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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 March 31, 2022
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)
 
 
Bermuda98-0533350
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
 
Canon's Court
22 Victoria Street
Hamilton HM 12
Bermuda
(441298-3300
(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 classTrading Symbol(s)Name of each exchange on which registered
Common shares, par value $0.01 per shareGNew 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 every Interactive Data File required to be submitted 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 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 the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 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
As of May 5, 2022, there were 185,148,923 common shares, par value $0.01 per share, of the registrant issued and outstanding.
 
 
 




TABLE OF CONTENTS
 
Item No.Page No.
1.
2.
3.
4.
1.
1A.
2.
6.



PART I - FINANCIAL INFORMATION
Item 1. Unaudited Consolidated Financial Statements

GENPACT LIMITED AND ITS SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
(In thousands, except per share data and share count) 

NotesAs of December 31, 2021As of March 31, 2022
Assets
Current assets
Cash and cash equivalents$899,458 $861,760 
Accounts receivable, net of allowance for credit losses of $24,329 and $21,938 as of December 31, 2021 and March 31, 2022, respectively
4887,742 971,361 
Prepaid expenses and other current assets7134,441 151,613 
Total current assets$1,921,641 $1,984,734 
Property, plant and equipment, net8215,089 202,707 
Operating lease right-of-use assets270,603 253,568 
Deferred tax assets22106,322 99,079 
Intangible assets, net9169,635 154,149 
Goodwill91,731,027 1,722,012 
Contract cost assets19238,794 234,772 
Other assets, net of allowance for credit losses of $3,711 and $3,272 as of December 31, 2021 and March 31, 2022, respectively
322,158 320,250 
Total assets $4,975,269 $4,971,271 
Liabilities and equity
Current liabilities
Short-term borrowings10$ $250,000 
Current portion of long-term debt11383,433 383,569 
Accounts payable24,984 21,098 
Income taxes payable2247,353 53,212 
Accrued expenses and other current liabilities12791,440 615,918 
Operating leases liability61,591 59,497 
Total current liabilities$1,308,801 $1,383,294 
Long-term debt, less current portion111,272,476 1,264,372 
Operating leases liability247,707 229,776 
Deferred tax liabilities223,942 3,613 
Other liabilities13245,210 242,822 
Total liabilities$3,078,136 $3,123,877 
Shareholders' equity
Preferred shares, $0.01 par value, 250,000,000 authorized, none issued
  
Common shares, $0.01 par value, 500,000,000 authorized, 185,336,357 and 185,072,415 issued and outstanding as of December 31, 2021 and March 31, 2022, respectively
1,847 1,845 
Additional paid-in capital 1,717,165 1,693,854 
Retained earnings732,474 729,503 
Accumulated other comprehensive income (loss)(554,353)(577,808)
Total equity$1,897,133 $1,847,394 
Commitments and contingencies23
Total liabilities and equity $4,975,269 $4,971,271 


 See accompanying notes to the Consolidated Financial Statements.
3


GENPACT LIMITED AND ITS SUBSIDIARIES
Consolidated Statements of Income
(Unaudited)
(In thousands, except per share data and share count)
 
Three months ended March 31,
Notes20212022
Net revenues19$946,071 $1,068,443 
Cost of revenue600,928 685,962 
Gross profit$345,143 $382,481 
Operating expenses:
Selling, general and administrative expenses200,732 237,296 
Amortization of acquired intangible assets916,176 11,306 
Other operating (income) expense, net20353 3 
Income from operations $127,882 $133,876 
Foreign exchange gains (losses), net3,293 4,303 
Interest income (expense), net21(12,342)(12,088)
Other income (expense), net1,392 (409)
Income before income tax expense$120,225 $125,682 
Income tax expense2228,952 29,503 
Net income$91,273 $96,179 
Earnings per common share17
Basic$0.48 $0.52 
Diluted$0.47 $0.51 
Weighted average number of common shares used in computing earnings per common share17
Basic188,650,112 185,637,776 
Diluted193,213,258 189,558,404 
 
See accompanying notes to the Consolidated Financial Statements.
4


GENPACT LIMITED AND ITS SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
(In thousands)
 
Three months ended March 31,
20212022
Net income (loss)$91,273 $96,179 
Other comprehensive income:
Currency translation adjustments(18,644)(27,429)
Net income (loss) on cash flow hedging derivatives, net of taxes (Note 6)2,081 2,873 
Retirement benefits, net of taxes584 1,101 
Other comprehensive income (loss) (15,979)(23,455)
Comprehensive income (loss)$75,294 $72,724 
 
See accompanying notes to the Consolidated Financial Statements.
5


GENPACT LIMITED AND ITS SUBSIDIARIES
Consolidated Statements of Equity
For the three months ended March 31, 2021
(Unaudited)
(In thousands, except share count)
 
Common sharesAccumulated Other
Comprehensive
Income (Loss)
No. of
Shares
AmountAdditional 
Paid-in Capital
Retained
Earnings
Total
Equity
Balance as of January 1, 2021189,045,661 $1,885 $1,636,026 $741,658 $(545,340)$1,834,229 
Issuance of common shares on exercise of options (Note 15)158,000 2 3,785 — — 3,787 
Issuance of common shares under the employee stock purchase plan (Note 15)77,165 1 2,808 — — 2,809 
Net settlement on vesting of restricted share units (Note 15)91,039 1 (1,303)— — (1,302)
Net settlement on vesting of performance units (Note 15)1,102,440 11 (28,301)— — (28,290)
Stock repurchased and retired (Note 16)(3,297,966)(33)— (134,119)— (134,152)
Expenses related to stock purchase (Note 16)— — — (66)— (66)
Stock-based compensation expense (Note 15)— — 17,430 — — 17,430 
Comprehensive income (loss):
Net income (loss)— — — 91,273 — 91,273 
Other comprehensive income (loss)— — — — (15,979)(15,979)
Dividend ($0.1075 per common share, Note 16)
— — — (20,115)— (20,115)
Balance as of March 31, 2021187,176,339 $1,867 $1,630,445 $678,631 $(561,319)$1,749,624 
 
See accompanying notes to the Consolidated Financial Statements.

6


GENPACT LIMITED AND ITS SUBSIDIARIES
Consolidated Statements of Equity
For the three months ended March 31, 2022
(Unaudited)
(In thousands, except share count)
 
Common sharesAccumulated Other
Comprehensive
Income (Loss)
No. of
Shares
AmountAdditional 
Paid-in Capital
Retained
Earnings
Total
Equity
Balance as of January 1, 2022185,336,357 $1,847 $1,717,165 $732,474 $(554,353)$1,897,133 
Issuance of common shares on exercise of options (Note 15)— — — — —  
Issuance of common shares under the employee stock purchase plan (Note 15)87,646 1 3,299 — — 3,300 
Net settlement on vesting of restricted share units (Note 15)54,942 1 (1)— —  
Net settlement on vesting of performance units (Note 15)1,224,003 12 (41,859)— — (41,847)
Stock repurchased and retired (Note 16)(1,630,533)(16)— (75,983)— (75,999)
Expenses related to stock purchase (Note 16)— — — (33)— (33)
Stock-based compensation expense (Note 15)— — 15,250 — — 15,250 
Comprehensive income (loss):
Net income (loss)— — — 96,179 — 96,179 
Other comprehensive income (loss)— — — — (23,455)(23,455)
Dividend ($0.1250 per common share, Note 16)
— — — (23,134)— (23,134)
Balance as of March 31, 2022185,072,415 $1,845 $1,693,854 $729,503 $(577,808)$1,847,394 
 
See accompanying notes to the Consolidated Financial Statements.
7


GENPACT LIMITED AND ITS SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
Three months ended March 31,
20212022
Operating activities
Net income$91,273 $96,179 
Adjustments to reconcile net income to net cash (used for)/ provided by operating activities:
Depreciation and amortization28,953 24,847 
Amortization of debt issuance costs 557 690 
Amortization of acquired intangible assets16,176 11,306 
Write-down of intangible assets and property, plant and equipment836  
Allowance for credit losses727 (463)
Unrealized gain on revaluation of foreign currency asset/liability(3,127)(4,599)
Stock-based compensation expense17,430 15,250 
Deferred tax expense31 4,914 
Others, net201 19 
Change in operating assets and liabilities:
Increase in accounts receivable(6,385)(83,548)
(Increase) decrease in prepaid expenses, other current assets, contract cost assets, operating lease right-of-use assets and other assets14,526 (4,120)
Increase (decrease) in accounts payable7,700 (2,010)
Decrease in accrued expenses, other current liabilities, operating leases liabilities and other liabilities(106,727)(179,186)
Increase in income taxes payable14,985 6,440 
Net cash (used for)/ provided by operating activities$77,156 $(114,281)
Investing activities
Purchase of property, plant and equipment(12,010)(16,744)
Payment for internally generated intangible assets (including intangibles under development)(1,897)(1,065)
Proceeds from sale of property, plant and equipment681 43 
Payment for business acquisitions, net of cash acquired(5,309) 
Net cash (used for) investing activities$(18,535)$(17,766)
Financing activities
Repayment of finance lease obligations(3,037)(2,292)
Payment of debt issuance costs(1,893) 
Proceeds from long-term debt350,000  
Repayment of long-term debt(8,500)(8,500)
Proceeds from short-term borrowings 250,000 
Repayment of short-term borrowings(250,000) 
Proceeds from issuance of common shares under stock-based compensation plans 6,596 3,300 
Payment for net settlement of stock-based awards(28,721)(41,889)
Dividend paid(20,115)(23,134)
Payment for stock repurchased and retired (including expenses related to stock repurchase)(134,218)(76,032)
Net cash (used for)/ provided by financing activities$(89,888)$101,453 
Effect of exchange rate changes (5,171)(7,104)
Net decrease in cash and cash equivalents(31,267)(30,594)
Cash and cash equivalents at the beginning of the period680,440 899,458 
Cash and cash equivalents at the end of the period$644,002 $861,760 
Supplementary information
Cash paid during the period for interest$4,086 $1,893 
Cash paid during the period for income taxes, net of refund$21,988 $28,580 
 See accompanying notes to the Consolidated Financial Statements.
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 that drives digitally-led innovation and runs digitally-enabled intelligent operations for its clients, guided by its experience running thousands of processes for hundreds of Fortune Global 500 clients. The Company has over 115,300 employees serving clients in key industry verticals from more than 30 countries. 

2. Summary of significant accounting policies
 
(a) Basis of preparation and principles of consolidation

The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") and the rules and regulations of the Securities and Exchange Commission (the “SEC”) 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, 2021. The accompanying consolidated financial statements reflect all adjustments that management considers necessary for a fair presentation of the results of operations for these periods.
The accompanying 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 over the entity, the Company applies the equity method of accounting. All intercompany transactions and balances are eliminated in consolidation.
 
(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, intangible assets and goodwill, revenue recognition, allowance for credit losses, valuation allowances for deferred tax assets, the valuation 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, and management has made assumptions about the possible effects of the ongoing COVID-19 pandemic on critical and significant accounting estimates. Although these estimates and assumptions 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.

(c) Business combinations, goodwill and other intangible assets

The Company accounts for its business combinations using the acquisition method of accounting in accordance with Accounting Standard Codification (“ASC”) Topic 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 re-measured 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, general and administrative expenses.

9


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)

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 9 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 and accumulated impairment loss based on their estimated useful lives as follows:
 
Customer-related intangible assets1-9 years
Marketing-related intangible assets1-8 years
Technology-related intangible assets2-10 years
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
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 statements of income.
The Company also capitalizes certain software and technology-related development costs incurred in connection with developing or obtaining software or technology for sale/lease to customers when the initial design phase is completed and commercial and technological feasibility has been established. Any development cost incurred before technological feasibility is established is expensed as incurred as research and development costs. Technological feasibility is established upon completion of a detailed design program or, in its absence, completion of a working model. Capitalized software and technology costs include only (i) external direct costs of materials and services utilized in developing or obtaining software and technology and (ii) compensation and related benefits for employees who are directly associated with the project.
Costs incurred in connection with developing or obtaining software or technology for sale/lease to customers which are under development and not put to use are disclosed under “intangible assets under development.” Advances paid towards the acquisition of intangible assets outstanding as of each balance sheet date are disclosed under “intangible assets under development.”
Capitalized software and technology costs are included in intangible assets under technology-related intangible assets on the Company’s balance sheet and are amortized on a straight-line basis when placed into service over the estimated useful lives of the software and technology.
The Company evaluates the remaining useful life of intangible assets that are being amortized at each reporting period wherever events and circumstances warrant a revision to the remaining period of amortization, and the remaining carrying amount of the intangible asset is amortized prospectively over that revised remaining useful life.
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)

(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 customers. The General Electric Company (“GE”) accounted for 8% and 9% of the Company’s receivables as of December 31, 2021 and March 31, 2022, respectively. GE accounted for 10% and 9% of the Company’s revenues for the three months ended March 31, 2021 and 2022, respectively.

(e) Accounts receivable

Accounts receivable are recorded at the invoiced or to be invoiced amount and 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 current expected credit losses inherent in its accounts receivable portfolio. In establishing the required allowance, management considers historical losses which are adjusted to current market conditions and a reasonable and supportable forecast. 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 customers.
 
(f) Revenue Recognition

The Company derives its revenue primarily from business process management services, 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 upon the transfer of control of promised services to its customers in an amount that reflects the consideration the Company expects to receive in exchange for those services. Revenues from services rendered under time-and-materials and transaction-based contracts are recognized as the services are provided. The Company’s fixed-price contracts include contracts for customization of applications, 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.
 
The Company’s contracts with its customers also include incentive payments received for discrete benefits delivered or promised to be delivered to the customer or service level agreements that could result in credits or refunds to the customer. 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.
 
The Company records deferred revenue attributable to certain process transition activities where such activities do not represent separate performance obligations. Revenues relating to such transition activities are classified under contract liabilities and subsequently recognized ratably over the period in which the related services are performed. Costs relating to such transition activities are fulfillment costs which are directly related to the contract and result in the generation or enhancement of resources. Such costs are expected to be recoverable under the contract and are therefore classified as contract cost assets and recognized ratably over the estimated expected period of benefit under cost of revenue.
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)
 
Revenues are reported net of value-added tax, business tax and applicable discounts and allowances. Reimbursements of out-of-pocket expenses received from customers have been included as part of revenues.

Revenue for performance obligations that are satisfied over time is recognized in accordance with the methods prescribed for measuring progress. The input (cost expended) method has been used to measure progress towards completion as there is a direct relationship between input and the satisfaction of a performance obligation. Provisions for estimated losses, if any, on uncompleted contracts are recorded in the period in which such losses become probable based on the current contract estimates.
 
The Company enters into multiple-element revenue arrangements in which a customer may purchase a combination of products or services. The Company determines whether each product or service promised to a customer is capable of being distinct, and is distinct in the context of the contract. If not, the promised products or services are combined and accounted for as a single performance obligation. In the event of a multiple-element revenue arrangement, the Company allocates the arrangement consideration to separately identifiable performance obligations based on their relative stand-alone selling prices.
 
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 point in time when the software is made available to the customer. Revenue from distinct, non-cancellable, subscription-based licenses is recognized at the point in time it is transferred to the customer. 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 the services are performed.
 
All 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 customers are classified as contract assets. Such fees are amortized over the expected period of benefit and recorded as an adjustment to the transaction price and deducted from revenue.
 
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 customer and classified as a contract liability. Contract assets and contract liabilities relating to the same customer contract are offset against each other and presented on a net basis in the consolidated financial statements.
 
Significant judgements

The Company often enters into contracts with its customers that include promises to transfer multiple products and services to the customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately rather than together may require significant judgement.
 
Judgement is also required to determine the standalone selling price for each distinct performance obligation. In instances where the standalone selling price is not directly observable, it is determined using information that may include market conditions and other observable inputs.
 
Customer contracts sometimes include incentive payments received for discrete benefits delivered to the customer or service level agreements that could result in credits or refunds to the customer. 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.
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)

(g) Leases

At the inception of a contract, the Company assesses whether the contract is, or contains, a lease. The Company’s assessment is based on whether: (1) the contract involves the use of a distinct identified asset, (2) 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) 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 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 the 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 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.

The carrying value of ROU assets is reviewed for impairment, similar to long-lived assets, whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable.
 
The Company has elected to not separate lease and non-lease components for all of its leases and to use the recognition exemptions for lease contracts that, at commencement date, have a lease term of 12 months or less and do not contain a purchase option (“short-term leases”). 
 
Significant judgements
 
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 ten years. The Company applies judgement 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.
13


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 remaining lease term and the rates prevailing in the jurisdictions where leases were executed.

(h) Cost of revenue

Cost of revenue primarily consists of salaries and benefits (including stock-based compensation), recruitment, training and related costs of employees who are directly responsible for the performance of services for customers, their supervisors and certain support personnel who may be dedicated to a particular client or a set of processes. It also includes operational expenses, which consist of facilities maintenance expenses, travel and living expenses, rent, IT expenses, and consulting and certain other expenses. Consulting charges represent the cost of consultants and contract resources with specialized skills who are directly responsible for the performance of services for clients and travel and other billable costs related to the Company’s clients. It also includes depreciation of property, plant and equipment, and amortization of intangible and ROU assets which are directly related to providing services that generate revenue.
 
(i) Selling, general and administrative expenses
 
Selling, general and administrative (“SG&A”) expenses consist of expenses relating to salaries and benefits (including stock-based compensation) as well as costs related to recruitment, training and retention of senior management and other support personnel in enabling functions such as human resources, finance, legal, marketing, sales and sales support, and other support personnel. The operational costs component of SG&A expenses also includes travel and living costs for such personnel. SG&A expenses also include acquisition-related costs, legal and professional fees (which represent the costs of third party legal, tax, accounting and other advisors), investment in research and development, digital technology, advanced automation and robotics, and an allowance for credit losses. It also includes depreciation of property, plant and equipment, and amortization of intangibles and ROU assets other than those included in cost of revenue.
 
(j) Credit losses

An allowance for credit losses is recognized for all debt instruments other than those held at fair value through profit or loss. The Company pools its accounts receivable (other than deferred billings) based on similar risk characteristics in estimating expected credit losses. Credit losses for accounts receivable are based on the roll-rate method, and the Company recognizes a loss allowance based on lifetime expected credit losses at each reporting date. The Company has established a provision matrix based on historical credit loss experience, adjusted for forward-looking factors and the economic environment. The Company believes the most relevant forward-looking factors are economic environment, gross domestic product, inflation rates and unemployment rates for each of the countries in which the Company or its customers operate, and accordingly the Company adjusts historical loss rates based on expected changes in these factors. At every reporting date, observed historical default rates are updated to reflect changes in the Company’s forward-looking estimates.

Credit losses for other financial assets and deferred billings are based on the discounted cash flow (“DCF”) method. Under the DCF method, the allowance for credit losses reflects the difference between the contractual cash flows due in accordance with the contract and the present value of the cash flows expected to be collected. The expected cash flows are discounted at the effective interest rate of the financial asset. Such allowances are based on the credit losses expected to arise over the life of the asset which includes consideration of prepayments based on the Company’s expectation as of the balance sheet date.

A financial asset is written off when it is deemed uncollectible and there is no reasonable expectation of recovering the contractual cash flows. Expected recoveries of amounts previously written off, not to exceed the aggregate amounts previously written off, are included in determining the allowance at each reporting period.

Credit losses are presented as a credit loss expense within “Selling, general and administrative expenses.” Subsequent recoveries of amounts previously written off are credited against the same line item.

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)

(k) 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.

(l) Impairment of long-lived assets

Long-lived assets, including certain intangible assets, to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Such assets are required to be tested for impairment if the carrying amount of the assets is higher than the future undiscounted net cash flows expected to be generated by the assets. The impairment amount to be recognized is measured as the amount by which the carrying value of the assets exceeds their fair value. The Company determines fair value by using a discounted cash flow approach.

(m) 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 following recently released accounting standard has not yet been adopted by the Company:

In November 2021, the FASB issued ASU No. 2021-10, “Government Assistance.” This ASU improves financial reporting by requiring disclosures that increase the transparency of transactions with governments. The ASU is effective for the Company for annual periods, beginning December 15, 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.

3. Business acquisitions

(a) Hoodoo Digital, LLC

On December 31, 2021, the Company acquired 100% of the outstanding equity/limited liability company interests in Hoodoo Digital, LLC, a Utah limited liability company, for total purchase consideration of $66,722. This amount represents cash consideration of $64,439, net of cash acquired of $2,283. The total purchase consideration paid by the Company to the sellers on the closing date was $67,695, resulting in a recoverable of $973 as of March 31, 2022. The Company is evaluating adjustments related to certain income and other taxes, which, when determined, may result in the recognition of additional assets or liabilities as of the acquisition date. The measurement period will not exceed one year from the acquisition date. This acquisition furthers the Company's strategy to fuse experience and process innovation to help clients drive end-to-end digital transformation. Hoodoo Digital’s expertise with Adobe Experience Manager and other Adobe applications expands the Company's existing capabilities to provide clients with an end-to-end solution that integrates digital content, e-commerce, data analytics, and marketing operations.

In connection with this acquisition, the Company recorded $16,200 in customer-related intangibles and $2,400 in marketing-related intangibles which have a weighted average amortization period of five years. Goodwill arising from the acquisition amounting to $44,346 has been allocated using a relative fair value allocation method to each of the Company’s reporting segments as follows: to the Banking, Capital Markets and Insurance ("BCMI") segment in the amount of $4,179, to the Consumer Goods, Retail, Life Sciences and Healthcare ("CGRLH") segment in the amount of $7,053 and to the High Tech, Manufacturing and Services ("HMS") segment in the amount of $33,114.

Goodwill arising from this acquisition is deductible for income tax purposes. The goodwill represents primarily the acquired capabilities and other benefits expected to result from combining the acquired operations with the Company’s existing operations.
15


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)

Acquisition-related costs of $1,177 have been included in selling, general and administrative expenses as incurred. In connection with the acquisition, the Company also acquired certain assets with a value of $5,629 and assumed certain liabilities amounting to $1,852. The agreement with the sellers provides a full indemnity to the Company for all pre-closing income and non-income tax liabilities up to a maximum of the purchase consideration, including interest and penalties thereon. The Company would not be financially or materially affected by any liabilities that may arise from such exposures.

Accordingly, the Company recognized an indemnification asset of $278 based on the information that was available at the date of the acquisition, which is included in the assets taken over by the Company. 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) Enquero Inc

On December 31, 2020, the Company acquired 100% of the outstanding equity interests in Enquero Inc, a California corporation, and certain affiliated entities in India, the Netherlands and Canada (collectively referred to as “Enquero”) for total purchase consideration of $148,797. This amount represents cash consideration of $137,166, net of cash acquired of $11,631. The total purchase consideration paid by the Company to the sellers on the closing date was $141,938. No portion of the purchase consideration is outstanding as of March 31, 2022. This acquisition increased the scale and depth of the Company’s data and analytics capabilities and enhanced the Company’s ability to accelerate the digital transformation journeys of its clients through cloud technologies and advanced data analytics.

In connection with this acquisition, the Company recorded $49,000 in customer-related intangibles, $9,500 in marketing-related intangibles and $1,400 in technology-related intangibles, which have a weighted average amortization period of four years. Goodwill arising from the acquisition amounting to $87,874 has been allocated using a relative fair value allocation method to each of the Company’s reporting segments as follows: to the BCMI segment in the amount of $2,594, to the CGRLH segment in the amount of $22,548 and to the HMS segment in the amount of $62,732. The goodwill arising from this acquisition is not deductible for income tax purposes. The goodwill represents primarily the acquired capabilities and other benefits expected to result from combining the acquired operations with the Company’s existing operations.

Acquisition-related costs of $1,590 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 $32,879, assumed certain liabilities amounting to $17,232 and recognized a net deferred tax liability of $14,343. The agreement with the sellers provides a full indemnity to the Company for all pre-closing income and non-income tax liabilities up to a maximum of the purchase consideration, including interest and penalties thereon. The Company would not be financially or materially affected by any liabilities that may arise from such exposures.

Accordingly, the Company recognized an indemnification asset of $5,968 based on the information that was available at the date of the acquisition, which is included in the assets taken over by the Company. 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) SomethingDigital.Com LLC

On October 5, 2020, the Company acquired 100% of the outstanding equity/limited liability company interests in SomethingDigital.Com LLC, a New York limited liability company, for total purchase consideration of $57,451. This amount represents cash consideration of $56,073, net of cash acquired of $1,378. The total purchase consideration paid by the Company to the sellers on the closing date was $57,704, resulting in a recoverable of $253. No portion of the purchase consideration is outstanding as of March 31, 2022.


16


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)

This acquisition supported the Company’s strategy to integrate experience and process innovation to help clients on their digital transformation journeys and expanded on the Company’s existing experience capabilities to support end-to-end digital commerce solutions, both business-to-business and business-to-consumer. Additionally, this acquisition expanded the Company’s capabilities into Magento Commerce, which powers Adobe Commerce Cloud, and Shopify Plus, a cloud-based e-commerce platform for high volume merchants.

In connection with this acquisition, the Company recorded $11,900 in customer-related intangibles and $3,500 in marketing-related intangibles which have a weighted average amortization period of four years. Goodwill arising from the acquisition amounting to $36,926 has been allocated using a relative fair value allocation method to two of the Company’s reporting segments as follows: to the CGRLH segment in the amount of $30,373 and to the HMS segment in the amount of $6,553. Of the total goodwill arising from this acquisition, $35,084 is deductible for income tax purposes.

The goodwill represents primarily the acquired capabilities and other benefits expected to result from combining the acquired operations with those of the Company’s existing operations.

Acquisition-related costs of $1,060 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 $9,538, assumed certain liabilities amounting to $4,494 and recognized a net deferred tax asset of $81. 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) Rightpoint Consulting, LLC

On November 12, 2019, the Company acquired 100% of the outstanding equity/limited liability company interests in Rightpoint Consulting, LLC, an Illinois limited liability company, and certain affiliated entities in the United States and India (collectively referred to as “Rightpoint”) for total purchase consideration of $270,669. This amount includes cash consideration of $268,170, net of cash acquired of $2,499. The total purchase consideration paid by the Company to the sellers on the closing date was $248,470, resulting in a payable of $22,199. $5,406 of the total purchase consideration remains payable as of March 31, 2022. This acquisition expanded the Company’s capabilities in improving customer experience.

The securities purchase agreement between the Company and the selling equity holders of Rightpoint provided certain of the selling equity holders the option to elect to either (a) receive 100% consideration in cash at the closing date for their limited liability company interests and vested options or (b) “roll over” and retain 25% of their Rightpoint limited liability company interests and vested options for a three-year rollover period and receive cash consideration at closing for the remaining 75% of their Rightpoint limited liability company interests and vested options. Certain selling equity holders elected to receive deferred, variable earn-out consideration with an estimated value of $21,500 over the rollover period of three years.

The amount of deferred earn-out consideration ultimately payable by the Company to the selling equity holders of Rightpoint will be based on the future revenue multiple of the acquired business. Additionally, under the purchase agreement the selling equity holders are obligated to sell their rollover interests to the Company. Accordingly, the Company has obtained control over 100% of the outstanding equity/limited liability company interests of Rightpoint as of November 12, 2019. See Note 5, “Fair value measurements,” for additional details.

In connection with this acquisition, the Company recorded $46,000 in customer-related intangibles and $29,000 in marketing-related intangibles which have a weighted average amortization period of five years. Goodwill arising from the acquisition amounting to $177,181 has been allocated using a relative fair value allocation method to each of the Company’s reporting segments as follows: to the BCMI segment in the amount of $16,983, to the CGRLH segment in the amount of $42,993 and to the HMS segment in the amount of $117,205. Of the total goodwill arising from this acquisition, $91,929 is deductible for income tax purposes. The goodwill represents primarily the acquired capabilities and other benefits expected to result from combining the acquired operations with those of the Company.

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 (Continued)

Acquisition-related costs of $7,385 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 $39,140, assumed certain liabilities amounting to $22,295 and recognized a net deferred tax liability of $1,643. 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.

4. Accounts receivable, net of allowance for credit losses

The following table provides details of the Company’s allowance for credit losses on accounts receivable:
 
Year ended December 31, 2021 Three months ended March 31, 2022
Opening balance as of January 1$27,707 $24,329 
Additions due to acquisitions  
Additions charged/reversal released to cost and expense910 (24)
Deductions/effect of exchange rate fluctuations(4,288)(2,367)
Closing balance$24,329 $21,938 
 
Accounts receivable were $912,071 and $993,299, and allowances for credit losses were $24,329 and $21,938, resulting in net accounts receivable balances of $887,742 and $971,361 as of December 31, 2021 and March 31, 2022, respectively.

In addition, deferred billings were $48,071 and $48,613 and allowances for credit losses on deferred billings were $3,711 and $3,272, resulting in net deferred billings balances of $44,360 and $45,341 as of December 31, 2021 and March 31, 2022, respectively.

During the three months ended March 31, 2021 and 2022 the Company recorded a release of $541 and $439, respectively, to cost and expense on account of credit losses on deferred billings. Deferred billings, net of related allowances for credit losses, are included under “other assets” in the Company's consolidated balance sheet as of December 31, 2021 and March 31, 2022.
18


GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)

5. 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, 2021 and March 31, 2022: 

As of December 31, 2021
Fair Value Measurements at Reporting Date Using
Quoted Prices in
Active Markets for
Identical Assets
Significant 
Other Observable 
Inputs
Significant 
Other Unobservable
Inputs
Total(Level 1)(Level 2)(Level 3)
Assets
Derivative instruments (Note a, c)$34,070 $ $34,070 $ 
Deferred compensation plan assets (Note a, e)38,584   38,584 
Total$72,654 $ $34,070 $38,584 
Liabilities
Earn-out consideration (Note b, d)$5,406 $ $ $5,406 
Derivative instruments (Note b, c)15,254  15,254  
Deferred compensation plan liability (Note b, f)38,007   38,007 
Total$58,667 $ $15,254 $43,413 

As of March 31, 2022
Fair Value Measurements at Reporting Date Using
Quoted Prices in
Active Markets for
Identical Assets
Significant 
Other Observable 
Inputs
Significant 
Other Unobservable
Inputs
Total(Level 1)(Level 2)(Level 3)
Assets
Derivative instruments (Note a, c)$31,857 $ $31,857 $ 
Deferred compensation plan assets (Note a, e)43,320   43,320 
Total$75,177 $ $31,857 $43,320 
Liabilities
Earn-out consideration (Note b, d)$5,406 $ $ $5,406 
Derivative instruments (Note b, c)13,189  13,189  
Deferred compensation plan liability (Note b, f)42,554   42,554 
Total$61,149 $ $13,189 $47,960 
 

(a)Derivative assets are included in “prepaid expenses and other current assets” and “other assets.” Deferred compensation plan assets are included in “other assets” in the consolidated balance sheets.

(b)Included in “accrued expenses and other current liabilities” and “other liabilities” in the consolidated balance sheets.
19


GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)

5. Fair value measurements (Continued)

(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.

(e)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 the underlying assets included in the insurance portfolio and are therefore classified within level 3 of the fair value hierarchy.

(f)The fair value of the deferred compensation plan liability is derived based on the fair value of the underlying assets in the insurance policies and is therefore classified within level 3 of the fair value hierarchy.

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 months ended March 31, 2021 and 2022:
 
Three months ended March 31,
20212022
Opening balance$8,272 $5,406 
Closing balance$8,272 $5,406 


The 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 months ended March 31, 2021 and 2022:
 
Three months ended March 31,
20212022
Opening balance$26,832 $38,584 
Additions (net of redemption)5,014 7,088 
Change in fair value of deferred compensation plan assets (Note a)861 (2,352)
Closing balance$32,707 $43,320 

(a)Changes in the fair value of plan assets are reported in “other income (expense), net” in the consolidated statements of income.
20


GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)

5. 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 months ended March 31, 2021 and 2022:

Three months ended March 31,
20212022
Opening balance$26,390 $38,007 
Additions (net of redemption)5,014 6,913 
Change in fair value of deferred compensation plan liabilities (Note a)803 (2,366)
Closing balance$32,207 $42,554 

(a)Changes in the fair value of deferred compensation plan liabilities are reported in “selling, general and administrative expenses” in the consolidated statements of income.

6. 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 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, non-deliverable forward foreign exchange contracts, treasury rate locks 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 45 months and the forecasted transactions are expected to occur during the same period.

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, 2021As of March 31, 2022As of December 31, 2021As of March 31, 2022
Foreign exchange forward contracts denominated in:
United States Dollars (sell) Indian Rupees (buy)$1,348,600 $1,498,700 $26,247 $17,014 
United States Dollars (sell) Mexican Peso (buy)23,750 20,500 140 1,022 
United States Dollars (sell) Philippines Peso (buy)75,600 73,200 (2,215)(2,744)
Euro (sell) United States Dollars (buy)120,994 123,884 2,634 3,368 
Singapore Dollars (buy) United States Dollars (sell)3,655 3,655 65 48 
Euro (sell) Romanian Leu (buy)47,506 45,214 (233)(79)
Japanese Yen (sell) Chinese Renminbi (buy)10,440 7,400 202 656 
United States Dollars (sell) Chinese Renminbi (buy)45,000 33,750 120 492 
Pound Sterling (sell) United States Dollars (buy)49,031 40,738 545 1,285 
United States Dollars (sell) Hungarian Font (buy)39,000 33,500 (2,174)(1,484)
Hungarian Font (Sell) Euro (buy)2,828 2,791 (17)67 
Australian Dollars (sell) Indian Rupees (buy)97,053 87,736 1,234 (1,969)
Interest rate swaps (floating to fixed)460,135 453,163 (7,732)992 
$18,816 $18,668 

21


GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)

6. Derivative financial instruments (Continued)

(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. Notional amounts are denominated in U.S. dollars.

(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, interest rate swaps and treasury rate locks 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 and treasury rate locks 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.

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 hedgesNon-designated
As of December 31, 2021As of March 31, 2022As of December 31, 2021As of March 31, 2022
Assets
Prepaid expenses and other current assets$16,064 $17,022 $3,130 $867 
Other assets$14,876 $13,968 $ $ 
Liabilities
Accrued expenses and other current liabilities$11,408 $9,105 $1,090 $2,606 
Other liabilities$2,756 $1,478 $ $ 
 
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.

The Company executed a treasury rate lock agreement for $350,000 in connection with future interest payments to be made on its senior notes issued by Genpact Luxembourg S.à r.l. (“Genpact Luxembourg”) and Genpact USA, Inc. (“Genpact USA”), both wholly-owned subsidiaries of the Company, in March 2021 (the “2021 Senior Notes”), and the treasury rate lock was designated as a cash flow hedge. The treasury rate lock agreement was terminated on March 23, 2021 and a deferred gain was recorded in accumulated other comprehensive income and is being amortized to interest expense over the life of the 2021 Senior Notes. The remaining gain to be amortized related to the treasury rate lock agreement as of March 31, 2022 was $652.
22


GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)

6. Derivative financial instruments (Continued)

In connection with cash flow hedges, the gains (losses) recorded as a component of other comprehensive income (loss) (“OCI”), and the related tax effects are summarized below: 

Three months ended March 31,
20212022
Before 
tax
Amount
Tax 
(Expense)
 or Benefit
Net of 
tax
Amount
Before 
tax
Amount
Tax 
(Expense)
or Benefit
Net of 
tax
Amount
Opening balance$(10,921)$1,861 $(9,060)$17,468 $(3,404)$14,064 
Net gains (losses) reclassified into statement of
income on completion of hedged transactions
2,074 (466)1,608 648 (151)497 
Changes in fair value of effective portion of
outstanding derivatives, net
4,922 (1,233)3,689 4,239 (869)3,370 
Gain (loss) on cash flow hedging derivatives, net 2,848 (767)2,081 3,591 (718)2,873 
Closing balance$(8,073)$1,094 $(6,979)$21,059 $(4,122)