |
|
| $ | (3,883,469 | ) |
| $ | 2,125,263 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders' equity |
|
| 578,319 |
|
|
| 1,338,554 |
|
|
| 3,666,519 |
|
|
| (4,179,210 | ) |
|
| 1,404,182 |
|
Commitments and contingencies |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Total liabilities and equity |
| $ | 1,807,442 |
|
| $ | 3,264,895 |
|
| $ | 6,519,787 |
|
| $ | (8,062,679 | ) |
| $ | 3,529,445 |
|
52
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
30. Guarantor financial information (continued)
Condensed Consolidating Statement of Income (Loss) |
| |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three months ended June 30, 2019 |
| |||||||||||||||||
|
| Issuer/ Subsidiary |
|
| Parent/ Guarantor |
|
| Non- Guarantor Subsidiaries |
|
| Eliminations |
|
| Consolidated |
| |||||
Net revenues |
| $ | 14,591 |
|
| $ | — |
|
| $ | 881,799 |
|
| $ | (14,591 | ) |
| $ | 881,799 |
|
Cost of revenue |
|
| — |
|
|
| — |
|
|
| 571,244 |
|
|
| — |
|
|
| 571,244 |
|
Gross profit |
| $ | 14,591 |
|
| $ | — |
|
| $ | 310,555 |
|
| $ | (14,591 | ) |
| $ | 310,555 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
| 2,461 |
|
|
| 5,827 |
|
|
| 202,615 |
|
|
| (14,591 | ) |
|
| 196,312 |
|
Amortization of acquired intangible assets |
|
| — |
|
|
| — |
|
|
| 8,096 |
|
|
| — |
|
|
| 8,096 |
|
Other operating (income) expense, net |
|
| — |
|
|
| — |
|
|
| (55 | ) |
|
| — |
|
|
| (55 | ) |
Income (loss) from operations |
| $ | 12,130 |
|
| $ | (5,827 | ) |
| $ | 99,899 |
|
| $ | - |
|
| $ | 106,202 |
|
Foreign exchange gains (losses), net |
|
| (452 | ) |
|
| (9 | ) |
|
| 812 |
|
|
| — |
|
|
| 351 |
|
Interest income (expense), net |
|
| (5,474 | ) |
|
| — |
|
|
| (6,669 | ) |
|
| — |
|
|
| (12,143 | ) |
Intercompany interest income (expense), net |
|
| 17,740 |
|
|
| (4,166 | ) |
|
| (13,574 | ) |
|
| — |
|
|
| — |
|
Other income (expense), net |
|
| 64 |
|
|
| — |
|
|
| 496 |
|
|
| — |
|
|
| 560 |
|
Income (loss) before equity-method investment activity, net and income tax expense |
| $ | 24,008 |
|
| $ | (10,002 | ) |
| $ | 80,964 |
|
| $ | — |
|
| $ | 94,970 |
|
Gain (loss) on equity-method investment activity, net |
|
| 114 |
|
|
| 83,724 |
|
|
| 22,189 |
|
|
| (106,042 | ) |
|
| (15 | ) |
Income before income tax expense |
| $ | 24,122 |
|
| $ | 73,722 |
|
| $ | 103,153 |
|
| $ | (106,042 | ) |
| $ | 94,955 |
|
Income tax expense |
|
| 1,820 |
|
|
| — |
|
|
| 19,413 |
|
|
| — |
|
|
| 21,233 |
|
Net income |
| $ | 22,302 |
|
| $ | 73,722 |
|
| $ | 83,740 |
|
| $ | (106,042 | ) |
| $ | 73,722 |
|
Net loss attributable to redeemable non-controlling interest |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Net income attributable to Genpact Limited shareholders |
| $ | 22,302 |
|
| $ | 73,722 |
|
| $ | 83,740 |
|
| $ | (106,042 | ) |
| $ | 73,722 |
|
Condensed Consolidating Statement of Income (Loss) |
| |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six months ended June 30, 2019 |
| |||||||||||||||||
|
| Issuer/ Subsidiary |
|
| Parent/ Guarantor |
|
| Non- Guarantor Subsidiaries |
|
| Eliminations |
|
| Consolidated |
| |||||
Net revenues |
| $ | 26,023 |
|
| $ | — |
|
| $ | 1,691,005 |
|
| $ | (26,023 | ) |
| $ | 1,691,005 |
|
Cost of revenue |
|
| — |
|
|
| — |
|
|
| 1,090,381 |
|
|
| — |
|
|
| 1,090,381 |
|
Gross profit |
| $ | 26,023 |
|
| $ | — |
|
| $ | 600,624 |
|
| $ | (26,023 | ) |
| $ | 600,624 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
| 5,388 |
|
|
| 14,775 |
|
|
| 393,573 |
|
|
| (26,023 | ) |
|
| 387,714 |
|
Amortization of acquired intangible assets |
|
| — |
|
|
| — |
|
|
| 16,605 |
|
|
| — |
|
|
| 16,605 |
|
Other operating (income) expense, net |
|
| — |
|
|
| — |
|
|
| 31 |
|
|
| — |
|
|
| 31 |
|
Income (loss) from operations |
| $ | 20,635 |
|
| $ | (14,775 | ) |
| $ | 190,415 |
|
| $ | — |
|
| $ | 196,274 |
|
Foreign exchange gains (losses), net |
|
| 503 |
|
|
| (33 | ) |
|
| (3,551 | ) |
|
| — |
|
|
| (3,081 | ) |
Interest income (expense), net |
|
| (10,815 | ) |
|
| — |
|
|
| (12,451 | ) |
|
| — |
|
|
| (23,266 | ) |
Intercompany interest income (expense), net |
|
| 36,442 |
|
|
| (9,335 | ) |
|
| (27,107 | ) |
|
| — |
|
|
| — |
|
Other income (expense), net |
|
| 30 |
|
|
| — |
|
|
| 4,333 |
|
|
| — |
|
|
| 4,363 |
|
Income (loss) before equity-method investment activity, net and income tax expense |
| $ | 46,795 |
|
| $ | (24,143 | ) |
| $ | 151,638 |
|
| $ | — |
|
| $ | 174,290 |
|
Gain (loss) on equity-method investment activity, net |
|
| 2,099 |
|
|
| 158,705 |
|
|
| 43,334 |
|
|
| (204,149 | ) |
|
| (11 | ) |
Income before income tax expense |
| $ | 48,894 |
|
| $ | 134,562 |
|
| $ | 194,972 |
|
| $ | (204,149 | ) |
| $ | 174,279 |
|
Income tax expense |
|
| 3,460 |
|
|
| — |
|
|
| 36,256 |
|
|
| — |
|
|
| 39,716 |
|
Net income |
| $ | 45,434 |
|
| $ | 134,562 |
|
| $ | 158,716 |
|
| $ | (204,149 | ) |
| $ | 134,563 |
|
Net loss attributable to redeemable non-controlling interest |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Net income attributable to Genpact Limited shareholders |
| $ | 45,434 |
|
| $ | 134,562 |
|
| $ | 158,716 |
|
| $ | (204,149 | ) |
| $ | 134,563 |
|
53
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
30. Guarantor financial information (continued)
|
| ||||||||||||||||||||||||||||||||||||
|
| ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
|
| ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
|
| Three months ended June 30, 2018 |
| ||||||||||||||||||||||||||||||||||
|
| Issuer/ Subsidiary |
|
| Parent/ Guarantor |
|
| Non- Guarantor Subsidiaries |
|
| Eliminations |
|
| Consolidated |
| ||||||||||||||||||||||
Net revenues |
| $ | 12,119 |
|
| $ | — |
|
| $ | 731,024 |
|
| $ | (14,582 | ) |
| $ | 728,561 |
| |||||||||||||||||
Cost of revenue |
|
| — |
|
|
| — |
|
|
| 462,898 |
|
|
| — |
|
|
| 462,898 |
| |||||||||||||||||
Gross profit |
| $ | 12,119 |
|
| $ | — |
|
| $ | 268,126 |
|
| $ | (14,582 | ) |
| $ | 265,663 |
| |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Selling, general and administrative expenses |
|
| 2,378 |
|
|
| 10,270 |
|
|
| 178,100 |
|
|
| (14,582 | ) |
|
| 176,166 |
| |||||||||||||||||
Amortization of acquired intangible assets |
|
| 48 |
|
|
| — |
|
|
| 9,778 |
|
|
| — |
|
|
| 9,826 |
| |||||||||||||||||
Other operating (income) expense, net |
|
| — |
|
|
| — |
|
|
| 149 |
|
|
| — |
|
|
| 149 |
| |||||||||||||||||
Income (loss) from operations |
| $ | 9,693 |
|
| $ | (10,270 | ) |
| $ | 80,099 |
|
| $ | - |
|
| $ | 79,522 |
| |||||||||||||||||
Foreign exchange gains (losses), net |
|
| 208 |
|
|
| 281 |
|
|
| 2,316 |
|
|
| — |
|
|
| 2,805 |
| |||||||||||||||||
Interest income (expense), net |
|
| (3,489 | ) |
|
| — |
|
|
| (6,918 | ) |
|
| — |
|
|
| (10,407 | ) | |||||||||||||||||
Intercompany interest income (expense), net |
|
| 19,583 |
|
|
| (4,068 | ) |
|
| (15,515 | ) |
|
| — |
|
|
| — |
| |||||||||||||||||
Other income (expense), net |
|
| — |
|
|
| — |
|
|
| 9,748 |
|
|
| — |
|
|
| 9,748 |
| |||||||||||||||||
Income (loss) before equity-method investment activity, net and income tax expense |
| $ | 25,995 |
|
| $ | (14,057 | ) |
| $ | 69,730 |
|
| $ | - |
|
| $ | 81,668 |
| |||||||||||||||||
Gain (loss) on equity-method investment activity, net |
|
| 3,588 |
|
|
| 78,631 |
|
|
| 27,987 |
|
|
| (110,221 | ) |
|
| (15 | ) | |||||||||||||||||
Income before income tax expense |
| $ | 29,583 |
|
| $ | 64,574 |
|
| $ | 97,717 |
|
| $ | (110,221 | ) |
| $ | 81,653 |
| |||||||||||||||||
Income tax expense |
|
| 1,596 |
|
|
| — |
|
|
| 15,483 |
|
|
| — |
|
|
| 17,079 |
| |||||||||||||||||
Net income |
| $ | 27,987 |
|
| $ | 64,574 |
|
| $ | 82,234 |
|
| $ | (110,221 | ) |
| $ | 64,574 |
| |||||||||||||||||
Net loss attributable to redeemable non-controlling interest |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| |||||||||||||||||
Net income attributable to Genpact Limited shareholders |
| $ | 27,987 |
|
| $ | 64,574 |
|
| $ | 82,234 |
|
| $ | (110,221 | ) |
| $ | 64,574 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six months ended June 30, 2018 |
| |||||||||||||||||
|
| Issuer/ Subsidiary |
|
| Parent/ Guarantor |
|
| Non- Guarantor Subsidiaries |
|
| Eliminations |
|
| Consolidated |
| |||||
Net revenues |
| $ | 24,058 |
|
| $ | — |
|
| $ | 1,417,473 |
|
| $ | (24,058 | ) |
| $ | 1,417,473 |
|
Cost of revenue |
|
| — |
|
|
| — |
|
|
| 907,222 |
|
|
| — |
|
|
| 907,222 |
|
Gross profit |
| $ | 24,058 |
|
| $ | — |
|
| $ | 510,251 |
|
| $ | (24,058 | ) |
| $ | 510,251 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
| 4,001 |
|
|
| 11,762 |
|
|
| 355,636 |
|
|
| (24,124 | ) |
|
| 347,275 |
|
Amortization of acquired intangible assets |
|
| 48 |
|
|
| — |
|
|
| 19,714 |
|
|
| — |
|
|
| 19,762 |
|
Other operating (income) expense, net |
|
| 17 |
|
|
| — |
|
|
| (86 | ) |
|
| — |
|
|
| (69 | ) |
Income (loss) from operations |
| $ | 19,992 |
|
| $ | (11,762 | ) |
| $ | 134,987 |
|
| $ | 66 |
|
| $ | 143,283 |
|
Foreign exchange gains (losses), net |
|
| 1,161 |
|
|
| 502 |
|
|
| 5,940 |
|
|
| — |
|
|
| 7,603 |
|
Interest income (expense), net |
|
| (6,978 | ) |
|
| — |
|
|
| (11,529 | ) |
|
| — |
|
|
| (18,507 | ) |
Intercompany interest income (expense), net |
|
| 40,125 |
|
|
| (7,303 | ) |
|
| (32,822 | ) |
|
| — |
|
|
| — |
|
Other income (expense), net |
|
| — |
|
|
| — |
|
|
| 25,298 |
|
|
| — |
|
|
| 25,298 |
|
Income (loss) before equity-method investment activity, net and income tax expense |
| $ | 54,300 |
|
| $ | (18,563 | ) |
| $ | 121,874 |
|
| $ | 66 |
|
| $ | 157,677 |
|
Gain (loss) on equity-method investment activity, net |
|
| 11,030 |
|
|
| 147,832 |
|
|
| 62,045 |
|
|
| (220,922 | ) |
|
| (15 | ) |
Income before income tax expense |
| $ | 65,330 |
|
| $ | 129,269 |
|
| $ | 183,919 |
|
| $ | (220,856 | ) |
| $ | 157,662 |
|
Income tax expense |
|
| 3,287 |
|
|
| — |
|
|
| 25,867 |
|
|
| — |
|
|
| 29,154 |
|
Net income |
| $ | 62,043 |
|
| $ | 129,269 |
|
| $ | 158,052 |
|
| $ | (220,856 | ) |
| $ | 128,508 |
|
Net loss attributable to redeemable non-controlling interest |
|
| — |
|
|
| — |
|
|
| (761 | ) |
|
| — |
|
|
| (761 | ) |
Net income attributable to Genpact Limited shareholders |
| $ | 62,043 |
|
| $ | 129,269 |
|
| $ | 158,813 |
|
| $ | (220,856 | ) |
| $ | 129,269 |
|
54
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
30. Guarantor financial information (continued)
Condensed Consolidating Statement of Comprehensive Income (Loss) |
| ||||||||||||||||||||||
| Three months ended June 30, 2019 |
| |||||||||||||||||||||
| Issuer/ Subsidiary |
|
| Parent/ Guarantor |
|
| Non-Guarantor Subsidiaries |
|
| Eliminations |
|
| Genpact Limited Shareholders |
|
| Redeemable Non-controlling interest |
| ||||||
Net income (loss) | $ | 22,302 |
|
| $ | 73,722 |
|
| $ | 83,740 |
|
| $ | (106,042 | ) |
| $ | 73,722 |
|
| $ | — |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustments |
| 7,374 |
|
|
| 4,236 |
|
|
| 4,236 |
|
|
| (11,610 | ) |
|
| 4,236 |
|
|
| — |
|
Net income (loss) on cash flow hedging derivatives, net of taxes (Note 7) |
| (1,230 | ) |
|
| (113 | ) |
|
| (113 | ) |
|
| 1,343 |
|
|
| (113 | ) |
|
| — |
|
Retirement benefits, net of taxes |
| (4 | ) |
|
| 217 |
|
|
| 217 |
|
|
| (213 | ) |
|
| 217 |
|
|
| — |
|
Other comprehensive income (loss) |
| 6,140 |
|
|
| 4,340 |
|
|
| 4,340 |
|
|
| (10,480 | ) |
|
| 4,340 |
|
|
| — |
|
Comprehensive income (loss) | $ | 28,442 |
|
| $ | 78,062 |
|
| $ | 88,080 |
|
| $ | (116,522 | ) |
| $ | 78,062 |
|
| $ | — |
|
|
| ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six months ended June 30, 2019 |
| |||||||||||||||||||||
| Issuer/ Subsidiary |
|
| Parent/ Guarantor |
|
| Non-Guarantor Subsidiaries |
|
| Eliminations |
|
| Genpact Limited Shareholders |
|
| Redeemable Non-controlling interest |
| ||||||
Net income (loss) | $ | 45,434 |
|
| $ | 134,562 |
|
| $ | 158,716 |
|
| $ | (204,149 | ) |
| $ | 134,563 |
|
| $ | — |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustments |
| 7,465 |
|
|
| 14,727 |
|
|
| 14,727 |
|
|
| (22,192 | ) | �� |
| 14,727 |
|
|
| — |
|
Net income (loss) on cash flow hedging derivatives, net of taxes (Note 7) |
| (1,537 | ) |
|
| 13,043 |
|
|
| 13,043 |
|
|
| (11,506 | ) |
|
| 13,043 |
|
|
| — |
|
Retirement benefits, net of taxes |
| 8 |
|
|
| 427 |
|
|
| 427 |
|
|
| (435 | ) |
|
| 427 |
|
|
| — |
|
Other comprehensive income (loss) |
| 5,936 |
|
|
| 28,197 |
|
|
| 28,197 |
|
|
| (34,133 | ) |
|
| 28,197 |
|
|
| — |
|
Comprehensive income (loss) | $ | 51,370 |
|
| $ | 162,759 |
|
| $ | 186,913 |
|
| $ | (238,282 | ) |
| $ | 162,760 |
|
| $ | — |
|
| Three months ended June 30, 2018 |
| |||||||||||||||||||||
| Issuer/ Subsidiary |
|
| Parent/ Guarantor |
|
| Non-Guarantor Subsidiaries |
|
| Eliminations |
|
| Genpact Limited Shareholders |
|
| Redeemable Non-controlling interest |
| ||||||
Net income (loss) | $ | 27,987 |
|
| $ | 64,574 |
|
| $ | 82,234 |
|
| $ | (110,221 | ) |
| $ | 64,574 |
|
| $ | — |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustments |
| (47,357 | ) |
|
| (73,681 | ) |
|
| (73,681 | ) |
|
| 121,038 |
|
|
| (73,681 | ) |
|
| — |
|
Net income (loss) on cash flow hedging derivatives, net of taxes (Note 7) |
| (26,429 | ) |
|
| (27,879 | ) |
|
| (26,429 | ) |
|
| 52,858 |
|
|
| (27,879 | ) |
|
| — |
|
Retirement benefits, net of taxes |
| (7 | ) |
|
| 617 |
|
|
| (7 | ) |
|
| 14 |
|
|
| 617 |
|
|
| — |
|
Other comprehensive income (loss) |
| (73,793 | ) |
|
| (100,943 | ) |
|
| (100,117 | ) |
|
| 173,910 |
|
|
| (100,943 | ) |
|
| — |
|
Comprehensive income (loss) | $ | (45,806 | ) |
| $ | (36,369 | ) |
| $ | (17,883 | ) |
| $ | 63,689 |
|
| $ | (36,369 | ) |
| $ | — |
|
| Six months ended June 30, 2018 |
| |||||||||||||||||||||
| Issuer/ Subsidiary |
|
| Parent/ Guarantor |
|
| Non-Guarantor Subsidiaries |
|
| Eliminations |
|
| Genpact Limited Shareholders |
|
| Redeemable Non-controlling interest |
| ||||||
Net income (loss) | $ | 62,045 |
|
| $ | 129,269 |
|
| $ | 158,812 |
|
| $ | (220,857 | ) |
| $ | 129,269 |
|
| $ | (761 | ) |
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustments |
| (53,709 | ) |
|
| (83,016 | ) |
|
| (83,016 | ) |
|
| 136,725 |
|
|
| (83,016 | ) |
|
| (424 | ) |
Net income (loss) on cash flow hedging derivatives, net of taxes (Note 7) |
| (42,110 | ) |
|
| (46,811 | ) |
|
| (45,361 | ) |
|
| 87,471 |
|
|
| (46,811 | ) |
|
| — |
|
Retirement benefits, net of taxes |
| 73 |
|
|
| 1,130 |
|
|
| 506 |
|
|
| (579 | ) |
|
| 1,130 |
|
|
| — |
|
Other comprehensive income (loss) |
| (95,746 | ) |
|
| (128,697 | ) |
|
| (127,871 | ) |
|
| 223,617 |
|
|
| (128,697 | ) |
|
| (424 | ) |
Comprehensive income (loss) | $ | (33,701 | ) |
| $ | 572 |
|
| $ | 30,941 |
|
| $ | 2,760 |
|
| $ | 572 |
|
| $ | (1,185 | ) |
55
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
30. Guarantor financial information (continued)
Condensed Consolidating Statement of Cash Flow |
| |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six months ended June 30, 2019 |
| |||||||||||||||||
|
| Issuer/ Subsidiary |
|
| Parent/ Guarantor |
|
| Non- Guarantor Subsidiaries |
|
| Eliminations |
|
| Consolidated |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used for) provided by operating activities |
| $ | (173,237 | ) |
| $ | (5,023 | ) |
| $ | (31,275 | ) |
| $ | 330,578 |
|
| $ | 121,042 |
|
Investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment |
|
| — |
|
|
| — |
|
|
| (30,392 | ) |
|
| — |
|
|
| (30,392 | ) |
Payment for internally generated intangible assets (including intangibles under development) |
|
| — |
|
|
| — |
|
|
| (16,501 | ) |
|
| — |
|
|
| (16,501 | ) |
Proceeds from sale of property, plant and equipment |
|
| — |
|
|
| — |
|
|
| 1,562 |
|
|
| — |
|
|
| 1,562 |
|
Investment in subsidiaries |
|
| (6,586 | ) |
|
| — |
|
|
| 6,586 |
|
|
| — |
|
|
| — |
|
Payment for issuance of bonds, intercompany |
|
| — |
|
|
| (103,100 | ) |
|
| — |
|
|
| 103,100 |
|
|
| — |
|
Proceeds from redemption of debentures, intercompany |
|
| 86,818 |
|
|
| 35,100 |
|
|
| — |
|
|
| (121,918 | ) |
|
| — |
|
Payment for business acquisitions, net of cash acquired |
|
| — |
|
|
| — |
|
|
| (6,305 | ) |
|
| — |
|
|
| (6,305 | ) |
Payment for purchase of redeemable non-controlling interest |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Net cash (used for) provided by investing activities |
| $ | 80,232 |
|
| $ | (68,000 | ) |
|
| (45,050 | ) |
| $ | (18,818 | ) |
| $ | (51,636 | ) |
Financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayment of capital lease obligations |
|
| — |
|
|
| — |
|
|
| (4,102 | ) |
|
| — |
|
|
| (4,102 | ) |
Proceeds from long-term debt |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Repayment of long-term debt |
|
| (2,500 | ) |
|
| — |
|
|
| (14,500 | ) |
|
| — |
|
|
| (17,000 | ) |
Proceeds from short-term borrowings |
|
| — |
|
|
| — |
|
|
| 50,000 |
|
|
| — |
|
|
| 50,000 |
|
Repayment of short-term borrowings |
|
| — |
|
|
| — |
|
|
| (55,000 | ) |
|
| — |
|
|
| (55,000 | ) |
Proceeds from intercompany loans |
|
| 101,988 |
|
|
| 101,500 |
|
|
| 149,403 |
|
|
| (352,890 | ) |
|
| — |
|
Repayment of intercompany loans |
|
| (5,000 | ) |
|
| (7,000 | ) |
|
| (10,312 | ) |
|
| 22,312 |
|
|
| — |
|
Proceeds from issuance of common shares under stock-based compensation plans |
|
| — |
|
|
| 11,477 |
|
|
| — |
|
|
| — |
|
|
| 11,477 |
|
Payment for net settlement of stock-based awards |
|
| — |
|
|
| (2,729 | ) |
|
| — |
|
|
| — |
|
|
| (2,729 | ) |
Payment of earn-out/deferred consideration |
|
| — |
|
|
| — |
|
|
| (10,470 | ) |
|
| — |
|
|
| (10,470 | ) |
Dividend paid |
|
| — |
|
|
| (32,307 | ) |
|
| — |
|
|
| — |
|
|
| (32,307 | ) |
Proceeds from issuance of bonds, intercompany |
|
| — |
|
|
| — |
|
|
| 103,100 |
|
|
| (103,100 | ) |
|
| — |
|
Payment for redemption of debentures, intercompany |
|
| — |
|
|
| — |
|
|
| (121,918 | ) |
|
| 121,918 |
|
|
| — |
|
Net cash (used for) provided by financing activities |
| $ | 94,488 |
|
| $ | 70,940 |
|
| $ | 86,201 |
|
| $ | (311,760 | ) |
| $ | (60,131 | ) |
Effect of exchange rate changes |
|
| (1,196 | ) |
|
| (1 | ) |
|
| 1,556 |
|
|
| — |
|
|
| 359 |
|
Net increase (decrease) in cash and cash equivalents |
|
| 1,482 |
|
|
| (2,084 | ) |
|
| 9,876 |
|
|
| — |
|
|
| 9,275 |
|
Cash and cash equivalents at the beginning of the period |
|
| 12,797 |
|
|
| 2,505 |
|
|
| 353,094 |
|
|
| — |
|
|
| 368,396 |
|
Cash and cash equivalents at the end of the period |
| $ | 13,082 |
|
| $ | 420 |
|
| $ | 364,528 |
|
| $ | — |
|
| $ | 378,030 |
|
56
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
30. Guarantor financial information (continued)
Condensed Consolidating Statement of Cash Flow |
| |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six months ended June 30, 2018 |
| |||||||||||||||||
|
| Issuer/ Subsidiary |
|
| Parent/ Guarantor |
|
| Non- Guarantor Subsidiaries |
|
| Eliminations |
|
| Consolidated |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used for) provided by operating activities |
| $ | (64,501 | ) |
| $ | 1,114 |
|
| $ | (110,032 | ) |
| $ | 222,903 |
|
| $ | 49,484 |
|
Investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment |
|
| — |
|
|
| — |
|
|
| (37,703 | ) |
|
| — |
|
|
| (37,703 | ) |
Payment for internally generated intangible assets |
|
| — |
|
|
| — |
|
|
| (11,544 | ) |
|
| — |
|
|
| (11,544 | ) |
Proceeds from sale of property, plant and equipment |
|
| — |
|
|
| — |
|
|
| 309 |
|
|
| — |
|
|
| 309 |
|
Investment in equity affiliates |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Investment in subsidiaries |
|
| (2,000 | ) |
|
| — |
|
|
| 2,063 |
|
|
| (63 | ) |
|
| — |
|
Proceeds from redemption of debentures, intercompany |
|
| 91,761 |
|
|
| — |
|
|
| — |
|
|
| (91,761 | ) |
|
| — |
|
Payment for business acquisitions, net of cash acquired |
|
| — |
|
|
| — |
|
|
| (728 | ) |
|
| — |
|
|
| (728 | ) |
Payment for purchase of redeemable non-controlling interest |
|
| — |
|
|
| — |
|
|
| (4,730 | ) |
|
| — |
|
|
| (4,730 | ) |
Net cash (used for) provided by investing activities |
| $ | 89,761 |
|
| $ | — |
|
| $ | (52,333 | ) |
| $ | (91,824 | ) |
| $ | (54,396 | ) |
Financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayment of capital lease obligations |
|
| — |
|
|
| — |
|
|
| (1,108 | ) |
|
| — |
|
|
| (1,108 | ) |
Repayment of long-term debt |
|
| — |
|
|
| — |
|
|
| (20,000 | ) |
|
| — |
|
|
| (20,000 | ) |
Proceeds from short-term borrowings |
|
| — |
|
|
| — |
|
|
| 105,000 |
|
|
| — |
|
|
| 105,000 |
|
Repayment of short-term borrowings |
|
| — |
|
|
| — |
|
|
| (60,000 | ) |
|
| — |
|
|
| (60,000 | ) |
Proceeds from intercompany loans |
|
| 32,000 |
|
|
| 212,500 |
|
|
| 170,657 |
|
|
| (415,157 | ) |
|
| — |
|
Repayment of intercompany loans |
|
| (53,978 | ) |
|
| (51,500 | ) |
|
| (86,839 | ) |
|
| 192,317 |
|
|
| — |
|
Proceeds from issuance of common shares under stock-based compensation plans |
|
| — |
|
|
| 9,388 |
|
|
| — |
|
|
| — |
|
|
| 9,388 |
|
Payment for net settlement of stock-based awards |
|
| — |
|
|
| (14,229 | ) |
|
| — |
|
|
| — |
|
|
| (14,229 | ) |
Payment of earn-out/deferred consideration |
|
| — |
|
|
| — |
|
|
| (1,476 | ) |
|
| — |
|
|
| (1,476 | ) |
Dividend paid |
|
| — |
|
|
| (28,648 | ) |
|
| — |
|
|
| — |
|
|
| (28,648 | ) |
Payment for stock repurchased and retired |
|
| — |
|
|
| (130,103 | ) |
|
| — |
|
|
| — |
|
|
| (130,103 | ) |
Payment for expenses related to stock repurchase |
|
| — |
|
|
| (82 | ) |
|
| — |
|
|
| — |
|
|
| (82 | ) |
Payment for redemption of debentures, intercompany |
|
| — |
|
|
| — |
|
|
| (91,761 | ) |
|
| 91,761 |
|
|
| — |
|
Net cash (used for) provided by financing activities |
| $ | (21,978 | ) |
| $ | (2,674 | ) |
| $ | 14,473 |
|
| $ | (131,079 | ) |
| $ | (141,258 | ) |
Effect of exchange rate changes |
|
| (3,463 | ) |
|
| — |
|
|
| (20,932 | ) |
|
| — |
|
|
| (24,395 | ) |
Net increase (decrease) in cash and cash equivalents |
|
| 3,282 |
|
|
| (1,560 | ) |
|
| (147,892 | ) |
|
| — |
|
|
| (146,170 | ) |
Cash and cash equivalents at the beginning of the period |
|
| 4,507 |
|
|
| 2,136 |
|
|
| 497,825 |
|
|
| — |
|
|
| 504,468 |
|
Cash and cash equivalents at the end of the period |
| $ | 4,326 |
|
| $ | 576 |
|
| $ | 329,001 |
|
| $ | — |
|
| $ | 333,903 |
|
57
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with our consolidated financial statements and the related notes that appear elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 20162018 and with the information under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2016.2018. In addition to historical information, this discussion includes forward-looking statements and information that involves risks, uncertainties and assumptions, including but not limited to those listed below and under “Risk Factors” in ourthis Quarterly Report on Form 10-Q for the quarter ended March 31, 2017June 30, 2019 and in our Annual Report on Form 10-K for the year ended December 31, 2016.2018.
Special Note Regarding Forward-Looking Statements
We have made statements in this Quarterly Report on Form 10-Q (the “Quarterly Report”) in, among other sections, Part I, Item 2—“Management’s Discussion and Analysis of Financial Condition and Results of Operations” that are forward-looking statements. In some cases, you can identify these statements by forward-looking terms such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “estimate,” “could,” “may,” “shall,” “will,” “would” and variations of such words and similar expressions, or the negative of such words or similar expressions. These forward-looking statements, which are subject to risks, uncertainties and assumptions about us, may include projections of our future financial performance, which in some cases may be based on our growth strategies and anticipated trends in our business. These statements are only predictions based on our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from those expressed or implied by the forward-looking statements. In particular, you should consider the numerous risks outlined in Part II, Item 1A—“Risk Factors” in ourthis Quarterly Report on Form 10-Q for the quarter ended March 31, 2017June 30, 2019 and in Part I, Item 1A—“Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016.2018.
These forward-looking statements include, but are not limited to, statements relating to:
our ability to retain existing clients and contracts;
• | our ability to retain existing clients and contracts; |
our ability to win new clients and engagements;
• | our ability to win new clients and engagements; |
the expected value of the statements of work under our master service agreements;
• | the expected value of the statements of work under our master service agreements; |
our beliefs about future trends in our market;
• | our beliefs about future trends in our market; |
political, economic or business conditions in countries where we have operations or where our clients operate;
• | political, economic or business conditions in countries where we have operations or where our clients operate, including the uncertainty related to the proposed withdrawal of the United Kingdom from the European Union, commonly known as Brexit, and heightened economic and political uncertainty within and among other European Union member states; |
expected spending on business process outsourcing and information technology services by clients;
• | expected spending on business process outsourcing and information technology services by clients; |
foreign currency exchange rates;
• | foreign currency exchange rates; |
our ability to convert bookings to revenue;
• | our ability to convert bookings to revenue; |
our rate of employee attrition;
• | our rate of employee attrition; |
our effective tax rate; and
• | our effective tax rate; and |
competition in our industry.
• | competition in our industry. |
Factors that may cause actual results to differ from expected results include, among others:
our ability to grow our business and effectively manage growth and international operations while maintaining effective internal controls;
our dependence on revenues derived from clients in the United States and Europe and clients that operate in certain industries, such as the financial services industry;
our dependence on favorable tax legislation and tax policies that may be amended in a manner adverse to us or be unavailable to us in the future;
our ability to successfully consummate or integrate strategic acquisitions;
our ability to maintain pricing and asset utilization rates;
our ability to hire and retain enough qualified employees to support our operations;
increases in wages in locations in which we have operations;
• | our ability to develop and successfully execute our business strategies; |
| • | our ability to grow our business and effectively manage growth and international operations while maintaining effective internal controls; |
• | our dependence on favorable policies and tax laws that may be changed or amended in a manner adverse to us or be unavailable to us in the future, including as a result of recently adopted tax legislation in the United States, and our ability to effectively execute our tax planning strategies; |
58
• | our ability to comply with data protection laws and regulations and to maintain the security and confidentiality of personal and other sensitive data of our clients, employees or others; |
• | our dependence on revenues derived from clients in the United States and Europe and clients that operate in certain industries, such as the financial services industry; |
• | our ability to successfully consummate or integrate strategic acquisitions; |
• | our ability to maintain pricing and asset utilization rates; |
• | our ability to hire and retain enough qualified employees to support our operations; |
• | increases in wages in locations in which we have operations; |
• | our ability to service our defined contribution benefit plan payment obligations; |
• | clarification as to the possible retrospective application of a judicial pronouncement in India regarding our defined benefit plan payment obligations; |
• | our relative dependence on the General Electric Company |
financing terms, including, but not limited to, changes in the London Interbank Offered rate, or LIBOR, and changes in our credit ratings;
• | financing terms, including, but not limited to, changes in the London Interbank Offered rate, or LIBOR, including the pending global phase-out of LIBOR, and changes to our credit ratings; |
our ability to meet our corporate funding needs, pay dividends and service debt, including our ability to comply with the restrictions that apply to our indebtedness that may limit our business activities and investment opportunities;
• | our ability to meet our corporate funding needs, pay dividends and service debt, including our ability to comply with the restrictions that apply to our indebtedness that may limit our business activities and investment opportunities; |
restrictions on visas for our employees traveling to North America and Europe;
• | restrictions on visas for our employees traveling to North America and Europe; |
fluctuations in currency exchange rates between the U.S. dollar, the euro, U.K. pound sterling, Chinese renminbi, Hungarian forint, Japanese yen, Indian rupee, Australian dollar, Philippines peso, Norwegian krone, Mexican peso, Polish zloty, Romanian leu, South African rand, Hong Kong dollar, Singapore dollar, Arab Emirates dirham, Brazilian real, Swiss franc, Swedish krona, Danish krone, Kenyan shilling, Czech koruna, Israeli new shekel, Colombian peso, Guatemalan quetzal, Malaysian ringgit, Moroccan dirham and Canadian dollar;
• | fluctuations in currency exchange rates between the currencies in which we transact business, primarily the U.S. dollar, Australian dollar, Chinese renminbi, Euro, Indian rupee, Japanese yen, Mexican peso, Philippine peso, Polish zloty, Romanian leu and U.K. pound sterling; |
our ability to retain senior management;
• | our ability to retain senior management; |
the selling cycle for our client relationships;
• | the selling cycle for our client relationships; |
our ability to attract and retain clients and our ability to develop and maintain client relationships on attractive terms;
• | our ability to attract and retain clients and our ability to develop and maintain client relationships on attractive terms; |
legislation in the United States or elsewhere that adversely affects the performance of business process outsourcing and information technology services offshore;
• | legislation in the United States or elsewhere that adversely affects the performance of business process outsourcing and information technology services offshore; |
increasing competition in our industry;
• | increasing competition in our industry; |
telecommunications or technology disruptions or breaches, or natural or other disasters;
• | telecommunications or technology disruptions or breaches, cyberattacks or natural or other disasters; |
our ability to protect our intellectual property and the intellectual property of others;
• | our ability to protect our intellectual property and the intellectual property of others; |
our ability to maintain the security and confidentiality of personal and other sensitive data of our clients, employees or others;
• | deterioration in the global economic environment and its impact on our clients, including the bankruptcy of our clients; |
deterioration in the global economic environment and its impact on our clients, including the bankruptcy of our clients;
• | regulatory, legislative and judicial developments, including the withdrawal of governmental fiscal incentives; |
regulatory, legislative and judicial developments, including the withdrawal of governmental fiscal incentives;
• | the international nature of our business; |
the international nature of our business;
• | technological innovation; |
technological innovation;
• | our ability to derive revenues from new service offerings and acquisitions; and |
our ability to derive revenues from new service offerings; and
unionization of any of our employees.
• | unionization of any of our employees. |
Although we believe the expectations reflected in anythe forward-looking statements are reasonable at the time they are made, we cannot guarantee future results, level of activity, performance or achievements. Achievement of future results is subject to risks, uncertainties, and potentially inaccurate assumptions. Should known or unknown risks or uncertainties materialize, or should underlying assumptions prove inaccurate, actual results could differ materially from past results and those anticipated, estimated or projected. You should bear this in mind as you consider forward-looking statements.
59
We undertake no obligation to update any of these forward-looking statements after the date of this filing to conform our prior statements to actual results or revised expectations. You are advised, however, to consult any further disclosures we make on related subjects in our FormsForm 10-K, FormsForm 10-Q and Form 8-K reports to the Securities and Exchange Commission, or the SEC.
Overview
We are a global professional services firm focusedthat focuses on drivingbusiness transformation. We drive digital-led innovation and runningrun digitally-enabled intelligent operations for our clients. Guidedclients, guided by our experience running thousands of processes for hundreds of Fortune Global 500 clients. We have over 90,000 employees serving clients since our founding, we strive to help our clients achieve their operational goals by applying ourin key industry expertise, proprietary digital technology and analytics. We employ over 77,000 people inverticals from more than 2030 countries. Our registered office is located at Canon’s Court, 22Victoria Place, 5th Floor, 31 Victoria Street, Hamilton HM 12,10, Bermuda.
In the quarter ended SeptemberJune 30, 2017,2019, we had net revenues of $708.8$881.8 million, of which $636.6$763.2 million, or 89.8%86.5%, was from clients other than GE, which we refer to as Global Clients, with the remaining $72.2$118.6 million, or 10.2%13.5%, coming from GE.
Acquisitions
On September 5, 2017,January 7, 2019, we acquired 100% of the outstanding equity interest in TandemSeven, Inc. (“TandemSeven”),riskCanvas Holdings, LLC, a Massachusetts corporation,Delaware limited liability company, for estimated total purchase consideration of $35.7 million, subject to adjustment for closing date working capital and indebtedness.$5.75 million. This amount includes cash consideration of $31.9$5.7 million, net of cash acquired of $3.9 million, and a preliminary adjustmentadjustments for working capitalcapital. This acquisition expands our services in the areas of financial institution fraud, anti-money laundering and indebtedness. As of September 30, 2017, we have paidfinancial transaction surveillance and enhances our consulting capabilities for clients in the sellers total consideration of $34.8 million, resulting in a payable of $0.9 million. TandemSeven’s focus on improving the design of customer experiences complements our existing capabilities aimed at transforming clients’ processes end-to-end.financial services industry. Goodwill arising from the acquisition amounted to $25.3$2.5 million, which has been allocated to our India reporting unit and is deductible for tax purposes. The goodwill represents primarily the acquired expertise, operating synergies and other benefits expected to result from combining the acquired operations with our existing operations.
On July 18, 2017, we acquired 100% of the outstanding equity interest in OnSource LLC, a Massachusetts limited liability company, for estimated total purchase consideration of $23.0 million, subject to adjustment for closing date working capital, indebtedness and certain transaction expenses incurred by OnSource in connection with closing. This amount includes cash consideration of $23.0 million, and a preliminary adjustment for working capital and net debt. As of September 30, 2017, we have paid the sellers total consideration of $23.0 million. This acquisition brings digital capabilities to our insurance service offerings. Goodwill arising from the acquisition amounted to $19.7 million, which has been allocated to our India reporting unit and is deductible for tax purposes. The goodwill represents primarily the capabilities, operating synergies and other benefits expected to result from combining the acquired operations with our existing operations.
On July 18, 2017,August 30, 2018, we acquired from Birlasoft (India) Limited,100% of the outstanding equity/partnership interests in Barkawi Management Consultants GmbH & Co. KG, a company incorporated underGerman limited partnership, and certain affiliated entities in the Indian Companies Act, 1956, Birlasoft Inc., a Delaware corporation,United States, Germany and Birlasoft (UK) Limited, a company incorporated in England and Wales (collectively referred to as “Birlasoft”) certain assets comprising a portion of Birlasoft’s IT businessAustria for total purchase consideration of $16.3$101.3 million. This amount includes cash consideration of $95.6 million, net of cash acquired of $5.7 million. This acquisition expandsenhances our end-to-end capabilities for our clients in the healthcare and aviation industries.supply chain management consulting capabilities. Goodwill arising from the acquisition amounted to $9.7 million, which has been allocated to our IT services reporting unit and is deductible for tax purposes. The goodwill represents primarily the capabilities, operating synergies and other benefits expected to result from combining the acquired operations with our existing operations.
On May 11, 2017, we acquired the instrument processing business of Fiserv Solutions of Australia Pty Limited for estimated total purchase consideration of $19.0 million, subject to adjustment for closing date working capital, value transfer and net debt. This amount includes a preliminary adjustment for closing date working capital, value transfer and net debt. As of September 30, 2017, we have paid the sellers total consideration of $21.3 million, resulting in a receivable of $2.3 million. This acquisition strengthens our financial services portfolio and expands our Australia footprint. Goodwill arising from the acquisition amounted to $5.4 million, which has been allocated to our India reporting unit and is not deductible for tax purposes. The goodwill represents primarily the capabilities, operating synergies and other benefits expected to be derived from combining the acquired operations with our existing operations.
On May 3, 2017, we acquired 100% of the outstanding equity interest in each of BrightClaim LLC, a Delaware limited liability company, BrightServe LLC, a Georgia limited liability company, National Vendor LLC, a Delaware limited liability company, and BrightClaim Blocker, Inc., a Delaware corporation (collectively referred to as “BrightClaim”). The estimated total purchase consideration for the acquisition of BrightClaim is $56.5 million, subject to adjustment for closing date working capital, indebtedness and certain transaction expenses incurred by BrightClaim in connection with closing. This amount includes cash consideration of $52.4 million, net of cash acquired of $4.0 million, and a preliminary adjustment for working capital and net debt. This acquisition enhances our breadth and depth of service offerings for clients in the insurance industry. Goodwill arising from the acquisition amounted to $42.6$79.9 million, which has been allocated to our India reporting unit and is partially deductible for tax purposes. The goodwill represents primarily the capabilities,acquired consulting expertise, operating synergies and other benefits expected to be derivedresult from combining the acquired operations with those of our existing operations.
On April 13, 2017,July 3, 2018, we acquired 100% of the outstanding equity interest in RAGE Frameworks,Commonwealth Informatics Inc. (“RAGE”), a DelawareMassachusetts corporation, for estimated total purchase consideration of $125.1 million, subject to adjustment for closing date working capital and indebtedness.$17.9 million. This amount includes cash consideration of $124.1$16.1 million, net of cash acquired of $1.6$1.5 million, and a preliminary adjustmentadjustments for working capital and indebtedness. As of September 30, 2017, we have paid the sellers total consideration of $125.8 million, resulting in a receivable of $0.5 million. This acquisition enhances our digitalsignal management and artificial intelligencepharmacovigilance capabilities by adding knowledge-based automation technology and services.for clients in the life sciences industry. Goodwill arising from the acquisition amounted to $105.1$11.6 million, which has been allocated to our India reporting unit and is not deductible for tax purposes. The goodwill represents primarily the acquired digital and artificial intelligence capabilities, operating synergies and other benefits expected to be derived from combining the acquired operations with our existing operations.
On February 15, 2017, we acquired 100% of the outstanding equity interest in LeaseDimensions, Inc. (“LeaseDimensions”), an Oregon corporation, for estimated total purchase consideration of $11.6 million, subject to adjustment for closing date working capital and net debt. This amount includes the estimated fair value of the contingent earn-out consideration and cash consideration of $9.1 million, net of cash acquired of $0.2 million, and a preliminary adjustment for working capital and net debt. As of September 30, 2017, we have paid the sellers total consideration of $9.5 million, resulting in a receivable of $0.1 million. The purchase agreement between us and the sellers also provides for contingent earn-out consideration ranging from $0 to $3.0 million, payable by us to the sellers based on the future performance of LeaseDimensions relative to the thresholds specified in the earn-out calculation. This acquisition enhances our capabilities in commercial lending and leasing. Goodwill arising from the acquisition amounted to $8.3 million, which has been allocated to our Americas reporting unit and is not deductible for tax purposes. The goodwill represents primarily the capabilities, operating synergies and other benefits expected to be derived from combining the acquired operations with our existing operations.
On April 13, 2016, we acquired 100% of the outstanding equity interest in Endeavour Software Technologies Private Limited (“Endeavour”), an Indian private limited company. The total consideration we paid the sellers to acquire Endeavour was $14.8 million. This amount includes the estimated fair value of contingent earn-out consideration, cash consideration of $10.3 million, net of cash acquired of $2.4 million, and an adjustment for working capital and net debt. This acquisition enhances our digital capabilities by adding end-to-end mobility services. Goodwill arising from the acquisition amounted to $8.9 million, which has been allocated to our India reporting unit and is not deductible for tax purposes. The goodwill represents primarily the capabilities in end-to-end mobility services, operating synergies and other benefits expected to result from combining the acquired operations with our existing operations.
On January 8, 2016, we acquired 51% of the outstanding equity interest in Strategic Sourcing Excellence LLC (“SSE”), a Delaware limited liability company, for initial cash consideration of $2.6 million, subject to adjustment for working capital, transaction expenses and indebtedness. This acquisition strengthens our procurement consulting, transformation and strategic sourcing capabilities. The equity purchase agreement between us and the selling equity holders provides for contingent earn-out consideration of up to $20.0 million, payable by us to the selling equity holders based on the future performance of SSE relative to the thresholds specified in the earn-out calculation. Up to $9.8 million of the total potential earn-out consideration, representing the selling equity holders’ 49% interest in SSE, is payable by us to the selling equity holders only if either the put or call option, each as described below, is exercised. Goodwill arising from the acquisition amounted to $14.4 million, which has been allocated to our India reporting unit and is deductible for tax purposes. The equity purchase agreement grants us a call option to purchase the remaining 49% equity interest in SSE, which option we have the right to exercise between January 1, 2018 and January 31, 2018. If we do not exercise our call option during such period, the selling equity holders have the right to exercise a put option between March 1, 2018 and April 30, 2018 to require us to purchase their 49% interest in SSE at a price ranging from $2.5 million to $3.0 million. The goodwill represents future economic benefits we expect to derive from our expanded presence in the sourcing and procurement consulting domains, operating synergies and other anticipated benefits of combining the acquired operations with our existing operations.
Secondary OfferingOfferings
On August 18, 2017,February 15, 2019, we completed a secondary offering of our common shares, pursuant to which certain of our shareholders affiliated with Bain Capital Investors, LLC, namely Glory Investments A Limited and its affiliated assignees, together with their co-investor, GIC Private Limited (the(collectively, the “Selling Shareholders”), sold 10.0 million common shares at a price of $28.72$32.215 per share in an underwritten public offering.offering, with Goldman Sachs & Co. acting as the sole underwriter. All of the common shares were sold by the Selling Shareholders and, as a result, we did not receive any of the proceeds from the offering.
60
On May 24, 2019, we completed a secondary offering of our common shares, pursuant to which certain of our shareholders affiliated with Bain Capital Investors, LLC, namely Glory Investments A Limited and its affiliated assignees, together with their co-investor, GIC Private Limited (collectively, the “Selling Shareholders”), sold 10.0 million common shares at a price of $36.01 per share in an underwritten public offering, with Citigroup Global Markets, Inc. acting as the sole underwriter. All of the common shares were sold by the Selling Shareholders and, as a result, we did not receive any of the proceeds from the offering.
Critical Accounting Policies and Estimates
For a description of our critical accounting policies, see Note 2—“Summary of significant accounting policies” under Part I, Item 1—“Financial Statements” above, Part II, Item 7—“Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates,” and Note 2—“Summary of significant accounting policies” under Part IV, Item 15—“Exhibits and Financial Statement Schedules” in our Annual Report on Form 10-K for the year ended December 31, 2016.2018.
We adopted the new accounting standard for leases effective January 1, 2019, using the modified retrospective adoption approach. For further discussion and additional disclosure regarding our adoption of this standard, see Note 2 “Summary of significant accounting policies” and Note 28 — “Leases” under Part I, Item 1— “Financial Statements” above.
61
Results of Operations
The following table sets forth certain data from our consolidated statements of income for the three and ninesix months ended SeptemberJune 30, 20162018 and 2017.2019.
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| Three months ended September 30, |
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| Nine months ended September 30, |
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| Three months ended September 30, |
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| Nine months ended September 30, |
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| Six months ended June 30, |
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| 2016 |
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| 2017 |
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| 2016 |
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| 2017 |
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| 2017 vs. 2016 |
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Net revenues—GE* |
| $ | 85.4 |
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| $ | 72.2 |
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| $ | 276.6 |
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| $ | 204.7 |
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| (15.4 | ) | % |
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| (26.0 | ) | % |
| $ | 65.4 |
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| $ | 118.6 |
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| $ | 123.5 |
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| $ | 227.6 |
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| 81.2 |
| % |
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| 84.3 |
| % | |
Net revenues—Global Clients* |
| 563.4 |
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| 636.6 |
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| 1,612.4 |
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| 1,797.8 |
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| 13.0 |
| % |
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| 11.5 |
| % |
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| 663.1 |
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| 763.2 |
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| 1,294.0 |
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| 1,463.4 |
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| 15.1 |
| % |
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| 13.1 |
| % | |||||
Total net revenues |
| 648.8 |
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| 708.8 |
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| 1,889.0 |
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| 2,002.5 |
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| 9.3 |
| % |
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| 6.0 |
| % |
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| 728.6 |
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| 881.8 |
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| 1,417.5 |
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| 1,691.0 |
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| 21.0 |
| % |
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| 19.3 |
| % | |||||
Cost of revenue |
| 392.4 |
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| 429.2 |
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| 1,149.0 |
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| 1,227.8 |
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| 9.4 |
| % |
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| 6.9 |
| % |
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| 462.9 |
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| 571.2 |
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| 907.2 |
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| 1,090.4 |
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| 23.4 |
| % |
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| 20.2 |
| % | |||||
Gross profit |
| 256.4 |
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| 279.6 |
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| 740.0 |
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| 774.7 |
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| 9.1 |
| % |
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| 4.7 |
| % |
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| 265.7 |
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| 310.6 |
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| 510.3 |
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| 600.6 |
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| 16.9 |
| % |
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| 17.7 |
| % | |||||
Gross profit margin |
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| 39.5 |
| % |
| 39.5 |
| % |
| 39.2 |
| % |
| 38.7 |
| % |
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| 36.5 |
| % |
| 35.2 |
| % |
| 36.0 |
| % |
| 35.5 |
| % |
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Operating expenses |
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Selling, general and administrative expenses |
| 157.0 |
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| 172.1 |
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| 482.3 |
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| 500.9 |
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| 9.6 |
| % |
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| 3.8 |
| % |
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| 176.2 |
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| 196.3 |
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| 347.3 |
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| 387.7 |
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| 11.4 |
| % |
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| 11.6 |
| % | |||||
Amortization of acquired intangible assets |
| 7.1 |
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| 10.2 |
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| 19.8 |
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| 25.8 |
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| 42.5 |
| % |
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| 30.4 |
| % |
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| 9.8 |
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| 8.1 |
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| 19.8 |
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| 16.6 |
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| (17.6 | ) | % |
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| (16.0 | ) | % | |||||
Other operating (income) expense, net |
| 5.1 |
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| (0.1) |
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| (4.8) |
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| (8.5) |
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| (101.2 | ) | % |
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| 77.8 |
| % |
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| 0.1 |
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| (0.1 | ) |
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| (0.1 | ) |
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| — |
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| (137.1 | ) | % |
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| (144.7 | ) | % | |||||
Income from operations |
| 87.1 |
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| 97.5 |
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| 242.7 |
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| 256.6 |
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| 11.9 |
| % |
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| 5.7 |
| % |
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| 79.5 |
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| 106.2 |
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| 143.3 |
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| 196.3 |
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| 33.5 |
| % |
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| 37.0 |
| % | |||||
Income from operations as a percentage of net revenues |
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| 13.4 |
| % |
| 13.7 |
| % |
| 12.8 |
| % |
| 12.8 |
| % |
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| 10.9 |
| % |
| 12.0 |
| % |
| 10.1 |
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| 11.6 |
| % |
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Foreign exchange gains (losses), net |
| (0.7) |
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| 5.0 |
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| 3.2 |
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| 2.0 |
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| (871.4 | ) | % |
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| (35.2 | ) | % |
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| 2.8 |
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| 0.4 |
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| 7.6 |
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| (3.1 | ) |
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| (87.5 | ) | % |
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| (140.5 | ) | % | |||||
Interest income (expense), net |
| (4.9) |
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| (8.7 | ) |
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| (11.2 | ) |
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| (24.1 | ) |
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| 78.0 |
| % |
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| 115.4 |
| % |
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| (10.4 | ) |
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| (12.1 | ) |
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| (18.5 | ) |
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| (23.3 | ) |
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| 16.7 |
| % |
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| 25.7 |
| % | ||
Other income (expense), net |
| 5.8 |
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| (4.0) |
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| 7.2 |
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| 9.0 |
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| (169.6 | ) | % |
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| 25.6 |
| % |
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| 9.7 |
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| 0.6 |
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| 25.3 |
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| 4.4 |
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| (94.3 | ) | % |
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| (82.8 | ) | % | |||||
Income before equity-method investment activity, net and income tax expense |
| 87.4 |
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| 89.7 |
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| 241.8 |
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| 243.6 |
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| 2.7 |
| % |
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| 0.7 |
| % |
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| 81.7 |
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| 95.0 |
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| 157.7 |
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| 174.3 |
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| 16.3 |
| % |
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| 10.5 |
| % | |||||
Equity-method investment activity, net |
| (2.1) |
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| — |
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| (6.3) |
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| (4.6) |
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| (100.0 | ) | % |
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| (27.9 | ) | % |
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| — |
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| — |
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| — |
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| — |
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| (2.2 | ) | % |
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| (26.1 | ) | % | |||||
Income before income tax expense |
| 85.2 |
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| 89.7 |
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| 235.5 |
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| 239.0 |
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| 5.3 |
| % |
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| 1.5 |
| % |
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| 81.7 |
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| 95.0 |
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| 157.7 |
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| 174.3 |
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| 16.3 |
| % |
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| 10.5 |
| % | |||||
Income tax expense |
| 17.1 |
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| 16.6 |
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| 44.0 |
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| 44.3 |
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| (2.8 | ) | % |
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| 0.6 |
| % |
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| 17.1 |
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| 21.2 |
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| 29.2 |
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| 39.7 |
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| 24.3 |
| % |
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| 36.2 |
| % | |||||
Net income |
| 68.2 |
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| 73.2 |
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| 191.5 |
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| 194.7 |
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| 7.3 |
| % |
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| 1.7 |
| % |
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| 64.6 |
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| 73.7 |
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| 128.5 |
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| 134.6 |
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| 14.2 |
| % |
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| 4.7 |
| % | |||||
Net loss attributable to redeemable non-controlling interest |
| 0.7 |
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| 0.6 |
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| 1.9 |
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| 1.3 |
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| (20.4 | ) | % |
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| (30.4 | ) | % | ||||||||||||||||||||||||||||||||
Net income attributable to redeemable non-controlling interest |
|
| — |
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| — |
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| 0.8 |
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| — |
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| — |
| % |
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| (100.0 | ) | % | ||||||||||||||||||||||||||||
Net income attributable to Genpact Limited common shareholders |
| $ | 68.9 |
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| $ | 73.7 |
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| $ | 193.4 |
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| $ | 196.0 |
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|
| 7.0 |
| % |
|
| 1.4 |
| % |
| $ | 64.6 |
|
| $ | 73.7 |
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| $ | 129.3 |
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| $ | 134.6 |
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| 14.2 |
| % |
|
| 4.1 |
| % | |
Net income attributable to Genpact Limited common shareholders as a percentage of net revenues |
|
| 10.6 |
| % |
| 10.4 |
| % |
| 10.2 |
| % |
| 9.8 |
| % |
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| 8.9 |
| % |
| 8.4 |
| % |
| 9.1 |
| % |
| 8.0 |
| % |
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* | During the second quarter of 2019, GE divested certain businesses that we continue to serve. The GE and Global Client revenues reported in this Quarterly Report reflect the reclassification of revenue from such GE-divested businesses as Global Client revenue in the second quarter of 2019. Without giving effect to such reclassification, Global Client and GE revenues for the second quarter of 2019 were $760.3 million and $121.5 million, respectively, and Global Client and GE revenues for the first half of 2019 were $1,460.5 million and $230.5 million, respectively. |
* At the end of each fiscal year, we reclassify revenue from certain divested GE businesses as Global Client revenue as of the dates of divestiture. Such reclassifications are reflected in the revenue results and growth rates presented in the table above.62
Three Months Ended SeptemberJune 30, 20172019 Compared to the Three Months Ended SeptemberJune 30, 20162018
Net revenues. Our net revenues were $708.8$881.8 million in the thirdsecond quarter of 2017,2019, up $60.0$153.2 million, or 9.3%21.0%, from $648.8$728.6 million in the thirdsecond quarter of 2016.2018. The growth in our net revenues was driven primarily by an increase in business process outsourcing, or BPO, services includingdelivered both to Global Clients and GE, in particular our transformation (analytics, consulting and digital) services, deliveredincluding ramp-ups related to our clientsrecent large deals, and incremental revenue from acquisitions.acquisitions completed after the second quarter of 2018. Adjusted for foreign exchange, primarily the impact of changes in the valuesvalue of the euro and the U.K. pound sterling euro and Australian dollar against the U.S. dollar, our net revenues grew 10%22% compared to the thirdsecond quarter of 20162018 on a constant currency basis. Revenue growth on a constant currency basis is a non-GAAP measure. We provide information about our revenue growth on a constant currency basis so that our revenue may be viewed without the impact of foreign currency exchange rate fluctuations, thereby facilitating period-to-period comparisons of our business performance. Total net revenues on a constant currency basis are calculated by restating current-period activity using the prior fiscal period’s foreign currency exchange rates and are adjusted for hedging gains/losses.
Our average headcount increased by 3.2%14.7% to approximately 75,60089,900 in the thirdsecond quarter of 20172019 from approximately 73,20078,400 in the thirdsecond quarter of 2016.2018.
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| Three months ended September 30, | Increase/(Decrease) |
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| Three months ended June 30, | Increase/(Decrease) |
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| 2017 |
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| 2017 vs. 2016 |
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| 2018 |
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| 2019 |
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| 2019 vs. 2018 |
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|
| (dollars in millions) |
|
|
|
|
| (dollars in millions) |
|
|
|
| ||||||||||||||
Global Clients: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BPO services |
| $ | 469.5 |
|
| $ | 540.6 |
|
|
| 15.1 |
| % |
| $ | 568.6 |
|
| $ | 660.3 |
|
|
| 16.1 |
| % |
IT services |
|
| 93.9 |
|
|
| 96.0 |
|
|
| 2.3 |
|
|
|
| 94.5 |
|
|
| 102.9 |
|
|
| 8.9 |
|
|
Total net revenues from Global Clients |
| $ | 563.4 |
|
| $ | 636.6 |
|
|
| 13.0 |
| % |
| $ | 663.1 |
|
| $ | 763.2 |
|
|
| 15.1 |
| % |
GE: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
BPO services |
|
| 61.0 |
|
|
| 42.7 |
|
|
| (30.0 | ) | % |
|
| 37.3 |
|
|
| 82.7 |
|
|
| 121.7 |
| % |
IT services |
|
| 24.4 |
|
|
| 29.5 |
|
|
| 21.2 |
|
|
|
| 28.2 |
|
|
| 35.9 |
|
|
| 27.6 |
|
|
Total net revenues from GE |
| $ | 85.4 |
|
| $ | 72.2 |
|
|
| (15.4 | ) | % |
| $ | 65.4 |
|
| $ | 118.6 |
|
|
| 81.2 |
| % |
Total net revenues from BPO services |
|
| 530.5 |
|
|
| 583.3 |
|
|
| 9.9 |
|
|
|
| 605.9 |
|
|
| 743.0 |
|
|
| 22.6 |
| % |
Total net revenues from IT services |
|
| 118.3 |
|
|
| 125.6 |
|
|
| 6.2 |
|
|
|
| 122.7 |
|
|
| 138.8 |
|
|
| 13.2 |
|
|
Total net revenues |
| $ | 648.8 |
|
| $ | 708.8 |
|
|
| 9.3 |
| % |
| $ | 728.6 |
|
| $ | 881.8 |
|
|
| 21.0 |
| % |
At the end of each fiscal year, we reclassify revenue from certain divested GE businesses as Global Client revenue as of the dates of divestiture. Additionally, at the end of 2016, we reclassified revenue from our acquisitions of Endeavour and PNMSoft Limited from IT services to BPO revenue effective as of the date of each acquisition. Such reclassifications are reflected in the revenue results and growth rates presented below and in the table above. In addition, to provide a consistent view of the trends underlying our business, we are presenting below revenue results and growth rates adjusted to assume that all 2016 GE revenue reclassifications occurred on January 1, 2016.
Net revenues from Global Clients in the second quarter of 2019 were $636.6$763.2 million, up $100.1 million, or 15.1%, from $663.1 million in the thirdsecond quarter of 2017, up $73.2 million, or 13.0%, from $563.4 million in the third quarter of 2016.2018. This increase was primarily driven by growth in several of our targeted verticals, including consumer product goods, banking and financial services, insurance, life sciences,capital markets, high tech, infrastructure, manufacturing and high tech.services, consumer goods and life sciences. As a percentage of total net revenues, net revenues from Global Clients increaseddecreased from 86.8%91.0% in the thirdsecond quarter of 20162018 to 89.8%86.5% in the thirdsecond quarter of 2017. If all 2016 revenue reclassifications had occurred on January 1, 2016, revenue from Global Clients would have increased 12% year over year.2019 due to the significant growth in GE revenues.
Net revenues from GE were $72.2 million in the thirdsecond quarter of 2017, down $13.12019 were $118.6 million, up $53.2 million, or 15.4%81.2%, from the thirdsecond quarter of 2016. The decline in net revenues from GE was largely in line with expected decreases in2018, driven by services delivered to GEin connection with a large new contract signed in the thirdfourth quarter of 2017, primarily due to GE’s dispositions2018, as well as an increase in transformation services project engagements in the second quarter of GE Capital businesses in 2016.2019. Net revenues from GE declinedincreased as a percentage of our total net revenues from 13.2%9% in the thirdsecond quarter of 20162018 to 10.2%13.5% in the thirdsecond quarter of 2017. If all 2016 revenue reclassifications had occurred on January 1, 2016, revenue2019.
During the second quarter ended June 30, 2019, GE divested certain businesses that we continue to serve. Net revenues from Global Clients and GE reported above and elsewhere in this Quarterly Report reflect the reclassification of net revenues from such GE-divested businesses as Global Client net revenues in the second quarter of 2019. From time to time, we present net revenues from GE would have decreased 12% year over year.and Global Clients without the impact of such reclassifications in order to provide a consistent view of quarterly trends in our Global Client and GE businesses. Without giving effect to such reclassifications in the second quarter of 2019, net revenues from Global Clients and GE for the second quarter of 2019 were $760.3 million and $121.5 million, respectively.
63
Net revenues from BPO services in the second quarter of 2019 were $583.3$743.0 million, up $52.7$137.1 million, or 9.9%22.6%, from $530.5$605.9 million in the thirdsecond quarter of 2016.2018. This increase was primarily attributable to an increase in services, in particular transformation services, delivered to our Global Clients, particularly core industry vertical operations services and finance and accounting services.clients primarily in connection with large contracts signed in the second half of 2018. Net revenues from IT services were $125.6$138.8 million in the thirdsecond quarter of 2017,2019, up $7.3$16.1 million, or 6.2%13.2%, from $118.3$122.7 million in the thirdsecond quarter of 2016 due to an increase in revenues from GE and Global Clients.2018.
Net revenues from BPO services as a percentage of total net revenues increased to 82.3%84.3% in the thirdsecond quarter of 20172019 from 81.8%83.2% in the thirdsecond quarter of 20162018, with a corresponding decline in the percentage of total net revenues attributable to IT services.
Cost of revenue and gross margin. The following table sets forth the components of our cost of revenue and the resulting gross margin:
|
| Three months ended September 30, |
|
| As a Percentage of Total Net Revenues |
|
|
| Three Months Ended June 30, |
|
| As a Percentage of Total Net Revenues |
|
| ||||||||||||||||||||||
|
| 2016 |
|
| 2017 |
|
| 2016 |
|
|
| 2017 |
|
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
|
| 2019 |
|
| ||||||||
|
| (dollars in millions) |
|
|
|
|
|
|
|
|
|
| (dollars in millions) |
|
|
|
|
|
|
|
|
| ||||||||||||||
Personnel expenses |
| $ | 269.8 |
|
| $ | 293.3 |
|
|
| 41.6 |
| % |
|
| 41.4 |
| % |
| $ | 322.8 |
|
| $ | 421.9 |
|
|
| 44.3 |
| % |
|
| 47.9 |
| % |
Operational expenses |
|
| 111.4 |
|
|
| 124.0 |
|
|
| 17.2 |
|
|
|
| 17.5 |
|
|
|
| 127.1 |
|
|
| 127.8 |
|
|
| 17.4 |
|
|
|
| 14.5 |
|
|
Depreciation and amortization |
| 11.2 |
|
|
| 11.9 |
|
|
| 1.7 |
|
|
|
| 1.7 |
|
|
| 13.0 |
|
|
| 21.5 |
|
|
| 1.8 |
|
|
|
| 2.4 |
|
| ||
Cost of revenue |
| $ | 392.4 |
|
| $ | 429.2 |
|
|
| 60.5 |
| % |
|
| 60.5 |
| % |
| $ | 462.9 |
|
| $ | 571.2 |
|
|
| 63.5 |
| % |
|
| 64.8 |
| % |
Gross margin |
|
| 39.5 | % |
|
| 39.5 | % |
|
|
|
|
|
|
|
|
|
|
|
| 36.5 | % |
|
| 35.2 | % |
|
|
|
|
|
|
|
|
|
|
Cost of revenue was $429.2$571.2 million in the thirdsecond quarter of 2017,2019, up $36.8$108.3 million, or 9.4%23.4%, from the thirdsecond quarter of 2016.2018. Wage inflation, increases in our operational headcount, incremental expenses including in the number of onshore personnel, in particular for transformation services delivery and additional headcount from acquisitionslarge deal rebadge activity, and higher stock-based compensation expense in the third quarter of 2017 compared to the third quarter of 2016 contributed to the increase in cost of revenue. Therevenue, offset by improved utilization of transformation services resources in the second quarter of 2019 compared to the second quarter of 2018.
Our gross margin decreased from 36.5% in the second quarter of 2018 to 35.2% in the second quarter of 2019, driven primarily by lower initial gross margins associated with large, new onshore deals and an increase in cost of revenue wasstock-based compensation expense, partially offset by improved operational efficiencies, lower travelutilization of transformation services resources and improved operating leverage.
Personnel expenses and favorable foreign exchange, primarily. Personnel expenses as a percentage of total net revenues increased from 44.3% in the second quarter of 2018 to 47.9% in the second quarter of 2019. Personnel expenses in the second quarter of 2019 were $421.9 million, up $99.1 million, or 30.7%, from $322.8 million in the second quarter of 2018. The impact of changeswage inflation, an approximately 10,800-person, or 16.1%, net increase in our operational headcount, including an increase in the valuesnumber of onshore personnel, particularly related to new large deals and transformation services delivery, and higher stock-based compensation expense resulted in higher personnel expenses in the Indian rupee and U.K. pound sterling against the U.S. dollar. Foreign exchange fluctuations cause gains and losses on our foreign currency hedges and have a translation impact when we convert our non-U.S. dollar income statement itemssecond quarter of 2019 compared to the U.S. dollar, our reporting currency.
Our gross margin in the thirdsecond quarter of 2017 was 39.5%, unchanged from the third quarter of 2016 due to the factors described above.2018.
PersonnelOperational expenses. Personnel Operational expenses as a percentage of total net revenues decreased from 41.6%17.4% in the thirdsecond quarter of 20162018 to 41.4%14.5% in the thirdsecond quarter of 2017. Personnel expenses in the third quarter of 2017 were $293.3 million, up $23.5 million, or 8.7%, from $269.8 million in the third quarter of 2016. Personnel expenses increased primarily2019, largely due to wage inflation, higher stock-based compensation expense, incremental expenses from acquisitions and an approximately 2,500-person, or 3.9%, increase in ourimproved operational headcount in the third quarter of 2017 compared to the third quarter of 2016. These increases were partially offset by the favorable impact of foreign exchange.
Operational expenses. Operational expenses as a percentage of total net revenues increased from 17.2% in the third quarter of 2016 to 17.5% in the third quarter of 2017.efficiencies. Operational expenses in the thirdsecond quarter of 20172019 were $124.0$127.8 million, up $12.6$0.7 million, or 11.3%0.6%, from the thirdsecond quarter of 20162018 primarily due to incremental expenses from acquisitions. Thean increase in operationalonshore infrastructure expenses, was partially offset by lower travel expensescommunication costs and improved operational efficiencies in the third quarter of 2017 compared to the third quarter of 2016, and the favorable impact of foreign exchange.consultancy charges.
Depreciation and amortization expenses. Depreciation and amortization expenses as a percentage of total net revenues were 1.7%, unchangedincreased from 1.8% in the thirdsecond quarter of 2016.2018 to 2.4% in the second quarter of 2019. Depreciation and amortization expenses as a component of cost of revenue were $11.9$21.5 million, up $0.7$8.5 million, or 6.5%65.7%, from the thirdsecond quarter of 2016.2018. This increase was primarily due to the expansion of certain existing facilities and new assets, including technology-related intangible assets, acquired/capitalized after the second quarter of 2018, and additional finance leases recognized on the adoption of a new lease standard in India, partially offset by the favorable impact of foreign exchange.2019.
64
Selling, general and administrative expenses. The following table sets forth the components of our selling, general and administrative, or SG&A, expenses:
|
| Three months ended September 30, |
|
| As a Percentage of Total Net Revenues |
|
|
| Three Months Ended June 30, |
|
| As a Percentage of Total Net Revenues |
|
| ||||||||||||||||||||||
|
| 2016 |
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| ||||||||||
|
| (dollars in millions) |
|
|
|
|
|
|
|
|
|
|
| (dollars in millions) |
|
|
|
|
|
|
|
|
|
| ||||||||||||
Personnel expenses |
| $ | 117.0 |
|
| $ | 126.6 |
|
|
| 18.0 |
| % |
| 17.9 |
| % |
| $ | 126.6 |
|
| $ | 148.9 |
|
|
| 17.4 |
| % |
| 16.9 |
| % | ||
Operational expenses |
|
| 37.6 |
|
|
| 43.0 |
|
|
| 5.8 |
|
|
| 6.1 |
|
|
|
| 46.9 |
|
|
| 45.3 |
|
|
| 6.4 |
|
|
| 5.1 |
|
| ||
Depreciation and amortization |
|
| 2.3 |
|
|
| 2.5 |
|
|
| 0.4 |
|
|
| 0.4 |
|
|
|
| 2.6 |
|
|
| 2.1 |
|
|
| 0.4 |
|
|
| 0.2 |
|
| ||
Selling, general and administrative expenses |
| $ | 157.0 |
|
| $ | 172.1 |
|
|
| 24.2 |
| % |
| 24.3 |
| % |
| $ | 176.2 |
|
| $ | 196.3 |
|
|
| 24.2 |
| % |
| 22.2 |
| % |
SG&A expenses as a percentage of total net revenues marginally increaseddecreased from 24.2% in the thirdsecond quarter of 20162018 to 24.3%22.2% in the thirdsecond quarter of 2017.2019, primarily due to operating leverage with the increase in sales. SG&A expenses were $172.1$196.3 million, up $15.1$20.1 million, or 9.6%11.4%, from the thirdsecond quarter of 2016. Wage2018. This increase in expenses was primarily due to wage inflation, higher infrastructure expenses, higher stock-based compensation expense, higher fees for professional services, incremental expenses from acquisitionsa net increase in our support personnel headcount and an increase in marketing expenditures related to a branding update all contributed to higher SG&A expenses in the third quarter of 2017 compared to the third quarter of 2016. This increasestock-based compensation, which was partially offset by lower travel expenses and the favorable impact of foreign exchange, primarily changes in the values of the Indian rupee and U.K. pound sterling against the U.S. dollar in the third quarter of 2017 compared to the third quarter of 2016. Our sales and marketing expenses as a percentage of net revenues were 6.5% in the thirdsecond quarter of 2017, unchanged from the third quarter of 2016.2019.
Personnel expenses. As a percentage of total net revenues, personnel expenses marginally decreased from 18.0%17.4% in the thirdsecond quarter of 20162018 to 17.9%16.9% in the thirdsecond quarter of 2017.2019. This decrease was primarily due to improved operating leverage and savings from functional efficiency initiatives. Personnel expenses as a component of SG&A expenses were $126.6$148.9 million, up $9.6$22.3 million, or 8.2%17.6%, from the thirdsecond quarter of 2016.2018. This increase is primarily due to wage inflation, incremental expenses from acquisitions a net increase in our support personnel headcount and higher stock-based compensation expense in the thirdsecond quarter of 20172019 compared to the thirdsecond quarter of 2016, partially offset by a 2.4% decrease in our sales-team personnel expenses and the favorable impact of foreign exchange.2018.
Operational expenses. As a percentage of total net revenues, operational expenses increaseddecreased from 5.8%6.4% in the thirdsecond quarter of 20162018 to 6.1%5.1% in the thirdsecond quarter of 2017.2019. Operational expenses as a component of SG&A expenses were $43.0$45.3 million, up $5.3down $1.6 million, or 14.2%3.5%, from the thirdsecond quarter of 2016.2018. This increase isdecrease was primarily due to higher infrastructurelower sales and marketing expenses higher fees for professional services, incremental expenses from acquisitions and an increase in marketing expenditures related to a branding update in the thirdsecond quarter of 20172019 compared to the thirdsecond quarter of 2016, partially offset by reduced travel expenses and the favorable impact of foreign exchange.2018.
Depreciation and amortization. Depreciation and amortization expenses as As a percentage of total net revenues, weredepreciation and amortization expenses decreased from 0.4% in the thirdsecond quarter of 2017, unchanged from2018 to 0.2% in the thirdsecond quarter of 2016.2019. Depreciation and amortization expenses as a component of SG&A expenses were $2.5$2.1 million, up $0.2down $0.5 million, or 8.7%19.2%, from the thirdsecond quarter of 2016. This increase was primarily due to the expansion of certain existing facilities in India, partially offset by the favorable impact of foreign exchange.2018.
Amortization of acquired intangibles. Non-cash charges on account ofrelated to amortization of acquired intangibles were $10.2$8.1 million in the thirdsecond quarter of 2017, up $3.02019, down $1.7 million, or 42.5%17.6%, from the thirdsecond quarter of 2016. This increase was primarily due to the amortization of intangibles acquired after the third quarter of 2016.2018.
Other operating (income) expense, net. The following table sets forth the components of other operating (income) expense, net:
|
|
|
|
|
|
|
|
|
| Percentage Change |
|
| |
|
| Three months ended September 30, |
|
| Increase/(Decrease) |
|
| ||||||
|
| 2016 |
|
| 2017 |
|
| 2017 vs. 2016 |
|
| |||
|
| (dollars in millions) |
|
|
|
|
|
| |||||
Other operating (income) expense |
| $ | (0.2 | ) |
| $ | (0.1 | ) |
|
| (69.8 | ) | % |
Provision for impairment of intangible assets |
|
| 5.4 |
|
|
| — |
|
|
| (100.0 | ) |
|
Change in the fair value of earn-out consideration, deferred consideration (relating to business acquisitions) |
|
| — |
|
|
| — |
|
|
| — |
|
|
Other operating (income) expense, net |
| $ | 5.1 |
|
| $ | (0.1 | ) |
|
| (101.2 | ) | % |
Other operating (income) expense, net as a percentage of total net revenues |
|
| 0.8 |
| % |
| (0.0 | ) | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Percentage Change |
|
| |
|
| Three Months Ended June 30, |
|
| Increase/(Decrease) |
|
| ||||||
|
| 2018 |
|
| 2019 |
|
| 2019 vs 2018 |
|
| |||
|
| (dollars in millions) |
|
|
|
|
|
| |||||
Other operating (income) expense |
| $ | 0.1 |
|
| $ | (0.1) |
|
|
| NM* |
| % |
Other operating (income) expense, net |
| $ | 0.1 |
|
| $ | (0.1 | ) |
|
| NM* |
| % |
Other operating (income) expense, net as a percentage of total net revenues |
|
| — |
| % |
| — |
| % |
|
|
|
|
* Not Measurable
Other operating income, net of expense, was $0.1 million in the thirdsecond quarter of 2017,2019, compared to $5.1$(0.1) million of net other operating expense in the thirdsecond quarter of 2016. This decrease was primarily due2018. In the second quarter of 2019, we recorded a gain related to a $5.4 million non-recurringdoubtful capital advance for a parcel of land in India, which was largely offset by an impairment charge in the third quarter of 2016 relating to anon technology-related intangible asset, which charge we discuss in Note 10—“Goodwill and intangible assets” under Part I, Item 1—“Financial Statements” above. No such charge was recorded in the third quarter of 2017.assets.
65
Income from operations. As a result of the foregoing factors, income from operations as a percentage of total net revenues increased from 13.4%10.9% in the thirdsecond quarter of 20162018 to 13.7%12.0% in the thirdsecond quarter of 2017.2019. Income from operations increased by $10.3$26.7 million to $97.5$106.2 million in the thirdsecond quarter of 20172019 from $87.1$79.5 million in the thirdsecond quarter of 2016.2018.
Foreign exchange gains (losses), net. Foreign exchange gains (losses), net represents the impact of the re-measurement of our non-functional currency assets and liabilities and related foreign exchange contracts. We recorded a net foreign exchange gain of $5.0$0.4 million in the thirdsecond quarter of 2017,2019, compared to a $0.7an exchange gain of $2.8 million loss in the thirdsecond quarter of 2016.2018. The gaingains in the third quartersecond quarters of 2017 was2018 and 2019 resulted primarily a result offrom gains on fair value hedges, partially offset by losses on remeasurement resulting from the depreciation of the Indian rupee against the U.S. dollar during that quarter. The loss in the third quarter of
2016 was primarily a result of the appreciation of the Indian rupee and the depreciation of the U.K. pound sterling against the U.S. dollar during that quarter.such quarters.
Interest income (expense), net. The following table sets forth the components of interest income (expense), net:
|
|
|
|
|
|
|
|
|
| Percentage Change |
|
|
|
|
|
|
|
|
|
|
| Percentage Change |
|
| ||
|
| Three months ended September 30, |
|
| Increase/(Decrease) |
|
|
| Three Months Ended June 30, |
|
| Increase/(Decrease) |
|
| ||||||||||||
|
| 2016 |
|
| 2017 |
|
| 2017 vs. 2016 |
|
|
| 2018 |
|
| 2019 |
|
| 2019 vs. 2018 |
|
| ||||||
|
| (dollars in millions) |
|
|
|
|
|
|
| (dollars in millions) |
|
|
|
|
|
| ||||||||||
Interest income |
| $ | 1.0 |
|
| $ | 2.5 |
|
|
| 144.9 |
| % |
| $ | 1.8 |
|
| $ | 1.1 |
|
|
| (42.2 | ) | % |
Interest expense |
| (5.9) |
|
| (11.3) |
|
|
| 89.7 |
|
|
|
| (12.2 | ) |
|
| (13.2 | ) |
|
| 8.1 |
|
| ||
Interest income (expense), net |
| $ | (4.9 | ) |
| $ | (8.7 | ) |
|
| 78.0 |
| % |
| $ | (10.4 | ) |
| $ | (12.1) |
|
|
| 16.7 |
| % |
Interest income (expense), net as a percentage of total net revenues |
|
| (0.8 | ) | % |
| (1.2 | ) | % |
|
|
|
|
|
| (1.4 | ) | % |
| (1.4 | ) | % |
|
|
|
|
Our net interest expense increased by $3.8$1.7 million in the thirdsecond quarter of 20172019 compared to the thirdsecond quarter of 2016, primarily2018 due to a $5.3$1.0 million increase in interest expense partially offset by an increaseand a $0.7 million decrease in interest income. The increase in interest expense iswas primarily due to (i) $3.2 millionhigher drawdown on our revolving credit facility in the second quarter of 2019 compared to the second quarter of 2018 and (ii) higher interest on the senior notes we issued in March 2017, (ii)expense recognized under finance leases. Due to an increase in LIBOR, resulting in higherour interest expense on the term loan under our LIBOR-linked credit facility partiallyincreased, largely offset by higher gains on interest rate swaps in the thirdsecond quarter of 20172019 compared to losses in the thirdsecond quarter of 2016,2018, which we discuss in the section titled “Liquidity and Capital Resources—Financial Condition” below, and (iii) higher drawdown on our revolving credit facilitybelow. Our interest income decreased by $0.7 million in the thirdsecond quarter of 20172019 compared to the thirdsecond quarter of 2016. Our interest income increased by $1.5 million in the third quarter of 2017 compared to the third quarter of 20162018, primarily due to higherlower account balances in India, where we earn higher interest rates on our deposits than incompared to other jurisdictions where we have deposits. The weighted average rate of interest on our debt, including the net impact of interest rate swaps, increased from 2.3%3.2% in the thirdsecond quarter of 20162018 to 2.9%3.4% in the thirdsecond quarter of 2017.2019.
Other income (expense), net.The following table sets forth the components of other income (expense), net:
|
|
|
|
|
|
|
|
|
| Percentage Change |
|
| |
|
| Three months ended June 30, |
|
| Increase/(Decrease) |
|
| ||||||
|
| 2018 |
|
| 2019 |
|
| 2019 vs 2018 |
|
| |||
|
| (dollars in millions) |
|
|
|
|
|
| |||||
Government incentives |
| $ | 10.2 |
|
| $ | - |
|
|
| (100 | ) | % |
Other income/(expense) |
|
| (0.5 | ) |
| 0.6 |
|
|
| (225.1 | ) |
| |
Other income (expense), net |
| $ | 9.7 |
|
| $ | 0.6 |
|
|
| (94.3 | ) | % |
Other income (expense), net as a percentage of total net revenues |
|
| 1.3 |
| % |
| 0.1 |
| % |
|
|
|
|
Our net other expenseincome was $4.0$0.6 million in the thirdsecond quarter of 2017, compared to2019, down $9.1 million from net other income of $5.8$9.7 million in the thirdsecond quarter of 2016. The expense in the third quarter of 20172018. This decrease is primarily due to a $5.2 million provision forincome in connection with an expected loss onexport subsidy recorded in the divestituresecond quarter of a non-strategic portion of our legacy IT support business in Europe2018, compared to a $5.2 million gain on the divestiture of our cloud-hosted technology platform for the Indian rural banking sectorno such income in the thirdsecond quarter of 2016.
Equity-method investment activity, net. Equity-method investment activity, net primarily represents our share2019. This subsidy was introduced under the Foreign Trade Policy of loss inIndia to encourage the third quarterexport of 2016 in one of our non-consolidated affiliates that is no longer a non-consolidating affiliate since June 30, 2017.specified services from India and was available for eligible export services until March 31, 2019.
Income tax expense.Our income tax expense was $16.6$21.2 million in the thirdsecond quarter of 2017, down $0.5 million2019, up from $17.1 million in the thirdsecond quarter of 2016 (as restated due to the adoption of ASU No. 2016-09 in 2016 with effect from January 1, 2016),2018, representing an effective tax rate, or ETR, of 18.4%22.4%, compared to 19.8%up from 20.9% in the thirdsecond quarter of 2016.2018. The decreaseincrease in our effective tax rate is primarily due to the expiration of certain discrete items recordedspecial economic zone benefits in the third quarters of 2016 and 2017.India.
Net income attributable to redeemable non-controlling interest. Non-controlling interest primarily refers to the profit or loss associated with the redeemable non-controlling interest in the operations of SSE, which we acquired in the first quarter of 2016. See Note 3—“Business acquisitions” under Part I, Item 1—“Financial Statements” above.66
Net income attributable to Genpact Limited common shareholders. As a result of the foregoing factors, net income attributable to our common shareholders as a percentage of total net revenues was 10.4%8.4% in the thirdsecond quarter of 2017,2019, down from 10.6%8.9% in the thirdsecond quarter of 2016.2018. Net income attributable to our common shareholders increased by $4.8$9.1 million, from $68.9$64.6 million in the thirdsecond quarter of 20162018 to $73.7 million in the thirdsecond quarter of 2017.2019.
NineSix Months Ended SeptemberJune 30, 20172019 Compared to the NineSix Months Ended SeptemberJune 30, 20162018
Net revenues. Our net revenues were $2,002.5$1,691.0 million in the nine months ended September 30, 2017,first half of 2019, up $113.5$273.5 million, or 6.0%19.3%, from $1,889.0$1,417.5 million in the nine months ended September 30, 2016.first half of 2018. The growth in our net revenues was driven primarily driven by an increase in BPO services including our transformation services, delivered to our clientsGlobal Clients and GE, in particular transformation services and ramp-ups of services in connection with recent large deals, and incremental revenue from acquisitions.acquisitions completed after the first half of 2018. Adjusted for foreign exchange, primarily the impact of changes in the valuesvalue of the euro and the Australian dollar and U.K. pound sterling against the U.S. dollar, our net revenues grew 7%21% compared to the nine months ended September 30, 2016first half of 2018 on a constant currency basis. Revenue growth on a constant currency basis is a non-GAAP measure. We provide information about our revenue growth on a constant currency basis so that our revenue may be viewed without the impact of foreign currency exchange rate fluctuations, thereby facilitating period-to-period comparisons of our business performance. Total net revenues on a constant currency basis are calculated by restating current-period activity using the prior fiscal period’s foreign currency exchange rates and are adjusted for hedging gains/losses.
Our average headcount increased by 4.9%13.8% to approximately 75,30088,400 in the nine months ended September 30, 2017first half of 2019 from approximately 71,80077,700 in the nine months ended September 30, 2016.first half of 2018.
|
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|
|
|
|
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|
|
| Percentage Change |
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| Percentage Change |
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| ||||
|
| Nine months ended September 30, |
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| Increase/(Decrease) |
|
|
| Six months ended June 30, |
|
| Increase/(Decrease) |
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| ||||||||||||||||
|
| 2016 |
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| 2017 |
|
|
| 2017 vs. 2016 |
|
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| 2018 |
|
| 2019 |
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| 2019 vs. 2018 |
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| ||||||||||
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| (dollars in millions) |
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| (dollars in millions) |
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| ||||||||||||||
Global Clients: |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
BPO services |
| $ |
| 1,327.4 |
|
| $ |
| 1,513.8 |
|
|
| 14.0 |
| % |
| $ |
| 1,108.8 |
|
| $ |
| 1,265.2 |
|
|
| 14.1 |
| % | |
IT services |
|
|
| 285.0 |
|
|
|
| 284.1 |
|
|
| (0.3 | ) |
|
|
|
| 185.1 |
|
|
|
| 198.2 |
|
|
| 7.0 |
|
| |
Total net revenues from Global Clients |
| $ |
| 1,612.4 |
|
| $ |
| 1,797.8 |
|
|
| 11.5 |
| % |
| $ |
| 1,294.0 |
|
| $ |
| 1,463.4 |
|
|
| 13.1 |
| % | |
GE: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
BPO services |
|
|
| 202.7 |
|
|
|
| 137.0 |
|
|
| (32.4 | ) | % |
|
|
| 71.1 |
|
|
|
| 159.0 |
|
|
| 123.6 |
| % | |
IT services |
|
|
| 73.9 |
|
|
|
| 67.7 |
|
|
| (8.4 | ) |
|
|
|
| 52.4 |
|
|
|
| 68.6 |
|
|
| 31.0 |
|
| |
Total net revenues from GE |
| $ |
| 276.6 |
|
| $ |
| 204.7 |
|
|
| (26.0 | ) | % |
| $ |
| 123.5 |
|
| $ |
| 227.6 |
|
|
| 84.3 |
| % | |
Total net revenues from BPO services |
|
|
| 1,530.1 |
|
|
|
| 1,650.8 |
|
|
| 7.9 |
|
|
|
|
| 1,180.0 |
|
|
|
| 1,424.2 |
|
|
| 20.7 |
| % | |
Total net revenues from IT services |
|
|
| 358.9 |
|
|
|
| 351.7 |
|
|
| (2.0 | ) |
|
|
|
| 237.5 |
|
|
|
| 266.8 |
|
|
| 12.3 |
|
| |
Total net revenues |
| $ |
| 1,889.0 |
|
| $ |
| 2,002.5 |
|
|
| 6.0 |
| % |
| $ |
| 1,417.5 |
|
| $ |
| 1,691.0 |
|
|
| 19.3 |
| % |
At the end of each fiscal year, we reclassify revenue from certain divested GE businesses as Global Client revenue as of the dates of divestiture. Additionally, at the end of 2016, we reclassified revenue from our acquisitions of Endeavour and PNMSoft Limited from IT services to BPO revenue effective as of the date of each acquisition. Such reclassifications are reflected in the revenue results and growth rates presented below and in the table above. In addition, to provide a consistent view of the trends underlying our business, we are presenting below revenue results and growth rates adjusted to assume that all 2016 revenue reclassifications occurred on January 1, 2016.
Net revenues from Global Clients in the first half of 2019 were $1,797.8$1,463.4 million, up $169.4 million, or 13.1%, from $1,294.0 million in the nine months ended September 30, 2017, up $185.4 million, or 11.5%, from $1,612.4 million in the nine months ended September 30, 2016.first half of 2018. This increase was primarily driven by growth in several of our targeted verticals, including bankingcapital markets, high tech, infrastructure, manufacturing and financial services, consumer product goods and life sciences, manufacturing, insurance and high tech.sciences. As a percentage of total net revenues, net revenues from Global Clients increaseddecreased from 85.4%91.3% in the nine months ended September 30, 2016first half of 2018 to 89.8%86.5% in the nine months ended September 30, 2017. If all 2016 revenue reclassifications had occurred on January 1, 2016, revenue from Global Clients would have increased 10% year over year.first half of 2019 due to strong growth in GE revenues.
Net revenues from GE were $204.7 million in the nine months ended September 30, 2017, down $71.9first half of 2019 were $227.6 million, up $104.1 million, or 26.0%84.3%, from the nine months ended September 30, 2016. The declinefirst half of 2018, driven by services delivered in net revenues from GE was largely due to GE’s dispositionsconnection with a large new contract signed in the fourth quarter of GE Capital businesses2018, as well as an increase in 2016.transformation services project engagements in the first half of 2019. Net revenues from GE declinedincreased as a percentage of our total net revenues from 14.6%8.7% in the nine months ended September 30, 2016first half of 2018 to 10.2%13.5% in the nine months ended September 30, 2017. If all 2016 revenue reclassifications had occurred on January 1, 2016, revenuefirst half of 2019.
In the first half of 2019, GE divested certain businesses that we continue to serve. The net revenues from Global Clients and GE reported above and elsewhere in this Quarterly Report reflect the reclassification of net revenues from such GE-divested businesses as Global Client net revenues in the first half of 2019. From time to time, we present net revenues from GE would have decreased 18% year over year.and Global Clients without the impact of such reclassifications in order to provide a consistent view of quarterly trends in our Global Client and GE businesses. Without giving effect to such reclassifications in the first half of 2019, net revenues from Global Clients and GE for the first half of 2019 were $1,460.5 million $230.5 million, respectively.
67
Net revenues from BPO services in the first half of 2019 were $1,650.8$1,424.2 million, up $120.7$244.2 million, or 7.9%20.7%, from $1,530.1$1,180.0 million in the nine months ended September 30, 2016.first half of 2018. This increase was primarily attributable to an increase in services, in particular transformation services, delivered to our Global Clients, particularly core industry vertical operations services and finance and accounting services.clients primarily in connection with large contracts signed in the second half of 2018. Net revenues from IT services were $351.7$266.8 million in the nine months ended September 30, 2017, down $7.2first half of 2019, up $29.3 million, or 2.0%12.3%, from $358.9$237.5 million in the nine months ended September 30, 2016, primarily due to a decrease in revenues from GE.first half of 2018.
Net revenues from BPO services as a percentage of total net revenues increased to 82.4%84.2% in the nine months ended September 30, 2017first half of 2019 from 81.0%83.2% in the nine months ended September 30, 2016,first half of 2018, with a corresponding decline in the percentage of total net revenues attributable to IT services.services.
Cost of revenue and gross margin. The following table sets forth the components of our cost of revenue and the resulting gross margin:
|
| Nine months ended September 30, |
|
| As a Percentage of Total Net Revenues |
|
|
| |||||||||||
|
| 2016 |
|
| 2017 |
|
| 2016 |
|
|
| 2017 |
|
|
| ||||
|
| (dollars in millions) |
|
|
|
|
|
|
|
|
|
| |||||||
Personnel expenses |
| $ | 788.8 |
|
| $ | 847.8 |
|
|
| 41.8 |
| % |
|
| 42.3 |
| % |
|
Operational expenses |
|
| 325.9 |
|
|
| 346.3 |
|
|
| 17.3 |
|
|
|
| 17.3 |
|
|
|
Depreciation and amortization |
| 34.3 |
|
|
| 33.7 |
|
|
| 1.8 |
|
|
|
| 1.7 |
|
|
| |
Cost of revenue |
| $ | 1,149.0 |
|
| $ | 1,227.8 |
|
|
| 60.8 |
| % |
|
| 61.3 |
| % |
|
Gross margin |
|
| 39.2 | % |
|
| 38.7 | % |
|
|
|
|
|
|
|
|
|
|
|
|
| Six Months Ended June 30, |
|
| As a Percentage of Total Net Revenues |
|
| |||||||||||
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
|
| 2019 |
|
| ||||
|
| (dollars in millions) |
|
|
|
|
|
|
|
|
| |||||||
Personnel expenses |
| $ | 632.9 |
|
| $ | 802.1 |
|
|
| 44.7 |
| % |
|
| 47.5 | % |
|
Operational expenses |
|
| 248.5 |
|
|
| 247.6 |
|
|
| 17.5 |
|
|
|
| 14.6 |
|
|
Depreciation and amortization |
| 25.8 |
|
|
| 40.7 |
|
|
| 1.8 |
|
|
|
| 2.4 |
|
| |
Cost of revenue |
| $ | 907.2 |
|
| $ | 1,090.4 |
|
|
| 64.0 |
| % |
|
| 64.5 | % |
|
Gross margin |
|
| 36.0 | % |
|
| 35.5% |
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue was $1,227.8$1,090.4 million in the nine months ended September 30, 2017,first half of 2019, up $78.8$183.2 million, or 6.9%20.2%, from the nine months ended September 30, 2016.first half of 2018. Wage inflation, an increaseincreases in our operational headcount, incremental expensesincluding in the number of onshore personnel, in particular for new large deals, transformation services delivery and additional headcount from acquisitionslarge deal rebadge activity, and an increase in infrastructure expenseshigher stock-based compensation expense contributed to the higherincrease in cost of revenue, offset by improved utilization of transformation services resources in the nine months ended September 30, 2017first half of 2019 compared to the nine months ended September 30, 2016. These increases were partially offset by improved operational efficiencies, lower travel expenses and the favorable impactfirst half of foreign exchange, primarily changes in the values of the Indian rupee and U.K. pound sterling against the U.S. dollar.2018.
Our gross margin decreased from 39.2%36.0% in the nine months ended September 30, 2016first half of 2018 to 38.7%35.5% in the nine months ended September 30, 2017 due to the factors described above.first half of 2019, driven primarily by lower initial gross margins associated with new large onshore deals and higher stock-based compensation expense, partially offset by improved utilization of transformation services resources and improved operating leverage.
Personnel expenses. Personnel expenses as a percentage of total net revenues increased from 41.8%44.7% in the nine months ended September 30, 2016first half of 2018 to 42.3%47.5% in the nine months ended September 30, 2017.first half of 2019. Personnel expenses were $847.8$802.1 million in the nine months ended September 30, 2017,first half of 2019, up $59.0$169.2 million, or 7.5%26.7%, from $788.8$632.9 million in the nine months ended September 30, 2016.first half of 2018. The impact of wage inflation, an approximately 2,700-person,9,700-person, or 4.4%14.7%, increase in our operational headcount,, incremental expenses from acquisitions including in the number of onshore personnel, particularly related to new large deals and transformation services delivery, and higher stock-based compensation expense resulted in higher personnel expenses in the nine months ended September 30, 2017first half of 2019 compared to the same period in 2016 contributed to higher personnel expenses. These increases were partially offset by improved operational efficiencies and the favorable impactfirst half of foreign exchange.2018.
Operational expenses. Operational expenses as a percentage of total net revenues were approximately 17.3%decreased from 17.5% in the nine months ended September 30, 2017, unchanged fromfirst half of 2018 to 14.6% in the nine months ended September 30, 2016.first half of 2019, largely due to improved operational efficiencies. Operational expenses were $346.3$247.6 million in the nine months ended September 30, 2017, up $20.4first half of 2019, down $0.9 million, or 6.2%0.4%, from the nine months ended September 30, 2016. Higher infrastructure expensesfirst half of 2018, primarily due to a decrease in communication costs and incremental expenses from acquisitionscontributed to the increase in operational expenses in the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. The increase in operational expenses wasconsultancy charges, partially offset by improved operational efficiencies, lower travel expenses and the favorable impact of foreign exchange.higher onshore infrastructure expenses.
Depreciation and amortization expenses. Depreciation and amortization expenses as a percentage of total net revenues marginally decreasedincreased from 1.8% in the nine months ended September 30, 2016first half of 2018 to 1.7%2.4% in the nine months ended September 30, 2017.first half of 2019. Depreciation and amortization expenses as a component of cost of revenue were $33.7$40.7 million in the nine months ended September 30, 2017, down $0.6first half of 2019, up $14.9 million, or 1.7%57.6%, from the nine months ended September 30, 2016.first half of 2018. This marginal decreaseincrease was primarily due to an increasethe expansion of certain existing facilities and new assets, including technology-related intangible assets, acquired/capitalized after the first half of 2018, and additional finance leases recognized on the adoption of a new lease standard in fully depreciated assets since the nine months ended September 30, 2016 and the favorable impact of foreign exchange.2019.
68
Selling, general and administrative expenses. The following table sets forth the components of our selling, general and administrative, or SG&A, expenses:
|
| Nine months ended September 30, |
|
| As a Percentage of Total Net Revenues |
|
|
| Six Months Ended June 30, |
|
| As a Percentage of Total Net Revenues |
|
| ||||||||||||||||||||
|
| 2016 |
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| ||||||||
|
| (dollars in millions) |
|
|
|
|
|
|
|
|
|
|
| (dollars in millions) |
|
|
|
|
|
|
|
|
|
| ||||||||||
Personnel expenses |
| $ | 343.3 |
|
| $ | 371.9 |
|
|
| 18.2 |
| % |
| 18.6 |
| % |
| $ | 254.7 |
|
| $ | 291.4 |
|
|
| 18.0 |
| % |
| 17.2 |
| % |
Operational expenses |
|
| 132.4 |
|
|
| 121.7 |
|
|
| 7.0 |
|
|
| 6.1 |
|
|
|
| 87.3 |
|
|
| 91.5 |
|
|
| 6.2 |
|
|
| 5.4 |
|
|
Depreciation and amortization |
|
| 6.7 |
|
|
| 7.3 |
|
|
| 0.4 |
|
|
| 0.4 |
|
|
|
| 5.3 |
|
|
| 4.8 |
|
|
| 0.4 |
|
|
| 0.3 |
|
|
Selling, general and administrative expenses |
| $ | 482.3 |
|
| $ | 500.9 |
|
|
| 25.5 |
| % |
| 25.0 |
| % |
| $ | 347.3 |
|
| $ | 387.7 |
|
|
| 24.6 |
| % |
| 22.9 |
| % |
SG&A expenses as a percentage of total net revenues decreased from 25.5%24.6% in the nine months ended September 30, 2016first half of 2018 to 25.0%22.9% in the nine months ended September 30, 2017.first half of 2019 primarily due to operating leverage with the increase in sales. SG&A expenses were $500.9$387.7 million in the nine months ended September 30, 2017,first half of 2019, up $18.5$40.4 million, or 3.8%11.6%, from the nine months ended September 30, 2016. Higher personnel expenses, higher infrastructure
expenses, incremental expenses from acquisitions, investments in domain expertise and digital and analytics capabilities and anfirst half of 2018. This increase in marketing expenditures relatedexpense was primarily due to a branding update contributed to higher SG&A expenses in the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. These increases were partially offset by lower travel expenses, a lower reserve for doubtful receivableswage inflation, increased stock-based compensation and the favorable impact of foreign exchange, primarily changes in the values of the Indian rupee and U.K. pound sterling against the U.S. dollar. Our sales and marketing expenses asexpenses. As a percentage of revenue, we drove operating leverage through efficient functional spending in the first half of 2019.
Personnel expenses. As a percentage of total net revenues, personnel expenses decreased from approximately 7.0%18.0% in the nine months ended September 30, 2016first half of 2018 to approximately 6.6%17.2% in the nine months ended September 30, 2017.
Personnel expenses. Personnel expenses as a percentagefirst half of total net revenues increased2019. This decrease was primarily due to improved operating leverage and savings from 18.2% in the nine months ended September 30, 2016 to 18.6% in the nine months ended September 30, 2017.functional efficiency initiatives. Personnel expenses as a component of SG&A expenses were $371.9$291.4 million in the nine months ended September 30, 2017,first half of 2019, up $28.6$36.7 million, or 8.3%14.4%, from the nine months ended September 30, 2016. Wagefirst half of 2018. This increase is primarily due to wage inflation, investmentsa net increase in domain expertise and digital and analytics capabilities, incremental expenses from acquisitionsour support personnel headcount and higher stock-based compensation expense resulted in higher personnel costs as a component of SG&A expenses in the nine months ended September 30, 2017first half of 2019 compared to the nine months ended September 30, 2016. These increases were partially offset by the favorable impactfirst half of foreign exchange.2018.
Operational expenses. Operational expenses as As a percentage of total net revenues, operational expenses decreased from 7.0%6.2% in the nine months ended September 30, 2016first half of 2018 to 6.1%5.4% in the nine months ended September 30, 2017.first half of 2019. Operational expenses as a component of SG&A expenses were $121.7$91.5 million in the nine months ended September 30, 2017, down $10.7first half of 2019, up $4.2 million, or 8.1%4.8%, from the nine months ended September 30, 2016.first half of 2018. This decreaseincrease is primarily due to decreasedan increase in sales and marketing expenses, partially offset by cost efficiencies and lower travel expenses a lower reserve for doubtful receivables and the favorable impact of foreign exchange in the nine months ended September 30, 2017first half of 2019 compared to the nine months ended September 30, 2016. This decrease was partially offset by higher infrastructure expenses, incremental expenses from acquisitions and an increase in marketing expenditures related to a branding update.first half of 2018.
Depreciation and amortization. Depreciation and amortization expenses as a percentage of total net revenues were 0.4%, unchanged from0.3% in the nine months ended September 30, 2016.first half of 2019 compared to 0.4% in the first half of 2018. Depreciation and amortization expenses as a component of SG&A expenses were $7.3$4.8 million in the nine months ended September 30, 2017, up $0.7first half of 2019, down $0.5 million, or 10.1%9.4%, from the nine months ended September 30, 2016. This marginal increase was primarily due to the expansionfirst half of certain existing facilities in India, partially offset by the favorable impact of foreign exchange.2018.
Amortization of acquired intangibles. Non-cash charges on account of the amortization of acquired intangibles were $25.8$16.6 million in the nine months ended September 30, 2017, up $6.0first half of 2019, down $3.2 million, or 30.4%16.0%, from the nine months ended September 30, 2016. This increase is primarily due to the amortizationfirst half of intangibles acquired after the nine months ended September 30, 2016.2018.
Other operating (income) expense, net. The following table sets forth the components of other operating (income) expense, net:
|
|
|
|
|
|
|
|
|
| Percentage Change |
|
| |
|
| Nine months ended September 30, |
|
| Increase/(Decrease) |
|
| ||||||
|
| 2016 |
|
| 2017 |
|
| 2017 vs. 2016 |
|
| |||
|
| (dollars in millions) |
|
|
|
|
|
| |||||
Other operating (income) expense |
| $ | (1.0 | ) |
| $ | (7.1 | ) |
|
| 617.5 |
| % |
Provision for impairment of intangible assets |
|
| 11.2 |
|
|
| — |
|
|
| (100.0 | ) |
|
Change in the fair value of earn-out consideration, deferred consideration (relating to business acquisitions) |
|
| (15.0 | ) |
|
| (1.4 | ) |
|
| (90.6 | ) |
|
Other operating (income) expense, net |
| $ | (4.8 | ) |
| $ | (8.5 | ) |
|
| 77.8 |
| % |
Other operating (income) expense, net as a percentage of total net revenues |
|
| (0.3 | ) | % |
| (0.4 | ) | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Percentage Change |
|
| |
|
| Six Months Ended June 30, |
|
| Increase/(Decrease) |
|
| ||||||
|
| 2018 |
|
| 2019 |
|
| 2019 vs. 2018 |
|
| |||
|
| (dollars in millions) |
|
|
|
|
|
| |||||
Other operating (income) expense |
| $ | (0.1 | ) |
| $ | 0.0 |
|
|
| (100.0) |
| % |
Other operating (income) expense, net |
| $ | (0.1 | ) |
| $ | 0.0 |
|
|
| (100.0) |
| % |
Other operating (income) expense, net as a percentage of total net revenues |
|
| — |
| % |
| — |
| % |
|
|
|
|
69
Other operating income,expense, net of expenses,income, was $8.5$0.0 million in the nine months ended September 30, 2017, up $3.7 million from $4.8first half of 2019 compared to $(0.1) million in the nine months ended September 30, 2016, primarily duefirst half of 2018. In the first half of 2019, we recorded a gain related to a $1.4 million gaindoubtful capital advance for a parcel of land in the nine months ended September 30, 2017 compared to a $15.0 million gain in the nine months ended September 30, 2016 as a result of changes in the fair value of earn-out consideration payable in connection with certain acquisitions. We also recorded $7.1 million in other operating income in the nine months ended September 30, 2017, primarily due to a gainIndia, which was largely offset by an impairment charge on the sale of rights to certain real property and as a result of the reversal of certain liabilities, compared to $1.0 million in other operating income in the nine months ended September 30, 2016. Additionally, we recorded an $11.2 million non-recurring charge in the nine months ended September 30, 2016 relating totechnology-related intangible
assets, which charge we discuss in Note 10—“Goodwill and intangible assets” under Part I, Item 1—“Financial Statements” above. No such charge was recorded in the nine months ended September 30, 2017. assets.
Income from operations. As a result of the foregoing factors, income from operations as a percentage of total net revenues was 12.8%increased from 10.1% in the nine months ended September 30, 2017, unchanged fromfirst half of 2018 to 11.6% in the nine months ended September 30, 2016.first half of 2019. Income from operations was $256.6$196.3 in the first half of 2019, up $53.0 million from $143.3 million in the nine months ended September 30, 2017, up $13.9 million from $242.7 million in the nine months ended September 30, 2016.first half of 2018.
Foreign exchange (gains) losses,gains (losses), net. We recorded a net foreign exchange gainloss of $2.0$3.1 million in the nine months ended September 30, 2017, down from $3.2first half of 2019, compared to a net foreign exchange gain of $7.6 million in the nine months ended September 30, 2016,first half of 2018. The gain and loss in the first half of 2018 and 2019, respectively, resulted primarily due to the re-measurement of non-functional currency assets and liabilities and related foreign exchange contracts, mainly resulting from the depreciation and appreciation, respectively, of the Indian rupee against the U.S. dollar in the nine months ended September 30, 2017 compared to the depreciation of the Indian rupee and U.K. pound sterling against the U.S. dollar in the nine months ended September 30, 2016.during such periods.
Interest income (expense), net.net. The following table sets forth the components of interest income (expense), net:
|
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|
|
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|
|
| Percentage Change |
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| |
|
| Nine months ended September 30, |
|
| Increase/(Decrease) |
|
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| ||||||
|
| 2016 |
|
| 2017 |
|
| 2017 vs. 2016 |
|
|
| |||
|
| (dollars in millions) |
|
|
|
|
|
|
| |||||
Interest income |
| $ | 5.6 |
|
| $ | 4.5 |
|
|
| (18.4 | ) | % |
|
Interest expense |
| (16.7) |
|
| (28.6) |
|
|
| 70.9 |
|
|
| ||
Interest income (expense), net |
| $ | (11.2 | ) |
| $ | (24.1 | ) |
|
| 115.4 |
| % |
|
Interest income (expense), net as a percentage of total net revenues |
|
| (0.6 | ) | % |
| (1.2 | ) | % |
|
|
|
|
|
|
|
|
|
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|
|
|
|
| Percentage Change |
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| |
|
| Six Months Ended June 30, |
|
| Increase/(Decrease) |
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| ||||||
|
| 2018 |
|
| 2019 |
|
| 2019 vs. 2018 |
|
| |||
|
| (dollars in millions) |
|
|
|
|
|
| |||||
Interest income |
| $ | 5.1 |
|
| $ | 2.8 |
|
|
| (45.8 | ) | % |
Interest expense |
|
| (23.7 | ) |
|
| (26.1 | ) |
|
| 10.2 |
|
|
Interest income (expense), net |
| $ | (18.5 | ) |
| $ | (23.3 | ) |
|
| 25.7 |
| % |
Interest income (expense), net as a percentage of total net revenues |
|
| (1.3 | ) | % |
| (1.4 | ) | % |
|
|
|
|
Our net interest expense was $24.1$23.3 million in the nine months ended September 30, 2017,first half of 2019, up $12.9$4.8 million from $11.2$18.5 million in the nine months ended September 30, 2016,first half of 2018, primarily due to an $11.9a $2.4 million increase in interest expense and $2.4 million decrease in the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016.interest income. The $11.9 million
increase in interest expense iswas primarily due to (i) $6.6 millionhigher drawdown on our revolving credit facility in the first half of 2019 compared to the first half of 2018 and (ii) higher interest expense recognized under finance leases (including those recognized under the new accounting pronouncement on the senior notes we issuedleases adopted in March 2017, (ii)2019). Due to an increase in LIBOR, resulting in higherthe interest expense on the term loan under our LIBOR-linked credit facility increased, but was largely offset by higher gains on interest rate swaps in the first half of 2019 compared to the first half of 2018, which we discuss in the section titled “Liquidity and Capital Resources—Financial Condition” below, and (iii) higher drawdown on our revolving credit facility in the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016.below. Our interest income decreased by $1.0$2.4 million in the nine months ended September 30, 2017first half of 2019 compared to the nine months ended September 30, 2016first half of 2018, primarily due to lower average account balances in India, where we earn higher interest rates on our deposits than incompared to other jurisdictions where we have deposits. The weighted average rate of interest on our debt, including the net impact of interest rate swaps, increased from 2.1%3.2% in the nine months ended September 30, 2016first half of 2018 to 2.8%3.4% in the nine months ended September 30, 2017.first half of 2019.
Other income (expense), net. The following table sets forth the components of other income (expense), net:
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|
| Percentage Change |
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| |
|
| Six months ended June 30, |
|
| Increase/(Decrease) |
|
| ||||||
|
| 2018 |
|
| 2019 |
|
| 2019 vs. 2018 |
|
| |||
|
| (dollars in millions) |
|
|
|
|
|
| |||||
Government incentives |
| $ | 25.7 |
|
| $ | 4.0 |
|
|
| (84.5 | ) | % |
Other income/(expense) |
| (0.4) |
|
| 0.4 |
|
|
| (197.2 | ) |
| ||
Other income (expense), net |
| $ | 25.3 |
|
| $ | 4.4 |
|
|
| (82.8 | ) | % |
Other income (expense), net as a percentage of total net revenues |
|
| 1.8 |
| % |
| 0.3 |
| % |
|
|
|
|
Our net other income was $9.0$4.4 million in the nine months ended September 30, 2017, up $1.8first half of 2019, down $20.9 million from $7.2$25.3 million in the nine months ended September 30, 2016.first half of 2018. This increasedecrease is primarily due to alower income recorded in connection with an export subsidy received by one of our Indian subsidiaries in the nine months ended September 30, 2017, partially offset by a $5.2 million provisionfirst half of 2019 compared to the first half of 2018. This subsidy was introduced under the Foreign Trade Policy of India to encourage the export of specified services from India and was available for an expected loss on the divestiture of a non-strategic portion of our legacy IT support business in Europe in the nine months ended September 30, 2017 and a $5.2 million gain on the divestiture of our cloud-hosted technology platform for the Indian rural banking sector in the nine months ended September 30, 2016.
Equity-method investment activity, net. Equity-method investment activity, net primarily represents our share of loss in one of our non-consolidated affiliates that ceased to be a non-consolidating affiliate since June 30, 2017.eligible export services until March 31, 2019.
Income tax expense.Our income tax expense was $44.3$39.7 million in the nine months ended September 30, 2017,first half of 2019, up $0.3$10.5 million from $44.0$29.2 million in the nine months ended September 30, 2016 (as restatedfirst half of 2018, representing an ETR of 22.8%, compared to 18.4% in the first half of 2018. The increase in
70
our ETR is primarily due to the adoptionexpiration of ASU No. 2016-09certain special economic zone benefits in 2016 with effect from January 1, 2016), representing anIndia in 2019. Certain discrete tax benefits recorded in the first half of 2018 as well as 2019 overall reduced our effective tax rate of 18.4% in the nine months ended September 30, 2017, marginally down from 18.5% in the nine months ended September 30, 2016.rate.
Net income attributable to redeemable non-controlling interest. Non-controlling interest primarily refers to the profit or loss associated with the redeemable non-controlling interest in the operations of Strategic Sourcing Excellence LLC (“SSE”), which we acquired in the first quarter of 2016. We purchased the remainder of the outstanding equity interest in SSE in the nine months ended September 30, 2016, which we discuss in Note 3—“Business acquisitions” under Part I, Item 1—“Financial Statements” above.first half of 2018.
Net income attributable to Genpact Limited common shareholders.shareholders. As a result of the foregoing factors, net income attributable to our common shareholders as a percentage of total net revenues decreased from 10.2%9.1% in the nine months ended September 30, 2016first half of 2018 to 9.8%8.0% in the nine months ended September 30, 2017.first half of 2019. Net income attributable to our common shareholders was $196.0$134.6 million in the nine months ended September 30, 2017,first half of 2019, up $2.6$5.3 million from $193.4$129.3 million in the nine months ended September 30, 2016.first half of 2018.
Liquidity and Capital Resources
Overview
Information about our financial position as of December 31, 20162018 and SeptemberJune 30, 20172019 is presented below:
|
| As of December 31, 2016 |
|
| As of September 30, 2017 |
|
| Percentage Change Increase/(Decrease) |
|
|
| As of December 31, 2018 |
|
| As of June 30, 2019 |
|
| Percentage Change Increase/(Decrease) |
|
| ||||||
|
| (dollars in millions) |
|
| 2017 vs. 2016 |
|
|
| (dollars in millions) |
|
| 2019 vs. 2018 |
|
| ||||||||||||
Cash and cash equivalents |
| $ | 422.6 |
|
| $ | 440.1 |
|
|
| 4.1 |
| % |
| $ | 368.4 |
|
| $ | 378.0 |
|
|
| 2.6 |
| % |
Short-term borrowings |
|
| 160.0 |
|
|
| 160.0 |
|
|
| — |
|
|
|
| 295.0 |
|
|
| 290.0 |
|
|
| (1.7) |
|
|
Long-term debt due within one year |
| 39.2 |
|
|
| 39.2 |
|
|
| 0.1 |
|
|
| 33.5 |
|
|
| 33.5 |
|
|
| 0.0 |
|
| ||
Long-term debt other than the current portion |
|
| 698.2 |
|
|
| 1,016.4 |
|
|
| 45.6 |
|
|
|
| 975.6 |
|
|
| 959.2 |
|
|
| (1.7 | ) |
|
Genpact Limited total shareholders’ equity |
| $ | 1,286.6 |
|
| $ | 1,314.4 |
|
|
| 2.2 |
| % |
| $ | 1,404.2 |
|
| $ | 1,583.4 |
|
|
| 12.8 |
| % |
Financial Condition
We have historically financed our operations and our expansion, including acquisitions, with cash from operations and borrowing facilities. In March 2017, we issued $350.0 million aggregate principal amount of 3.70% senior notes in a private offering. As of September 30, 2017, the amount outstanding under the notes, net of debt amortization expense of $2.4 million, was $347.6 million, which is payable on April 1, 2022. We will pay interest on the notes semi-annually in arrears on April 1 and October 1 of each year, ending on the maturity date of April 1, 2022. For additional information, see Note 12—“Long-term debt” under Part I, Item 1—“Financial Statements” above.
InOn February 2017,7, 2019, our board of directors approved a dividend program under which we intend to pay a regular13% increase in our quarterly cash dividend of $0.06to $0.085 per share, to holders of our common shares,up from $0.075 per share in 2018, representing a planned annual dividend of $0.24$0.34 per share.common share, up from $0.30 per common share in 2018, payable to holders of our common shares. On March 28, 2017,20, 2019 and June 28, 2017 and September 21, 2017,2019, we paid dividendsa dividend of $0.06$0.085 per share, amounting to $12.0 million, $11.6$16.1 million and $11.6$16.2 million in the aggregate, to shareholders of record as of March 10, 2017,8, 2019 and June 12, 2017 and September 8, 2017,2019, respectively.
As of SeptemberJune 30, 2017, $434.42019, $377.4 million of our $440.1$378.0 million in cash and cash equivalents was held by our foreign (non-Bermuda) subsidiaries. $15.2$16.1 million of this cash wasis held by a foreign subsidiarysubsidiaries for which we expect to incur a tax liability and have accordingly accrued a deferred tax liability on the repatriation of $10.9$15.1 million of retained earnings. $84.3$361.3 million of the cash and cash equivalents is held by our foreign subsidiaries is held in jurisdictions where no tax is expected to be imposed upon repatriation. We currently intend to permanently reinvest the remaining $334.9 million in cash and cash equivalents held by certainrepatriation of our foreign subsidiaries.retained earnings or is being indefinitely reinvested.
As of December 31, 2016, our board of directors had authorized repurchases of up to $750.0 million in value of our common shares under our share repurchase program first announced in February 2015. On February 10, 2017, our board of directors approved up to an additional $500.0 million in share repurchases, bringing theThe total authorization under our existing share repurchase program tois $1,250.0 million. On March 29,Since our share repurchase program was initially authorized in 2015, we have repurchased 36,631,068 of our common shares at an average price of $25.82 per share, for an aggregate amount of approximately $946 million. This amount includes shares repurchased under our 2017 we entered into an accelerated share repurchase or ASR, agreement with Morgan Stanley & Co. LLC toprogram.
During the six months ended June 30, 2019, we did not repurchase an aggregate of $200.0 millionany of our common shares. For additional information, see Note 17—“Capital Stock” under Part I, Item 1—“Financial Statements” above.
During the ninesix months ended SeptemberJune 30, 2016,2018, we purchased 9,615,3234,114,882 of our common shares on the open market at a weighted average price of $25.23$31.62 per share, for an aggregate cash amount of $242.6$130.1 million. DuringAdditionally, in the ninesix months ended SeptemberJune 30, 2017,2018, we made payments in an aggregate cash amount of $219.8 million toward share repurchases. Of this amount, we paid (i) $19.8 million to repurchase 808,293 of our common shares on the open market atreceived a weighted average price of $24.48 per share, (ii) $160.0 million for the initialfinal delivery of 6,578,947 of our163,975 common shares under the ASR agreement at a weighted average price of $24.32 perour 2017 accelerated share and (iii) $40.0 million for shares to be delivered to us at the final settlement of the transaction under the ASR agreement as described above.repurchase program. All repurchased shares have been retired.
For additional information, see Note 17— “Capital stock” under Part I, Item 1— “Financial Statements” above.
71
We expect that in the future our cash from operations, cash reserves and debt capacity will be sufficient to finance our operations, our growth and expansion plans, dividend payments and additional share repurchases we may make under our share repurchase program. In addition, we may raise additional funds through public or private debt or equity financings. Our working
capital needs are primarily to finance our payroll and other administrative and information technology expenses in advance of the receipt of accounts receivable. Our primary capital requirements include opening new delivery centers, expanding relatedexisting operations to support our growth, financing acquisitions and financing acquisitions.enhancing capabilities, including building digital solutions.
Cash flows from operating, investing and financing activities, as reflected in our consolidated statements of cash flows, are summarized in the following table:
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| Percentage Change |
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|
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|
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| Percentage Change |
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| ||
|
| Nine months ended September 30, |
|
| Increase/(Decrease) |
|
|
| Six months ended June 30, |
|
| Increase/(Decrease) |
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| ||||||||||||
|
| 2016 |
|
| 2017 |
|
| 2017 vs. 2016 |
|
|
| 2018 |
|
| 2019 |
|
| 2019 vs. 2018 |
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| ||||||
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| (dollars in millions) |
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| (dollars in millions) |
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| ||||||||||
Net cash provided by (used for) |
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|
|
|
|
Operating activities |
| $ | 236.0 |
|
| $ | 263.7 |
|
|
| 11.7 |
| % |
| $ | 49.5 |
|
| $ | 121.0 |
|
|
| 144.6 |
| % |
Investing activities |
|
| (95.6 | ) |
|
| (332.9 | ) |
|
| 248.2 |
|
|
|
| (54.4 | ) |
|
| (51.6 | ) |
|
| (5.1 | ) |
|
Financing activities |
| (169.6) |
|
| 57.7 |
|
|
| (134.0 | ) |
|
| (141.3 | ) |
|
| (60.1 | ) |
|
| (57.4 | ) |
| |||
Net increase (decrease) in cash and cash equivalents |
| $ | (29.2 | ) |
| $ | (11.4 | ) |
|
| (60.9 | ) | % |
| $ | (146.2 | ) |
| $ | 9.3 |
|
|
| (106.3) |
| % |
Cash flows from operating activities. Net cash generated fromprovided by operating activities was $263.7$121.0 million in the nine months ended September 30, 2017first half of 2019, compared to $236.0$49.5 million in the nine months ended September 30, 2016.first half of 2018. This increase is primarily due to higher(i) an increase in net income and improvements in net operating assets and liabilities in the nine months ended September 30, 2017first half of 2019 compared to the nine months ended September 30, 2016,first half of 2018, (ii) a $21.2 million net decrease in our working capital in the first half of 2019 compared to the first half of 2018, mainly driven by delaysvendor-related accruals, tax refunds and the realization of export subsidies relating to earlier years, partially offset by an increase in invoicing by vendors, higher accrualsaccounts receivable, and lower tax payments.(iii) a $44.3 million increase in non-cash expenses in the first half of 2019 compared to the first half of 2018, mainly due to stock-based compensation, depreciation and amortization and unrealized foreign exchange gains/losses.
Cash flows from investing activities. Our net cash used for investing activities was $332.9$51.6 million in the nine months ended September 30, 2017, up $237.3 million from $95.6first half of 2019 compared to $54.4 million in the nine months ended September 30, 2016. This increase was primarily due to a $236.0 million increase infirst half of 2018. We made payments related to acquisitions consummatedtotaling $6.3 million in the nine months ended September 30, 2017first half of 2019 compared to $5.5 million in the nine months ended September 30, 2016. For additional information, see Note 3—“Business Acquisitions” under Part I, Item 1—“Financial Statements” above. This increase was partially offset by a $9.3 million reduction in paymentsfirst half of 2018. Payments for internally generated intangible assets and purchases of property, plant and equipment (net of sales proceeds) in the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. Additionally, investments we made in a non-consolidated affiliate, which ceased to be a non-consolidating affiliate as of June 30, 2017, were $7.0$3.6 million lower in the nine months ended September 30, 2017first half of 2019 than in the nine months ended September 30, 2016.first half of 2018.
Cash flows from financing activities. Our net cash generated fromused for financing activities was $57.7$60.1 million in the nine months ended September 30, 2017,first half of 2019, compared to net cash used for financing activities of $169.6$141.3 million in the nine months ended September 30, 2016. In March 2017, we issued $350.0 million aggregate principal amountfirst half of 3.70% senior notes in a private offering. We also repaid $30.02018. Payments for share repurchases (net of expenses) were $130.1 million in long-term debtthe first half of 2018, while there were no such payments in the nine months ended September 30, 2017first half of 2019. Payments related to earn-out or deferred consideration were $9.0 million higher in the first half of 2019 than in the first half of 2018. In the first half of 2019, we paid cash dividends in an aggregate amount of $32.3 million compared to $28.6 million in the first half of 2018. We made principal repayments of $17.0 million and 2016.$20.0 million on our long-term debt in the first half of 2019 and 2018, respectively. We hadreceived proceeds from short-term borrowings of $275.0$50.0 million and $155.0$105.0 million in the nine months ended September 30, 2017first half of 2019 and 2016, respectively, of which $275.02018, respectively. Of the short-term borrowings, we also repaid $55.0 million and $61.5$60.0 million was repaid during the nine months ended September 30, 2017first half of 2019 and 2016,2018, respectively. For additional information, see Notes 11 and 12—“Short-term borrowings” and “Long-term debt” under Part I, Item 1—“Financial Statements” above.12 to our consolidated financial statements. Additionally, proceeds in connection with the issuance of common shares under stock-based compensation plans (net of payments) were $2.5$8.7 million in the nine months ended September 30, 2017first half of 2019 compared to $12.3payments (net of proceeds) of $4.8 million in the nine months ended September 30, 2016. Payments related to earn-out or deferred consideration were $4.8 million higher in the nine months ended September 30, 2017 than in the nine months ended September 30, 2016. In the nine months ended September 30, 2017, we paid cash dividends in an aggregate amountfirst half of $35.1 million. No dividends were paid in the nine months ended September 30, 2016. Payments for share repurchases were $219.8 million in the nine months ended September 30, 2017 compared to $242.6 million in the nine months ended September 30, 2016.2018.
Financing Arrangements
In June 2015, we refinanced our 2012 credit facility through a new credit facility (the “2015 Facility”), comprised of a term loan of $800 million and a revolving credit facility of $350 million.
In August 2018, we amended the 2015 Facility. The amended facility is comprised of a $680.0 million term loan, which represents the outstanding balance under the 2015 facility as of the date of amendment, and a $500.0 million revolving credit facility. The amended facility expires on August 8, 2023. The amendment did not result in a substantial modification of $550.8 million of the outstanding term loan under the 2015 Facility. Further, as a result of the
72
amendment, we extinguished the outstanding term loan under the 2015 Facility of $129.2 million and obtained additional funding of $129.2 million from different lenders, resulting in no change to the outstanding principal of the term loan under the amended facility. In connection with the amendment, we expensed $2.0 million, representing partial acceleration of the amortization of the existing unamortized debt issuance costs and an additional fee paid to our lenders related to the term loan.
The overall borrowing capacity under the revolving facility increased from $350.0 million to $500.0 million. The remaining unamortized costs and an additional third-party fee paid in connection with the amendment will be amortized over the term of the amended facility, which terminates on August 8, 2023. For additional information, see Note 12— “Long-Term Debt” under Part I, Item 1— “Financial Statements.”
Borrowings under the amended facility bear interest at a rate equal to, at our election, either LIBOR plus an applicable margin equal to 1.375% per annum, compared to a margin of 1.50% under the 2015 facility, or a base rate plus an applicable margin equal to 0.375% per annum, compared to a margin of 0.50% under the 2015 facility, in each case subject to adjustment based on our debt ratings provided by Standard & Poor’s Rating Services and Moody’s Investors Service, Inc. Based on our election and current credit rating, the applicable interest rate is equal to LIBOR plus 1.375% per annum.
As of December 31, 20162018 and SeptemberJune 30, 2017,2019, our outstanding term loan, debt, net of debt amortization expense of $2.7$2.2 million and $2.1$1.9 million, respectively, was $737.3$660.8 million and $708.0$644.1 million, respectively. We also have fund-based and non-fund based credit facilities with banks, which are available for operational requirements in the form of overdrafts, letters of credit, guarantees and short-term loans. As of December 31, 20162018 and SeptemberJune 30, 2017,2019, the limits available under such facilities were $15.4$14.3 million and $14.7$14.4 million, respectively, of which $11.0$7.4 million and $7.4$6.4 million, respectively, was utilized, constituting non-funded drawdown. As of both December 31, 20162018 and SeptemberJune 30, 2017,2019, a total of $161.0$297.1 million and $292.1 million, respectively, of our revolving credit facility was utilized, of which $160.0$295.0 million and $290.0 million, respectively, constituted funded drawdown and $1.0$2.1 million and $2.1 million, respectively, constituted non-funded drawdown in both periods.drawdown.
In March 2017, we issued $350.0 million aggregate principal amount of 3.70% senior notes in a private offering, resulting in cash proceeds of approximately $348.5 million and an underwriting fee of approximately $1.5 million. In addition, there were other debt issuance related costs of $1.2 million. The total debt issuance cost of $2.6 million incurred in connection with the offering of the notes is being amortized over the life of the notes as additional interest expense. As of SeptemberDecember 31, 2018 and June 30, 2017,2019, the amount outstanding under our 3.70% senior notes issued in March 2017 and exchanged in July 2018 for freely tradable notes registered under the notes,Securities Act of 1933, as amended, net of debt amortization expense of $2.4$1.7 million and $1.5 million, was $347.6$348.3 million and 348.5 million, respectively, which is payable on April 1, 2022 when the notes mature. For additional information, see Notes 11 and 12—“Short-term borrowings” and “Long-term debt” under Part I, Item 1—“Financial Statements” above.
73
Off-Balance Sheet Arrangements
Our off-balance sheet arrangements consist of foreign exchange contracts and certain operating leases.contracts. For additional information, see Part I, Item 1A—Risk Factors—“Currency “Currency exchange rate fluctuations in various currencies in which we do business, especially the Indian rupee, the U.S. dollareuro and the euro,U.S. dollar, could have a material adverse effect on our business, results of operations and financial condition” in our Annual Report on Form 10-K for the year ended December 31, 2016,2018, the section titled “Contractual Obligations” below, and Note 7 in Part I, Item 1—“Financial Statements” above.
Contractual Obligations
The following table sets forth our total future contractual obligations as of SeptemberJune 30, 2017:2019:
|
| Total |
|
| Less than 1 year |
|
| 1-3 years |
|
| 3-5 years |
|
| After 5 years |
|
| Total |
|
| Less than 1 year |
|
| 1-3 years |
|
| 3-5 years |
|
| After 5 years |
| ||||||||||||
|
| (dollars in millions) |
|
| (dollars in millions) |
| ||||||||||||||||||||||||||||||||||||
Long-term debt |
| $ | 1,164.9 |
|
| $ | 71.6 |
|
| $ | 726.0 |
|
| $ | 367.3 |
|
| $ — |
|
| $ | 1,122.9 |
|
| $ | 70.7 |
|
| $ | 486.6 |
|
| $ | 565.6 |
| $ | — |
| ||||
— Principal payments |
|
| 1,055.5 |
|
|
| 39.2 |
|
|
| 668.7 |
|
|
| 347.6 |
|
| — |
|
|
| 992.7 |
|
|
| 33.5 |
|
|
| 416.1 |
|
|
| 543.1 |
|
| — |
| ||||
— Interest payments* |
|
| 109.4 |
|
|
| 32.4 |
|
|
| 57.3 |
|
|
| 19.7 |
|
| — |
|
|
| 130.2 |
|
|
| 37.2 |
|
|
| 70.5 |
|
|
| 22.5 |
|
| — |
| ||||
Short-term borrowings |
|
| 161.1 |
|
|
| 161.1 |
|
| — |
|
| — |
|
| — |
|
|
| 292.8 |
|
|
| 292.8 |
|
| — |
|
| — |
|
| — |
| ||||||||
— Principal payments |
|
| 160.0 |
|
|
| 160.0 |
|
| — |
|
| — |
|
| — |
|
|
| 290.0 |
|
|
| 290.0 |
|
| — |
|
| — |
|
| — |
| ||||||||
— Interest payments** |
|
| 1.1 |
|
|
| 1.1 |
|
| — |
|
| — |
|
| — |
|
|
| 2.8 |
|
|
| 2.8 |
|
| — |
|
| — |
|
| — |
| ||||||||
Capital leases |
|
| 5.3 |
|
|
| 2.1 |
|
|
| 2.5 |
|
|
| 0.7 |
|
| — |
| |||||||||||||||||||||||
Finance leases |
|
| 44.2 |
|
|
| 12.6 |
|
|
| 18.0 |
|
|
| 9.4 |
|
| 4.2 |
| |||||||||||||||||||||||
— Principal payments |
|
| 4.3 |
|
|
| 1.5 |
|
|
| 2.2 |
|
|
| 0.6 |
|
| — |
|
|
| 36.6 |
|
|
| 10.6 |
|
|
| 14.9 |
|
|
| 7.7 |
|
|
| 3.4 |
| |||
— Interest payments |
|
| 1.0 |
|
|
| 0.6 |
|
|
| 0.3 |
|
|
| 0.1 |
|
| — |
| |||||||||||||||||||||||
— Interest payments*** |
|
| 7.6 |
|
|
| 2.0 |
|
|
| 3.1 |
|
|
| 1.7 |
|
|
| 0.8 |
| ||||||||||||||||||||||
Operating leases |
|
| 203.3 |
|
|
| 38.3 |
|
|
| 63.3 |
|
|
| 46.4 |
|
|
| 55.3 |
|
|
| 418.9 |
|
|
| 65.9 |
|
|
| 118.7 |
|
|
| 96.6 |
|
|
| 137.7 |
| ||
— Principal payments |
|
| 325.4 |
|
|
| 45.4 |
|
|
| 96.4 |
|
|
| 76.8 |
|
| 106.8 |
| |||||||||||||||||||||||
— Interest payments*** |
|
| 93.5 |
|
|
| 20.5 |
|
|
| 22.3 |
|
|
| 19.8 |
|
| 30.9 |
| |||||||||||||||||||||||
Purchase obligations |
|
| 42.1 |
|
|
| 26.0 |
|
|
| 16.0 |
|
|
| 0.1 |
|
| — |
|
|
| 45.4 |
|
|
| 31.2 |
|
|
| 14.2 |
|
|
| — |
|
| — |
| ||||
Capital commitments net of advances |
|
| 6.2 |
|
|
| 6.2 |
|
| — |
|
| — |
|
| — |
|
|
| 16.9 |
|
|
| 16.9 |
|
| — |
|
| — |
|
| — |
| ||||||||
Earn-out consideration |
|
| 20.1 |
|
|
| 7.2 |
|
|
| 10.0 |
|
|
| 2.9 |
|
| — |
|
|
| 3.5 |
|
|
| 3.4 |
|
|
| 0.1 |
|
|
|
|
|
|
|
| ||||
— Reporting date fair value |
|
| 17.9 |
|
|
| 6.6 |
|
|
| 8.7 |
|
|
| 2.6 |
|
| — |
|
|
| 3.5 |
|
|
| 3.4 |
|
|
| 0.1 |
|
|
| — |
|
| — |
| ||||
— Interest |
|
| 2.2 |
|
|
| 0.6 |
|
|
| 1.3 |
|
|
| 0.3 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
| — |
| ||||
Other liabilities |
|
| 45.1 |
|
|
| 29.8 |
|
|
| 13.6 |
|
|
| 1.7 |
|
| — |
|
|
| 55.8 |
|
|
| 22.6 |
|
|
| 29.1 |
|
|
| 4.1 |
|
| — |
| ||||
Total contractual obligations |
| $ | 1,648.1 |
|
| $ | 342.3 |
|
| $ | 831.4 |
|
| $ | 419.1 |
|
| $ | 55.3 |
|
| $ | 2,000.4 |
|
| $ | 516.1 |
|
| $ | 666.7 |
|
| $ | 675.7 |
|
| $ | 141.9 |
|
* | Our interest payments on long-term debt are calculated based on our current debt rating at a rate equal to LIBOR plus a margin of |
** | Our interest payments on short-term debt are calculated based on our current debt rating at a rate equal to LIBOR plus a margin of |
*** | Our interest payments on finance and operating leases are based on the incremental borrowing rates prevailing in different geographies. |
74
Recent Accounting Pronouncements
Recently adopted accounting pronouncements
For a description of recently adopted accounting pronouncements, see Note 2—2(h)— “Recently issued accounting pronouncements” under Item 1— “Financial Statements” above and Part II, Item 7— “Management’s Discussion and Analysis of Financial Condition and Results of Operations”— “Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2018.
Recently issued accounting pronouncements
For a description of recently issued accounting pronouncements, see Note 2(h)—“Recently issued accounting pronouncements” under Item 1—“Financial Statements” above and Part II, Item 7—“Management’s Discussion and Analysis of Financial Condition and Results of Operations”—“Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2016.
Recently issued accounting pronouncements2018.
For a description of recently issued accounting pronouncements, see Note 2—“Recently issued accounting pronouncements” under Item 1—“Financial Statements” above and Part II, Item 7—“Management’s Discussion and Analysis of Financial Condition and Results of Operations”—“Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2016.
75
We are exposed to interest rate risk arising from changes in interest rates on the floating rate indebtedness under our term loan.loan and 3.70% senior notes issued in March 2017. Borrowings under our term loan bear interest at floating rates based on LIBOR, but in no event less than the floor rate of 0.0% plus an applicable margin. The interest rate on our 3.70% senior notes is subject to adjustment based on the ratings assigned to the notes by Moody’s and S&P from time to time. A decline in such ratings could result in an increase of up to 2% in the rate of interest on the notes. Accordingly, fluctuations in market interest rates or decline in ratings may increase or decrease our interest expense which will, in turn, increase or decrease our net income and cash flow.
We manage a portion of our interest rate risk related to floating rate indebtedness by entering into interest rate swaps under which we receive floating rate payments based on the greater of LIBOR and the floor rate under our term loan and make payments based on a fixed rate. As of SeptemberJune 30, 2017,2019, we were party to interest rate swaps covering a total notional amount of $438.3$492.5 million. Under these swap agreements, the rate that we pay to banks in exchange for LIBOR ranges between 0.88% and 1.20%2.65%.
For a discussion of our market risk associated with foreign currency risk, interest rate risk and credit risk, see Part II, Item 7A—“Quantitative and Qualitative Disclosures about Market Risk” in our Annual Report on Form 10-K for the year ended December 31, 2016.2018.
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are the Company’s controls and other procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 (“Exchange Act”) is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer along with the Company’s Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to the Exchange Act Rule 13a-15(b). Based upon that evaluation, the Company’s Chief Executive Officer along with the Company’s Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company’s periodic SEC filings.
Changes in Internal Control over Financial Reporting
There were no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarterly period ended SeptemberJune 30, 20172019 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
In making its assessment of the changes in internal controls over financial reporting during the quarterly period ended September 30, 2017, management excluded an evaluation of the internal controls over financial reporting in respect of any acquisition made in the nine months ended September 30, 2017. See Note 3 to the Unaudited Consolidated Financial Statements for a discussion of acquisitions consummated during such period.
76
PART II – OTHER INFORMATION
There are no legal proceedings pending against us that we believe are likely to have a material adverse effect on our business, results of operations and financial condition.
We have disclosed under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 20162018 the risk factors that materially affect our business, financial condition or results of operations. You should carefully consider the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2016 and in our Quarterly Report on Form 10-Q for2018, the period ended March 31, 2017risk factors set forth below and the other information that appears elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2016, in our Quarterly Report on Form 10-Q for the period ended March 31, 20172018 and in this Quarterly Report on Form 10-Q. You should be aware that these risk factors and other information may not describe every risk facing our Company. Additional risks and uncertainties not currently known to us also may materially adversely affect our business, financial condition and/or results of operations.
Tax matters may have an adverse effect on our operations, effective tax rate and financial condition.
We are subject to income taxes in the United States and in numerous foreign jurisdictions, notably in India where we have substantial operations. Our provision for income taxes, actual tax expense and cash tax liability could be adversely affected by a variety of factors including, but not limited to, lower income before taxes generated in countries with lower tax rates; higher income generated in countries with higher tax rates; changes in tax laws and regulations or in applicable income tax treaties; changes in accounting principles or interpretations thereof or in the valuation of deferred tax assets and liabilities; the possible disappearance or expiration of certain tax concessions that we have enjoyed in prior years; and adverse outcomes of tax examinations and pending tax-related litigation. Any of these factors could have a material adverse effect on our operations, effective tax rate and financial condition.
We are subject to examination of our income tax returns by the U.S. Internal Revenue Service and tax authorities around the world, notably in India where we have substantial operations, and there can be no assurance that negative outcomes from those examinations or any appeals therefrom will not adversely affect our provision for income taxes and cash tax liability, which in turn could have a material adverse effect on our operations, effective tax rate and financial condition. For example, the Government of India has appealed a 2011 ruling by the Delhi High Court that Genpact India Private Limited (one of our subsidiaries) cannot be held to be a representative assessee of GE in connection with an assertion that GE has tax liability in India by reason of a 2004 transfer of shares of our predecessor company. We believe that, if the Government of India is successful in its appeal, GE would be obligated to indemnify us for any resulting tax, though there can be no assurance as to the outcome of this matter.
In addition, the Government of India issued assessment orders to us in 2014, 2015 and 2016 seeking to assess tax on certain transactions that occurred in 2009, 2010 and 2013. We do not believe that the transactions should be subject to tax in India under applicable law, including due to the relief provided under the Mauritius-India treaty, and have accordingly filed appeals. Our appeal in respect of tax year 2010 has been resolved in our favor. We have received demands for potential tax claims resulting from assessments related to tax years 2009 and 2013 in an aggregate amount of $158 million, including interest. To date, we have paid a total of $23 million toward these demands to the Indian tax authority under protest, and may be required to pay the remainder of the demands pending resolution of the matter. Additionally, in the event that we do not prevail in our appeals, the total amounts owed in connection with these demands could be subject to additional interest accrued over the period since the demands were made, and the amount of this additional interest could be material. There is no assurance that we will prevail in this matter or similar transactions, including where we have relied on the Mauritius-India treaty, and a final determination of tax in the amounts claimed could have a material adverse effect on our operations, effective tax rate and financial condition.
More generally, the Indian tax authorities may claim that Indian tax is owed with respect to certain of our transactions, such as our acquisitions (including our subsidiaries organized under Indian law or owning assets located in India), internal reorganizations and the sale of our shares in public offerings or otherwise by our existing significant shareholders, in which indirect transfers of Indian subsidiaries or assets are involved. Those authorities may seek to impose tax on us directly or as a withholding agent or representative assessee of the seller in these or other transactions.
Furthermore, there is growing pressure in many jurisdictions, including the United States, and from multinational organizations such as the Organization for Economic Cooperation and Development (OECD) and the EU to amend existing international tax rules in order to render them more responsive to current global business practices. For example,
77
the OECD has published a package of measures for reform of the international tax rules as a product of its Base Erosion and Profit Shifting (BEPS) initiative, which was endorsed by the G20 finance ministers. Many of the initiatives in the BEPS package require amendments to the domestic tax legislation of various jurisdictions. Separately, the EU is asserting that a number of country-specific favorable tax regimes and rulings in certain member states may violate, or have violated, EU law, and may require rebates of some or all of the associated tax benefits to be paid by benefitted taxpayers in particular cases. In 2016, the EU adopted the Anti-Tax Avoidance Directive which requires EU member states to implement measures to prohibit tax avoidance practices beginning January 1, 2019.
In addition, in December 2017, the Tax Cuts and Jobs Act was passed by the U.S. Congress and signed into law by President Trump, bringing about far-ranging changes to the existing corporate tax system. This legislation establishes a territorial-style system for taxing foreign-source income of multinational corporations and, among other items and with varying effective dates, includes changes to U.S. federal tax rates, an additional minimum tax measured in part by “base erosion payments” involving certain members of affiliated groups, significant additional limitations on the deductibility of interest, the modification of constructive ownership rules used to determine the status of certain non-U.S. companies as “controlled foreign corporations,” and changes to the rules governing taxable and tax-free cross-border transfers of intangible property. Many of the provisions in this legislation are unclear or incomplete in their application. While this legislation has not so far had a material overall impact on our effective tax rate or business practices and operations, it is possible that our tax liability may materially increase in the future as a result of this legislation. Other legislative and regulatory proposals may also affect our tax position or our business practices and operations, depending on whether and in what form they may ultimately take effect. See Item 1A—“Risk Factors—Risks Related to our Business—Future legislation or executive action in the United States and other jurisdictions could significantly affect the ability or willingness of our clients and prospective clients to utilize our services.”
Although we monitor these developments, it is very difficult to assess to what extent recent changes and other proposals, if enacted, may be implemented in the United States and other jurisdictions in which we conduct our business or may impact the way in which we conduct our business or our effective tax rate due to their unpredictability and interdependency. As these and other tax laws and related regulations and practices change, those changes could have a material adverse effect on our operations, effective tax rate and financial condition.
Unregistered Sales of Equity Securities
None.
Use of Proceeds
None.
Purchase of Equity Securities by the Issuer and Affiliated Purchasers
None.
We did not repurchase any of our common shares during the three months ended June 30, 2019. Approximately $304 million remained available for share repurchases under our existing share repurchase program as of that date. This repurchase program does not obligate us to acquire any specific number of shares and does not specify an expiration date. All shares repurchased under the plan have been cancelled. For additional information, see note 17 to our consolidated financial statements.
None.
None.
Exhibit Number |
| Description |
|
|
|
3.1 |
| |
|
|
|
|
| |
|
|
|
|
|
78
31.1* | ||
|
|
|
|
| |
|
|
|
|
| |
|
|
|
| ||
|
|
|
101.INS |
| Inline XBRL Instance Document |
|
|
|
101.SCH |
| Inline XBRL Taxonomy Extension Schema Document |
|
|
|
101.CAL |
| Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
101.DEF |
| Inline XBRL Taxonomy Extension Definition Linkbase Document |
|
|
|
101.LAB |
| Inline XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
101.PRE |
| Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104 | Cover Page Interactive Data File (formatted as XBRL and contained in Exhibit 101) |
* | Filed with this Quarterly Report on Form 10-Q. |
|
|
79
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: NovemberAugust 9, 20172019
GENPACT LIMITED
By: |
| /s/ N.V. TYAGARAJAN |
|
| N.V. Tyagarajan |
|
| Chief Executive Officer |
|
|
|
By: |
| /s/ EDWARD J. FITZPATRICK |
|
| Edward J. Fitzpatrick |
|
| Chief Financial Officer |
5580