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Derivative financial instruments | 9 Months Ended
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Sep. 30, 2021
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative financial instruments | 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 39 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, 2020 |  | As of September 30, 2021 |  | As of December 31, 2020 |  | As of September 30, 2021
Foreign exchange forward contracts denominated in: |  |  |  |  |  |  |
United States Dollars (sell) Indian Rupees (buy) | $ | 1,150,000 |  |  | $ | 1,022,500 |  |  | $ | 15,207 |  |  | $ | 13,564 |
United States Dollars (sell) Mexican Peso (buy) | 17,500 |  |  | 13,000 |  |  | 716 |  |  | (130) |
United States Dollars (sell) Philippines Peso (buy) | 67,200 |  |  | 96,750 |  |  | 1,332 |  |  | (3,078) |
Euro (sell) United States Dollars (buy) | 96,651 |  |  | 73,954 |  |  | (5,659) |  |  | 963 |
Singapore Dollars (buy) United States Dollars (sell) | 10,153 |  |  | 10,153 |  |  | 66 |  |  | (237) |
Euro (sell) Romanian Leu (buy) | 29,489 |  |  | 27,833 |  |  | (22) |  |  | (104) |
Japanese Yen (sell) Chinese Renminbi (buy) | 19,230 |  |  | 4,431 |  |  | 473 |  |  | 603 |
United States Dollars (sell) Hungarian Font (buy) | 30,000 |  |  | 21,900 |  |  | 904 |  |  | (722) |
Hungarian Font (Sell) Euro (buy) | 10,444 |  |  | 9,857 |  |  | 61 |  |  | (93) |
Australian Dollars (sell) Indian Rupees (buy) | 140,525 |  |  | 80,685 |  |  | (7,670) |  |  | 546 |
Pound Sterling (sell) United States Dollar (buy) | — |  |  | 24,955 |  | — |  |  | 766 |
Interest rate swaps (floating to fixed) | 488,022 |  |  | 467,107 |  |  | (18,680) |  |  | (11,975) |
|  |  |  |  | $ | (13,272) |  |  | $ | 103 |
7. 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 hedges |  | Non-designated
|  | As of December 31, 2020 |  | As of September 30, 2021 |  | As of December 31, 2020 |  | As of September 30, 2021
Assets |  |  |  |  |  |  |  |
Prepaid expenses and other current assets |  | $ | 16,188 |  |  | $ | 11,700 |  |  | $ | 5,357 |  |  | $ | 1,200 |
Other assets |  | $ | 6,164 |  |  | $ | 10,031 |  |  | $ | — |  |  | $ | — |
Liabilities |  |  |  |  |  |  |  |
Accrued expenses and other current liabilities |  | $ | 16,387 |  |  | $ | 13,332 |  |  | $ | 3,785 |  |  | $ | 1,982 |
Other liabilities |  | $ | 16,886 |  |  | $ | 7,474 |  |  | $ | 3,923 |  |  | $ | 40 |
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 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 lock was designated as a cash flow hedge. The treasury 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 lock agreement as of September 30, 2021 was $733. 7. 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 September 30, |
| 2020 |  | 2021 |
| Before tax Amount |  | Tax (Expense) or Benefit* |  | Net of tax Amount |  | Before tax Amount |  | Tax (Expense) or Benefit* |  | Net of tax Amount |
Opening balance | $ | (54,335) |  |  | $ | 9,994 |  |  | $ | (44,341) |  |  | $ | (7,883) |  |  | $ | 1,355 |  |  | $ | (6,528) |  |
Net gains (losses) reclassified into statement of income on completion of hedged transactions | (3,996) |  |  | 1,029 |  |  | (2,967) |  |  | 2,443 |  |  | (526) |  |  | 1,917 |  |
Changes in fair value of effective portion of outstanding derivatives, net | 20,550 |  |  | (3,661) |  |  | 16,889 |  |  | 11,984 |  |  | (2,278) |  |  | 9,706 |  |
Gain/(loss) on cash flow hedging derivatives, net | 24,546 |  |  | (4,690) |  |  | 19,856 |  |  | 9,541 |  |  | (1,752) |  |  | 7,789 |  |
Closing balance | $ | (29,789) |  |  | $ | 5,304 |  |  | $ | (24,485) |  |  | $ | 1,658 |  |  | $ | (397) |  |  | $ | 1,261 |  |
|  | Nine months ended September 30,
|  | 2020 |  | 2021
|  | Before tax Amount |  | Tax (Expense) or Benefit* |  | Net of tax Amount |  | Before tax Amount |  | Tax (Expense) or Benefit* |  | Net of tax Amount
Opening balance |  | $ | (4,126) |  |  | $ | (1,466) |  |  | $ | (5,592) |  |  | $ | (10,921) |  |  | $ | 1,861 |  |  | $ | (9,060) |
Net gains (losses) reclassified into statement of income on completion of hedged transactions |  | (4,909) |  |  | 722 |  |  | (4,187) |  |  | 6,361 |  |  | (1,463) |  |  | 4,898 |
Changes in fair value of effective portion of outstanding derivatives, net |  | (30,572) |  |  | 7,492 |  |  | (23,080) |  |  | 18,940 |  |  | (3,721) |  |  | 15,219 |
Gain/(loss) on cash flow hedging derivatives, net |  | (25,663) |  |  | 6,770 |  |  | (18,893) |  |  | 12,579 |  |  | (2,258) |  |  | 10,321 |
Closing balance |  | $ | (29,789) |  |  | $ | 5,304 |  |  | $ | (24,485) |  |  | $ | 1,658 |  |  | $ | (397) |  |  | $ | 1,261 |
*The tax (expense) benefit includes the effect of novating certain hedging instruments as part of an intercompany transfer. The gains or losses recognized in other comprehensive income (loss) and their effects on financial performance are summarized below:
Derivatives in Cash Flow Hedging Relationships | Amount of Gain (Loss) recognized in OCI on Derivatives (Effective Portion) |  | Location of Gain (Loss) reclassified from OCI into Statement of Income (Effective Portion) | Amount of Gain (Loss) reclassified from OCI into Statement of Income (Effective Portion)
Three months ended September 30, |  | Nine months ended September 30, |  | Three months ended September 30, |  | Nine months ended September 30,
2020 |  | 2021 |  | 2020 |  | 2021 |  | 2020 |  | 2021 |  | 2020 |  | 2021
Forward foreign exchange contracts | $ | 20,518 |  |  | $ | 12,175 |  |  | $ | (10,609) |  |  | $ | 17,457 |  |  | Revenue | $ | 62 |  |  | $ | 416 |  |  | $ | 3,973 |  |  | $ | 515 |
Interest rate swaps | 32 |  |  | (191) |  |  | (19,963) |  |  | 667 |  |  | Cost of revenue | (1,571) |  |  | 3,160 |  |  | (4,833) |  |  | 9,288 |
Treasury rate lock | — |  |  | — |  |  | — |  |  | 816 |  |  | Selling, general and administrative expenses | (440) |  |  | 849 |  |  | (1,310) |  |  | 2,513 |
|  |  |  |  |  |  |  |  | Interest expense | (2,047) |  |  | (1,982) |  |  | (2,739) |  |  | (5,955) |
| $ | 20,550 |  |  | $ | 11,984 |  |  | $ | (30,572) |  |  | $ | 18,940 |  |  |  | $ | (3,996) |  |  | $ | 2,443 |  |  | $ | (4,909) |  |  | $ | 6,361 |
There were no gains (losses) recognized in income on the ineffective portion of derivatives and excluded from effectiveness testing for the three and nine months ended September 30, 2020 and 2021, respectively. 7. Derivative financial instruments(Continued) Non-designated Hedges
|  |  |  | Amount of Gain (Loss) recognized in Statement of Income on Derivatives
|  |  |  | Three months ended September 30, |  | Nine months ended September 30,
Derivatives not designated as hedging instruments |  | Location of Gain (Loss) recognized in Statement of Income on Derivatives |  | 2020 |  | 2021 |  | 2020 |  | 2021
Forward foreign exchange contracts (Note a) |  | Foreign exchange gains (losses), net |  | $ | 7,136 |  |  | $ | 3,938 |  |  | $ | (6,698) |  |  | $ | 8,775 |
Forward foreign exchange contracts (Note b) |  | Foreign exchange gains (losses), net |  | — |  |  | — |  |  | 3,963 |  |  | — |
|  |  |  | $ | 7,136 |  |  | $ | 3,938 |  |  | $ | (2,735) |  |  | $ | 8,775 |
(a)These forward foreign exchange contracts were entered into to hedge fluctuations in foreign exchange rates for recognized balance sheet items such as receivables and intercompany borrowings, and were not originally designated as hedges under FASB guidance on derivatives and hedging. Realized gains (losses) and changes in the fair value of these derivatives are recorded in foreign exchange gains (losses), net in the consolidated statements of income. (b)These forward foreign exchange contracts were initially designated as cash flow hedges under ASC guidance on derivatives and hedging. These contracts were terminated because certain forecasted transactions were no longer expected to occur and therefore hedge accounting was no longer applied. Subsequently the realized gains (losses) are recorded in foreign exchange gains (losses) net in the consolidated statements of income. In connection with the COVID-19 pandemic, the Company has reevaluated its hedging arrangements. The Company has considered the effect of changes, if any, in both counterparty credit risk and the Company’s own non-performance risk while assessing hedge effectiveness and measuring hedge ineffectiveness. The Company believes that its hedges continue to be effective after taking into account the expected impact of the COVID-19 pandemic on the Company’s hedged transactions.

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 + Details
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