Genpact Reports Financial Results for the Second Quarter of 2008

Genpact Limited (NYSE:G), a leader in the globalization of services and technology and a pioneer in managing business processes for companies around the world, today announced financial results for the second quarter ended June 30, 2008. Key Financial Results - Second Quarter 2008 Revenues were $253.6 million, up 26% from the second quarter of 2007. Net income was $24.8 million, up 250% from $7.1 million in the second quarter of 2007; net income margin for the second quarter of 2008 was 9.8%, up from 3.5% in the second quarter of 2007. Earnings per common share were $0.11, up from a loss of $0.17 per share in the second quarter of 2007. Adjusted income from operations increased 40% to $41.8 million compared to the second quarter of 2007. Adjusted income from operations margin was 16.5%, up from 14.9% in the second quarter of 2007. Adjusted diluted earnings per share were $0.18, up from $0.10 in the second quarter of 2007. Pramod Bhasin, Genpact’s President and CEO said, "Our excellent second quarter results continue our track record of strong growth and delivering on our commitments. Given our results to date and our expectations for the remainder of the year, we are increasing our full year revenue guidance and our guidance on adjusted income from operations margin. We expect revenues for the full year to grow organically by 26-28% from $823 million in 2007. As a result of increased internal efficiencies, a shift towards higher value work and improved pricing for the value we deliver, we now expect our adjusted income from operations margin to improve by 80 to 100 basis points to between 17.1% and 17.3% in 2008 from 16.3% in 2007. Genpact’s Six Sigma, process and technology expertise are driving market penetration and sustainable, superior growth as we create value for our clients and all our key stakeholders.” Global Client revenues increased 68% over the second quarter of 2007 (growth with existing clients, or organic growth, was 75%), driven by Genpact’s ability to expand its existing client relationships and build new ones. Genpact continues to expand its client base. Among new additions are: a large office products company; a global leader in healthcare, lighting and consumer lifestyle products; a leading UK-based financial services group providing a wide range of banking and financial services; and a global financial services company operating in automotive finance, real estate finance, insurance and commercial finance businesses. GE revenues for the second quarter of 2008 grew 1% over the second quarter of 2007. Organic GE revenue growth was 9% this quarter. This excludes revenues from businesses divested by GE in 2007, all of which Genpact continues to serve and whose revenues are now included in Global Client revenues. As of the end of the second quarter of 2008, 25 clients each accounted for $5 million or more of Genpact’s revenues in the last twelve months. Of those, four clients each accounted for $25 million or more of Genpact’s revenues in the last twelve months. Among the many services and solutions Genpact provides to its clients, the mix between business process services and IT services revenues remained relatively steady in the second quarter of 2008, with business process services contributing approximately 79% of revenues in the second quarter of 2008 up from 76% for the full year 2007. Genpact generated $48 million of cash from operations in the second quarter of 2008, up from $44 million in the second quarter of 2007. Year-to-Date Results Revenues were $488.2 million, up 30% from the first half of 2007. Net income was $44.5 million, up 398% from $8.9 million in the first half of 2007; net income margin for the first half of 2008 was 9.1%, up from 2.4% in the first half of 2007. Earnings per common share were $0.20, up from a loss of $0.39 per share in the first half of 2007. Adjusted income from operations increased 37% to $70.2 million compared to the first half of 2007. Adjusted income from operations margin was 14.4%, up from 13.6% in the first half of 2007. Adjusted diluted earnings per share were $0.32, up from $0.16 in the first half of 2007. Annualized revenue per employee in the first half of 2008 was approximately $29,700, an increase from approximately $28,200 for the full year of 2007. As of June 30, 2008, Genpact had more than 35,500 employees worldwide. Genpact’s attrition rate for the first half of 2008, measured from day one of employment, was 25% compared to 30% in 2007. Genpact’s attrition rate would be 19% if measured after six months of employment as many of Genpact’s competitors do. Revised Presentation of the Income Statement In order to more clearly reflect Genpact’s costs, including the impact of its long-term foreign exchange hedging strategy, Genpact has reclassified its foreign exchange gains or losses from a separate line item forming part of income from operations to selling, general and administrative expenses, cost of revenue or net revenues, as applicable. The residual foreign exchange gains or losses, primarily relating to the re-measurement of foreign currency assets or liabilities, mainly accounts receivable, are now shown on the income statement below income from operations. This reclassification does not affect net income or earnings per share. The financial data contained in this press release reflect such reclassification. Conference Call to Discuss Financial Results Genpact management will host a conference call at 8 a.m. (Eastern Daylight Time) on August 6, 2008 to discuss the Company’s performance for the periods ended June 30, 2008. To participate, callers can dial 1 (866) 800-8652 from within the U.S. or 1 (617) 614-2705 from any other country. Thereafter, callers need to enter the participant passcode, which is 39842521. Conference Call to Discuss Revised Presentation of Income Statement Genpact management will host a second conference call at 9.30 a.m. (Eastern Daylight Time) on August 6, 2008 to discuss the revised presentation of the Company’s income statement. To participate, callers can dial 1 (866) 800-8652 from within the U.S. or 1 (617) 614-2705 from any other country. Thereafter, callers need to enter the participant passcode, which is 39842521. For those who cannot participate in the calls, a replay and podcast will be available on our website, www.genpact.com, after the end of the calls. A transcript of both calls will also be made available on our website. About Genpact Genpact is a leader in the globalization of services and a pioneer in managing business processes for companies around the world. The company combines process expertise, information technology and analytical capabilities with operational insight and experience in diverse industries to provide a wide range of services using its global delivery platform. Genpact helps companies improve the ways in which they do business by applying Six Sigma and Lean principles plus technology to continuously improve their business processes. Genpact operates service delivery centers in India, China, Hungary, Mexico, the Philippines, the Netherlands, Romania, Spain and the United States. For more information, see our website at: www.genpact.com. Safe Harbor This press release contains certain statements concerning our future growth prospects and forward-looking statements, as defined in the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. These statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from those in such forward-looking statements. These risks and uncertainties include but are not limited to the risks and uncertainties arising from our past and future acquisitions, slowdown in the economies and sectors in which our clients operate, a slowdown in the BPO and IT Services sectors, our ability to manage growth, factors which may impact our cost advantage, wage increases, our ability to attract and retain skilled professionals, risks and uncertainties regarding fluctuations in our earnings, general economic conditions affecting our industry as well as other risks detailed in our reports filed with the U.S. Securities and Exchange Commission, including the Company’s Annual Report on Form 10-K. These filings are available at www.sec.gov. Genpact may from time to time make additional written and oral forward-looking statements, including statements contained in our filings with the Securities and Exchange Commission and our reports to shareholders. Although the company believes that these forward-looking statements are based on reasonable assumptions, you are cautioned not to pay undue reliance on these forward-looking statements, which reflect management’s current analysis of future events. The Company does not undertake to update any forward-looking statements that may be made from time to time by or on behalf of the Company. Genpact Limited and its Subsidiaries   Consolidated Balance Sheets (In thousands, except per share data)       (Unaudited) As of December 31, As of June 30, 2007 2008 Assets Current assets Cash and cash equivalents $ 279,306 $ 297,978 Accounts receivable, net 99,354 131,377 Accounts receivable from a significant shareholder, net 93,307 89,993 Short term deposits with a significant shareholder 35,079 25,602 Deferred tax assets 9,683 8,956 Due from a significant shareholder 8,977 6,084 Prepaid expenses and other current assets 146,155 130,650 Total current assets 671,861 690,640   Property, plant and equipment, net 195,660 177,959 Deferred tax assets 2,196 58,580 Investment in equity affiliate 197 760 Customer-related intangible assets, net 99,257 77,390 Other intangible assets, net 10,375 7,491 Goodwill 601,120 588,741 Other assets 162,800 79,858 Total assets $ 1,743,466 $ 1,681,419 Genpact Limited and its Subsidiaries   Consolidated Balance Sheets (In thousands, except per share data)     (Unaudited) As of December 31, As of June 30, 2007 2008 Liabilities and shareholders’ equity Current liabilities Current portion of long-term debt $ 19,816 $ 19,872 Current portion of long-term debt from a significant shareholder 1,125 1,231 Current portion of capital lease obligations 38 40 Current portion of capital lease obligations payable to a significant shareholder 1,826 1,666 Accounts payable 12,446 11,110 Income taxes payable 7,035 21,372 Deferred tax liabilities 20,561 6,206 Due to a significant shareholder 8,930 8,736 Accrued expenses and other current liabilities 197,298 244,821 Total current liabilities $ 269,075 $ 315,054   Long-term debt, less current portion 100,041 90,090 Long-term debt from a significant shareholder, less current portion 2,740 2,352 Capital lease obligations, less current portion 137 120 Capital lease obligations payable to a significant shareholder, less current portion 2,969 2,503 Deferred tax liabilities 40,738 12,626 Due to a significant shareholder 8,341 6,525 Other liabilities 65,630 192,197 Total liabilities $ 489,671 $ 621,467   Minority interest 3,066 2,841   Shareholders’ equity Preferred shares, $0.01 par value, 250,000,000 authorized, none issued — — Common shares, $0.01 par value, 500,000,000 authorized, 212,101,874 and 213,861,157 issued and outstanding as of December 31, 2007 and June 30, 2008, respectively 2,121 2,139 Additional paid-in capital 1,000,179 1,017,344 Retained earnings 26,469 70,979 Accumulated other comprehensive income (loss) 221,960 (33,351) Total shareholders’ equity 1,250,729 1,057,111 Commitments and contingencies — — Total liabilities, minority interest and shareholders’ equity $ 1,743,466 $ 1,681,419 Genpact Limited and its Subsidiaries   Consolidated Statements of Income (Unaudited) (In thousands, except per share data)     Three months ended June 30, Six months ended June 30, 2007   2008 2007   2008 Net revenues Net revenues from services — significant shareholder $ 124,218 $ 125,851 $ 244,990 $ 240,174 Net revenues from services — others 76,041 127,721 130,473 248,008 Other revenues 427 4 1,382 20 Total net revenues 200,686 253,576 376,845 488,202 Cost of revenue Services 120,444 147,092 228,566 293,173 Others 299 - 1,034 - Total cost of revenue 120,743 147,092 229,600 293,173 Gross profit 79,943 106,484 147,245 195,029   Operating expenses: Selling, general and administrative expenses 52,516 66,632 100,644 128,769 Amortization of acquired intangible assets 9,437 9,601 18,629 19,825 Other operating (income) losses, net (1,160) 1,073 (1,723) (64) Income from operations $ 19,150 $ 29,178 $ 29,695 $ 46,499   Foreign exchange (gains) losses, net (431) 883 (457) (5,833) Other income (expense), net (3,498) 3,148 (7,078) 5,022   Income before share of equity in (earnings) loss of affiliate, minority interest and income tax expense 16,083 31,443 23,074 57,354   Equity in loss of affiliate 7 110 80 319   Minority interest 2,788 3,141 3,692 5,982   Income tax expense 6,195 3,376 10,363 6,543 Net Income $ 7,093 $ 24,816 $ 8,939 $ 44,510   Net income (loss) available to common shareholders (11,913) 24,816 (26,613) 44,510 Earnings (loss) per common share - Basic $ (0.17) $ 0.12 $ (0.39) $ 0.21 Diluted $ (0.17) $ 0.11 $ (0.39) $ 0.20   Weighted average number of common shares used in computing earnings (loss) per common share - Basic 69,462,052 213,001,442 68,841,133 212,599,543 Diluted 69,462,052 218,863,648 68,841,133 218,151,069 Genpact Limited and its Subsidiaries   Consolidated Statements of Cash Flows (Unaudited) (In thousands)   Six months ended June 30, 2007   2008 Operating activities Net income $ 8,939 $ 44,510 Adjustments to reconcile net income to net cash provided by (used for) operating activities: Depreciation and amortization 22,509 28,952 Amortization of debt issue costs 318 332 Amortization of acquired intangible assets 19,155 20,325 Loss on sale of property, plant and equipment, net 40 2,228 Provision for doubtful receivables 1,675 2,022 Provision for mortgage loans - 580 Unrealized (gain) loss on revaluation of foreign currency asset, liability 1,647 (2,684) Equity in loss of affiliate 80 319 Minority interest 3,692 5,982 Share-based compensation expense 5,231 8,309 Deferred income taxes (1,799) (9,932) Change in operating assets and liabilities: Decrease (increase) in accounts receivable (14,883) (30,341) Decrease (increase) in other assets (462) (16,380) (Decrease) increase in accounts payable 3,818 (1,164) (Decrease) increase in accrued expenses and other current liabilities (8,514) (3,856) (Decrease) increase in income taxes payable 7,741 14,220 (Decrease) increase in other liabilities 3,608 5,959 Net cash provided by operating activities $ 52,795 $ 69,381   Investing activities Purchase of property, plant and equipment (23,289) (31,921) Proceeds from sale of property, plant and equipment 1,156 3,790 Investment in affiliates (455) (883) Short term deposits placed (73,561) (122,673) Redemption of short term deposits 62,313 129,627 Payment for business acquisition, net of cash acquired (14,771) - Net cash used in investing activities $ (48,607) $ (22,060)   Financing activities Repayment of capital lease obligations (1,381) (1,356) Proceeds from long-term debt 1,525 - Repayment of long-term debt (10,711) (10,458) Short-term borrowings, net 14,675 - Repurchase of common shares and preferred stock (1,995) - Deferred IPO cost (1,492) - Proceeds from issuance of common shares on exercise of options 1,225 8,874 Payment to minority shareholders (2,104) (5,631) Net cash (used) by financing activities $ (258) $ (8,571)   Effect of exchange rate changes 9,664 (20,078) Net increase (decrease) in cash and cash equivalents 3,930 38,750 Cash and cash equivalents at the beginning of the period 35,430 279,306 Cash and cash equivalents at the end of the period $ 49,024 $ 297,978   Supplementary information Cash paid during the period for interest $ 7,318 $ 3,404 Cash paid during the period for income taxes $ 4,337 $ 12,937 Property, plant and equipment acquired under capital lease obligation $ 930 $ 1,057 Shares issued for business acquisition $ 23,265 $ - Reconciliation of Adjusted Non-GAAP Financial Measures to GAAP Measures To supplement the consolidated financial statements presented in accordance with GAAP, this press release includes the following measures defined by the Securities and Exchange Commission as non-GAAP financial measures: non-GAAP adjusted income from operations, adjusted net income, adjusted earnings per share and pro forma earnings per share. These non-GAAP measures are not based on any comprehensive set of accounting rules or principles and should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP, and may be different from non-GAAP measures used by other companies. In addition, these non-GAAP measures, the financial statements prepared in accordance with GAAP and the reconciliations of Genpact’s GAAP financial statements to such non-GAAP measures should be carefully evaluated. For its internal management reporting and budgeting purposes, Genpact’s management uses financial statements that do not include stock-based compensation expense related to employee stock options, amortization of acquired intangibles at formation in 2004 and additional depreciation due to mark-to-market adjustment at formation in 2004 for financial and operational decision-making, to evaluate period-to-period comparisons or for making comparisons of Genpact’s operating results to that of its competitors. Moreover, because of varying available valuation methodologies, subjective assumptions and the variety of award types that companies can use when adopting FAS 123(R), Genpact’s management believes that providing financial statements that do not include stock-based compensation allows investors to make additional comparisons between Genpact’s operating results to those of other companies. In addition, Genpact’s management believes that providing non-GAAP financial measures that exclude amortization of acquired intangibles and additional depreciation due to mark-to-market adjustment at formation allows investors to make additional comparisons between Genpact’s operating results to those of other companies. The Company also believes that it is unreasonably difficult to provide its financial outlook in accordance with GAAP for a number of reasons including, without limitation, the Company’s inability to predict its future stock-based compensation expense under FAS 123(R) and the amortization of intangibles associated with further acquisitions, if any. Accordingly, Genpact believes that the presentation of non-GAAP adjusted income from operations and adjusted net income, when read in conjunction with the Company’s reported results, can provide useful supplemental information to investors and management regarding financial and business trends relating to its financial condition and results of operations. In addition, for its internal management reporting for 2007, Genpact’s management used adjusted earnings per share and pro forma earnings per share that do not include impact of the undistributed earnings to preferred stock, preferred dividend and beneficial interest on conversion of preferred stock dividend and assumes the preferred stock was converted to common shares. As of July 13, 2007, prior to the IPO, all the preferred stock has been converted to common shares. Accordingly, the Company believes that to evaluate period to period comparisons, the presentation of non-GAAP adjusted earnings per share and pro forma earnings per share when read in conjunction with the Company’s reported results, can provide useful supplemental information to investors and management regarding financial and business trends relating to its financial condition and results of operations. A limitation of using non-GAAP adjusted income from operations and adjusted net income versus income from operations and net income calculated in accordance with GAAP is that non-GAAP adjusted income from operations and adjusted net income excludes costs, namely, stock-based compensation, that are recurring. Stock-based compensation has been and will continue to be a significant recurring expense in Genpact’s business for the foreseeable future. Management compensates for this limitation by providing specific information regarding the GAAP amounts excluded from non-GAAP adjusted income from operations and adjusted net income and evaluating such non-GAAP financial measures with financial measures calculated in accordance with GAAP. During the second quarter of 2008, Genpact has reclassified its foreign exchange gains or losses from a separate line item in order to more clearly reflect Genpact’s costs, including the impact of its long-term foreign exchange hedging strategy. This reclassification affects income from operations and consequently affects adjusted income from operations. This reclassification does not affect adjusted net income or adjusted earnings per share. The following tables show the reconciliation of the adjusted financial measures from GAAP on a reclassified basis for the periods ended June 30, 2008: Reconciliation of Adjusted Income from Operations   (Unaudited) (In thousands)     Quarter Ended June 30, Six months Ended June 30, 2007   2008 2007   2008   Income from operations as per GAAP (reclassified basis) $ 19,150 $ 29,178 $ 29,695 $ 46,499 Add: Amortization of acquired intangible assets resulting from Formation Accounting 9,281 9,297 18,515 19,257 Add: Additional depreciation due to fair value adjustment resulting from Formation Accounting 514 14 1,028 28 Add: Share based compensation 3,296 4,382 5,231 8,309 Add: FBT impact on share based compensation recovered from employees — 1,453 — 1,553 Add: Gain (loss) on interest rate swaps 15 - (20) (283) Add: Other income 434 737 710 1173 Less: Equity in loss of affiliate (7) (110) (80) (319) Less: Minority interest (2,788) (3,141) (3,692) (5,982) Adjusted income from operations $ 29,895 $ 41,810 $ 51,387 $ 70,235 Reconciliation of Adjusted Net Income   (Unaudited) (In thousands, except per share data)     Quarter Ended June 30, Six months Ended June 30, 2007   2008 2007   2008   Net income as per GAAP $ 7,093 $ 24,816 $ 8,939 $ 44,510 Add: Amortization of acquired intangible assets resulting from Formation Accounting 9,281 9,297 18,515 19,257 Add: Additional depreciation due to fair value adjustment resulting from Formation Accounting 514 14 1,028 28 Add: Share based compensation 3,296 4,382 5,231 8,309 Add: FBT impact on share based compensation recovered from employees — 1,453 — 1,553 Less: Tax impact on amortization of acquired intangibles resulting from Formation Accounting (1,284) (1,640) (1,736) (3,464) Adjusted net income $ 18,900 $ 38,322 $ 31,977 $ 70,193 Diluted adjusted earnings per share $ 0.10 $ 0.18 $ 0.16 $ 0.32 Reconciliation of Pro Forma Earnings Per Share   (Unaudited) (In thousands, except per share data)     Quarter Ended June 30, Six months Ended June 30, 2007   2008 2007   2008   Net income (loss) available to common shareholders as per GAAP $ (11,913) $ 24,816 $ (26,613) $ 44,510 Add: preferred dividend 3,677 — 7,116 — Add: undistributed earnings to preferred stock 2,088 — 2,088 — Add: beneficial interest on conversion of preferred stock dividend 13,241 — 26,348 — Pro forma net income available to common shareholders $ 7,093 $ 24,816 $ 8,939 $ 44,510 Diluted pro forma earnings per share $ 0.04 $ 0.11 $ 0.05 $ 0.20 Weighted average number of common shares used in computing dilutive earnings (loss) per common share as per GAAP 69,462,052 218,863,648 68,841,133 218,151,069 Pro forma dilutive effect of stock options 9,004,729 — 9,143,707 — Add: Impact of preferred stock converted into common stock (a) 119,231,521 — 119,231,595 — Weighted average number of adjusted common shares used in computing adjusted and pro forma dilutive earnings (loss) per common share 197,698,302 218,863,648 197,216,435 218,151,069 (a)   Pro forma earnings per share give effect to Genpact's 2007 reorganization of legal entities as if it occurred on January 1, 2007. In Genpact's 2007 reorganization, the shareholders of Genpact Global Holdings exchanged their preferred and common shares of Genpact Global Holdings for common shares of Genpact Limited.         Statements of Income on a Historical and Reclassified Basis   (Q1 2006 - Q2 2008)             Historical Basis Genpact Limited and its Subsidiaries (Table A)   Consolidated Statements of Income (Unaudited) (In thousands, except per share data)   Quarter Ended March 31, 2008   June 30, 2008 Net revenues Net revenues from services - significant shareholder $ 114,323 $ 125,929 Net revenues from services – others 120,094 127,800 Other revenues 17 4 Total net revenues 234,434 253,733 Cost of revenue Services 157,599 153,165 Others - - Total cost of revenue 157,599 153,165 Gross profit 76,835 100,568   Operating expenses: Selling, general and administrative expenses 66,089 68,818 Amortization of acquired intangible assets 10,224 9,601 Foreign exchange (gains) losses, net (22,377) (7,219) Other operating income (1,138) 1,073 Income from operations 24,037 28,295   Other income (expense), net 1,874 3,148   Income before share of equity in (earnings) loss of affiliate, minority interest and income taxes 25,911 31,443   Equity in loss of affiliate 210 110   Minority interest 2,842 3,141   Income tax expense (benefit) 3,166 3,376 Net Income $ 19,693 $ 24,816 Reclassified Basis Genpact Limited and its Subsidiaries (Table B)   Consolidated Statements of Income (Unaudited) (In thousands, except per share data)   Quarter Ended March 31, 2008   June 30, 2008 Net revenues Net revenues from services — significant shareholder $ 114,417 $ 125,851 Net revenues from services — others 120,192 127,721 Other revenues 17 4 Total net revenues 234,626 253,576 Cost of revenue Services 146,082 147,092 Others - - Total cost of revenue 146,082 147,092 Gross profit 88,544 106,484   Operating expenses: Selling, general and administrative expenses 62,136 66,632 Amortization of acquired intangible assets 10,224 9,601 Other operating income (1,138) 1,073 Income from operations $ 17,322 $ 29,178   Foreign exchange (gains) losses, net (6,715) 883 Other income (expense), net 1,874 3,148   Income before share of equity in (earnings) loss of affiliate, minority interest and income tax expense 25,911 31,443   Equity in loss of affiliate 210 110   Minority interest 2,842 3,141   Income tax expense 3,166 3,376 Net Income $ 19,693 $ 24,816 Genpact Limited and its Subsidiaries  (Table C)   Allocation of Reclassified Items (Unaudited) (In thousands, except per share data)   Quarter Ended March 31, 2008   June 30, 2008     Foreign exchange (gains) losses, net as reported on historical basis   (22,377)   (7,219)   Allocation of reclassified items: Increase (decrease) in net revenue 192 (157) Decrease in cost of revenue 11,517 6,073 Decrease in selling, general and administrative expenses   3,953   2,186 Total 15,662 8,102               Foreign exchange (gains) losses, net as reported on reclassified basis (1) (6,715) 883 (1)   Reclassified below income from operations. Reclassified Basis   Reconciliation of Adjusted Income from Operations (Table D)   (Unaudited) (In thousands, except per share data)     Quarter Ended March 31, 2008   June 30, 2008   Income from operations as per GAAP (reclassified basis) $ 17,322 $ 29,178 Add: Amortization of acquired intangible assets resulting from Formation Accounting 9,960 9,297 Add: Additional depreciation due to fair value adjustment resulting from Formation Accounting 14 14 Add: Share based compensation 3,927 4,382 Add: FBT impact on share based compensation recovered from employees 100 1,453 Add: Gain (loss) on interest rate swaps (283) — Add: Other income 435 737 Less: Equity in loss of affiliate (210) (110) Less: Minority interest (2,842) (3,141) Adjusted income from operations $ 28,423 $ 41,810 Historical Basis Genpact Limited and its Subsidiaries (Table E)   Consolidated Statements of Income (In thousands, except per share data)   Year ended December 31, 2006   2007 Net revenues Net revenues from services — significant shareholder $ 453,305 $ 481,033 Net revenues from services — others 158,282 340,158 Other revenues 1,460 1,493 Total net revenues 613,047 822,684 Cost of revenue Services 359,791 514,330 Others 1,090 1,133 Total cost of revenue 360,881 515,463 Gross profit 252,166 307,221   Operating expenses: Selling, general and administrative expenses 159,203 231,320 Amortization of acquired intangible assets 41,715 36,938 Foreign exchange (gains) losses, net 13,021 (43,577) Other operating income (4,930) (4,264) Income from operations $ 43,157 $ 86,804   Other income (expense), net (9,235) (5,196)   Income before share of equity in (earnings) loss of affiliate, minority interest and income taxes 33,922 81,608   Equity in loss of affiliate — 255   Minority interest — 8,387   Income tax expense (benefit) (5,850) 16,543 Net Income $ 39,772 $ 56,423   Reclassified Basis Genpact Limited and its Subsidiaries (Table F)   Consolidated Statements of Income (Unaudited) (In thousands, except per share data)       Year ended December 31, 2006   2007 Net revenues Net revenues from services — significant shareholder $ 453,305 $ 481,350 Net revenues from services — others 158,282 340,328 Other revenues 1,460 1,493 Total net revenues 613,047 823,171 Cost of revenue Services 368,088 481,805 Others 1,090 1,133 Total cost of revenue 369,178 482,938 Gross profit 243,869 340,233   Operating expenses: Selling, general and administrative expenses 162,019 218,237 Amortization of acquired intangible assets 41,715 36,938 Other operating income (4,930) (4,264) Income from operations $ 45,065 $ 89,322   Foreign exchange (gains) losses, net 1,908 2,518 Other income (expense), net (9,235) (5,196)   Income before share of equity in (earnings) loss of affiliate, minority interest and income tax expense 33,922 81,608   Equity in loss of affiliate - 255   Minority interest - 8,387   Income tax expense (benefit) (5,850) 16,543 Net Income $ 39,772 $ 56,423   Genpact Limited and its Subsidiaries (Table G)   Allocation of Reclassified Items (Unaudited) (In thousands, except per share data)     Year ended December 31, 2006   2007   Foreign exchange (gains) losses, net as reported on historical basis   13,021   (43,577)   Allocation of reclassified items: Increase in net revenues - 487 Decrease (increase) in cost of revenue (8,297) 32,525 Decrease (increase) in selling, general and administrative expenses   (2,816)   13,083 Total (11,113) 46,095           Foreign exchange (gains) losses, net as reported on reclassified basis (1) 1,908 2,518   (1)   Reclassified below income from operations. Reclassified Basis Reconciliation of Adjusted Income from Operations (Table H)   (Unaudited) (In thousands, except per share data)       Year Ended December 31, 2006   2007   Income from operations as per GAAP (reclassified basis) $ 45,065 $ 89,322 Add: Amortization of acquired intangible assets resulting from Formation Accounting 42,738 35,764 Add: Additional depreciation due to fair value adjustment resulting from Formation Accounting 2,056 2,056 Add: Stock based compensation 4,501 13,021 Add: FBT Impact on Stock based compensation recovered from employees 507 Add: Gain / (loss) on interest rate swaps 1,394 (41) Add: Other income 1,324 2,383 Less: Equity in loss of affiliate — (255) Less: Minority interest — (8,387) Adjusted income from operations $ 97,078 $ 134,370         Historical Basis Genpact Limited and its Subsidiaries (Table I)   Consolidated Statements of Income (Unaudited) (In thousands, except per share data)   Quarter Ended March 31, 2007 June 30, 2007 September 30, 2007 December 31, 2007 Net revenues Net revenues from services - significant shareholder $ 120,772 $ 124,218 $ 122,862 $ 113,181 Net revenues from services - others 54,255 75,847 91,590 118,466 Other revenues   955   427   110   1 Total net revenues   175,982   200,492   214,562   231,648 Cost of revenue Services 109,150 128,248 132,991 143,941 Others   735   299   99   - Total cost of revenue   109,885   128,547   133,090   143,941 Gross profit 66,097 71,945 81,472 87,707   Operating expenses: Selling, general and administrative expenses 48,554 55,565 62,849 64,352 Amortization of acquired intangible assets 9,192 9,437 9,358 8,951 Foreign exchange (gains) losses, net (1,660) (11,478) (15,476) (14,963) Other operating income   (563)   (1,160)   (810)   (1,731) Income from operations 10,574 19,581 25,551 31,098   Other income (expense), net   (3,580)   (3,498)   (619)   2,501   Income before share of equity in (earnings) loss of affiliate, minority interest and income taxes 6,994 16,083 24,932 33,599   Equity in loss of affiliate 73 7 61 114   Minority interest 904 2,788 2,062 2,633   Income tax expense (benefit)   4,169   6,195   6,486   (307) Net Income $ 1,848 $ 7,093 $ 16,323 $ 31,159           Reclassified Basis Genpact Limited and its Subsidiaries (Table J)   Consolidated Statements of Income (Unaudited) (In thousands, except per share data)   Quarter Ended March 31, 2007 June 30, 2007 September 30, 2007 December 31, 2007 Net revenues Net revenues from services — significant shareholder $ 120,895 $ 124,338 $ 122,981 $ 113,136 Net revenues from services — others 54,310 75,921 91,678 118,419 Other revenues   955   427   110   1 Total net revenues   176,160   200,686   214,769   231,556 Cost of revenue Services 108,123 120,444 122,564 130,674 Others   735   299   99   — Total cost of revenue   108,858   120,743   122,663   130,674 Gross profit 67,302 79,943 92,106 100,882   Operating expenses: Selling, general and administrative expenses 48,126 52,516 59,035 58,560 Amortization of acquired intangible assets 9,192 9,437 9,358 8,951 Other operating income   (563)   (1,160)   (810)   (1,731) Income from operations $ 10,547 $ 19,150 $ 24,523 $ 35,102   Foreign exchange (gains) losses, net (27) (431) (1,028) 4,004 Other income (expense), net   (3,580)   (3,498)   (619)   2,501   Income before share of equity in (earnings) loss of affiliate, minority interest and income tax expense 6,994 16,083 24,932 33,599   Equity in loss of affiliate 73 7 61 114   Minority interest 904 2,788 2,062 2,633   Income tax expense (benefit)   4,169   6,195   6,486   (307) Net Income $ 1,848 $ 7,093 $ 16,323 $ 31,159     Genpact Limited and its Subsidiaries (Table K)   Allocation of Reclassified Items (Unaudited) (In thousands, except per share data)   Quarter Ended March 31, 2007   June 30, 2007   September 30, 2007   December 31, 2007   Foreign exchange (gains) losses, net as reported on historical basis   (1,660)   (11,478)   (15,476)   (14,963)   Allocation of reclassified items: Increase (decrease) in net revenue 178 194 207 (92) Decrease in cost of revenue 1,027 7,804 10,427 13,267 Decrease in selling, general and administrative expenses   428   3,049   3,814   5,792 Total 1,633 11,047 14,448 18,967                   Foreign exchange (gains) losses, net as reported on reclassified basis (1) (27) (431) (1,028) 4,004   (1)   Reclassified below income from operations.       Reclassified Basis   Reconciliation of Adjusted Income from Operations (Table L) (Unaudited) (In thousands, except per share data)   Quarter Ended March 31, 2007 June 30, 2007   September 30, 2007   December 31, 2007   Income from operations as per GAAP $ 10,547 $ 19,150 $ 24,523 $ 35,102 Add: Amortization of acquired intangible assets resulting from Formation Accounting 9,234 9,281 8,654 8,595 Add: Additional depreciation due to fair value adjustment resulting from Formation Accounting 514 514 514 514 Add: Share based compensation 1,935 3,296 3,678 4,112 Add: FBT impact on share based compensation recovered from employees — — — 507 Add: Gain (loss) on interest rate swaps (35) 15 (189) (131) Add: Other income 276 434 620 1,352 Less: Equity in loss of affiliate (73) (7) (61) (114) Less: Minority interest   (904)   (2,788)   (2,062)   (2,633) Adjusted income from operations $ 21,494 $ 29,895 $ 35,677 $ 47,304     Historical Basis   Genpact Limited and its Subsidiaries (Table M)   Consolidated Statements of Income (Unaudited) (In thousands, except per share data)     Quarter ended March 31,2006   June 30,2006   September30, 2006   December 31,2006 Net revenues Net revenues from services — significant shareholder $ 109,650 $ 109,662 $ 111,047 $ 122,946 Net revenues from services — others 22,246 31,294 50,853 53,889 Other revenues — — 486 974 Total net revenues 131,896 140,956 162,386 177,809 Cost of revenue Services 77,986 85,753 93,148 102,904 Others — — 363 727 Total cost of revenue 77,986 85,753 93,511 103,631 Gross profit 53,910 55,203 68,875 74,178   Operating expenses: Selling, general and administrative expenses 36,104 37,025 40,813 45,261 Amortization of acquired intangible assets 11,045 10,569 10,200 9,901 Foreign exchange (gains) losses, net 3,695 826 4,235 4,265 Other operating income (1,128) (625) (1,373) (1,804) Income from operations $ 4,194 $ 7,408 $ 15,000 $ 16,555   Other income (expense), net (554) (2,630) (4,230) (1,821)   Income before share of equity in (earnings) loss of affiliate, minority interest and income taxes 3,640 4,778 10,770 14,734   Equity in loss of affiliate — — — —   Minority interest — — — —   Income tax expense (benefit) (1,428) (2,244) (2,035) (143) Net Income $ 5,068 $ 7,022 $ 12,805 $ 14,877   Reclassified Basis Genpact Limited and its Subsidiaries (Table N)   Consolidated Statements of Income (Unaudited) (In thousands, except per share data)     Quarter ended March 31,2006   June 30, 2006   September 30,2006   December 31,2006 Net revenues Net revenues from services — significant shareholder $ 109,650 $ 109,662 $ 111,047 $ 122,946 Net revenues from services — others 22,246 31,294 50,853 53,889 Other revenues — — 486 974 Total net revenues 131,896 140,956 162,386 177,809 Cost of revenue Services 78,667 88,496 96,505 104,420 Others — — 363 727 Total cost of revenue 78,667 88,496 96,868 105,147 Gross profit 53,229 52,460 65,518 72,662   Operating expenses: Selling, general and administrative expenses 36,344 37,990 41,996 45,689 Amortization of acquired intangible assets 11,045 10,569 10,200 9,901 Other operating income (1,128) (625) (1,373) (1,804) Income from operations $ 6,968 $ 4,526 $ 14,695 $ 18,876   Foreign exchange (gains) losses, net 2,774 (2,882) (305) 2,321 Other income (expense), net (554) (2,630) (4,230) (1,821)   Income before share of equity in (earnings) loss of affiliate, minority interest and income tax expense 3,640 4,778 10,770 14,734   Equity in loss of affiliate — — — —   Minority interest — — — —   Income taxes expense (benefit) (1,428) (2,244) (2,035) (143) Net Income $ 5,068 $ 7,022 $ 12,805 $ 14,877   Genpact Limited and its Subsidiaries (Table O)   Allocation of Reclassified Items (Unaudited) (In thousands, except per share data)     Quarter ended March 31,2006   June 30,2006   September 30,2006   December31, 2006   Foreign exchange (gains) losses, net as reported on historical basis   3,695   826   4,235   4,265   Allocation of reclassified items:   Increase in cost of revenue 681 2,743 3,357 1,516 Increase in selling, general and administrative expenses   240   965   1,183   428 Total 921 3,708 4,540 1,943                   Foreign exchange (gains) losses, net as reported on reclassified basis (1) 2,774 (2,882) (305) 2,321   (1)   Reclassified below income from operations.   Reclassified Basis Reconciliation of Adjusted Income from Operations (Table P)   (Unaudited) (In thousands)     Quarter Ended, March 31, 2006   June 30, 2006   September 30,2006   December 31,2006   Income from operations as per GAAP (reclassified basis) $ 6,968 $ 4,526 $ 14,695 $ 18,876 Add: Amortization of acquired intangible assets resulting from Formation Accounting 11,400 10,909 10,439 9,990 Add: Additional depreciation due to fair value adjustment resulting from Formation Accounting 514 514 514 514 Add: Stock based compensation 1,172 1,307 1,105 917 Add: FBT Impact on Stock based compensation recovered from employees — — — — Add: Gain / (loss) on interest rate swaps 1,171 1,584 (1,311) (50) Add: Other income 312 771 85 156 Less: Equity in loss of affiliate — — — — Less: Minority interest — — — — Adjusted income from operations $ 21,537 $ 19,611 $ 25,527 $ 30,403